Heather Humphreys (Cavan-Monaghan, Fine Gael) | Oireachtas source

I am very pleased to introduce this Bill. My speech is being circulated along with an information pack of supplementary documents that I am also making available to Senators.The primary objective of the Bill is the regulation of the profession of statutory auditor and the conduct of statutory audits. It was broadly welcomed by Members in the Dáil and some useful changes were made. By way of background, in the aftermath of the financial crisis the European Commission examined how the audit function could be further enhanced to contribute to financial stability. The outcome was the adoption in 2014 of new rules in the form of an EU directive and an accompanying EU regulation. The directive builds on the 2006 audit directive and introduces significant reforms to the regulation and oversight of statutory auditors. The EU regulation adds stricter rules for the conduct of audits of entities that are referred to as public interest entities. These are entities such as banks, insurers and entities listed on regulated markets in the EU. The essential elements of the EU rules were introduced into Irish law in June 2016 by way of Sl 312 of 2016. This meant that the necessary implementing measures were in place when the EU regulation took direct effect at that time.

A large part of the Bill has been in operation for almost two years. That said, the EU laws of 2014 presented a number of options. The Government sees some of these options as desirable to further enhance the rules for statutory audit and the oversight framework. It was not possible to give effect to them in a statutory instrument, as they are not necessitated, consequential nor essential to the transposition of the EU rules. Therefore, this Bill will replace the current statutory instrument, elevate its provisions to primary legislation, implement some of the options in the EU rules that could not be implemented in secondary legislation and introduce some new measures that will enhance the system of public oversight. As well as giving effect to EU rules on audit, the Bill introduces some changes in the rules governing the filing of annual returns. The Bill also removes the outdated term "public auditor" from elsewhere in the Statute Book and replaces it with "statutory auditor". As the Bill is lengthy, I propose to deal with related sections together, highlighting anything new or significant.

When it comes to public oversight of auditors, there are five specific tasks: the approval and public registration of people and firms to act as auditors; the adoption of auditing standards; the continuing education of auditors; quality assurance inspections of audit firms and auditors; and a system of investigations and discipline. Since 2016, and as a result of the new EU laws, IAASA is designated as the single competent authority with the ultimate responsibility for public oversight of audit. This means that IAASA has the responsibility for the oversight of all five tasks. The Bill retains the designation of IAASA in this regard. However, the recognised accountancy bodies have an acknowledged expertise and experience in the area of audit oversight built up over many years. Prior to 2016, they were competent authorities in our system of public oversight. Their contribution to the development of the audit profession has been, and will continue to be, important. Therefore, the Bill takes an option in the EU directive to allocate the everyday management of some of the five tasks to the recognised accountancy bodies. The recognised accountancy bodies will continue to conduct the approvals of all statutory auditors and oversee their continuing education. They also have responsibility for quality assurance inspections and investigations and discipline with respect to audits of businesses that are not public interest entities.

IAASA is responsible for performing quality assurance inspections of audits of public interest entities. Moreover, any investigations that arise from those inspections must be done by IAASA and any resulting disciplinary action is also a matter for the authority. With respect to the adoption of auditing standards, this is a matter for the authority. This model is intended to support good co-operation and ensure effective enforcement. The recognised accountancy bodies perform their tasks as a condition of being recognised and under the supervision of IAASA. Therefore, alongside provisions on the objects, governance, functions, funding and powers of the authority are sections covering the recognition of the accountancy bodies and the grounds for that recognition. An essential element of recognition is that the body carries out oversight tasks in respect of its own members to the satisfaction of IAASA. Accordingly, the Bill provides powers for the authority to direct or intervene in how the tasks are performed.

Section 28 enables IAASA to remove a task from a body on a case by case basis. Section 30 provides the mechanisms where a body is unable to perform an oversight task and allows another body to take that task over. Section 32 extends the authority's existing powers to undertake certain inquiries to include an inquiry into how a recognised accountancy body performs the tasks. Section 33 provides for new settlement procedures which are designed to avoid the need for lengthy legal proceedings in cases where both parties agree. These changes in the oversight system are designed to ensure lAASA has the appropriate powers to reflect its ultimate responsibility. They are also intended to give flexibility so that the recognised accountancy bodies and the authority can work together in a streamlined and efficient manner.

Sections 34 to 39 set out IAASA's investigation and sanctioning powers with respect to auditors. This Part also makes some amendments to those powers with respect to other members of accountancy bodies that are not approved statutory auditors. Section 35 provides for administrative sanctions. It includes rules on the application and publication of those sanctions and on appeals and reporting of breaches. Again, there are new proceedings here for settlement by agreement, this time directly with auditors. These are not required by the directive but are considered important tools to avoid lengthy and unnecessary legal proceedings. The maximum fine is €100,000 for an individual statutory auditor or per statutory auditor in the case of a firm, which could result in a fine of up to €5 million if a firm has 50 auditors. These fines are increased from those in the 2016 statutory instrument. This section also includes additional administrative sanctions not contained in the directive to better align IAASA’s powers with the sanctions the recognised accountancy bodies may apply to their members.

The Office of the Director of Corporate Enforcement, ODCE, is the competent authority with respect to directors of companies who have contributed to breaches of audit rules by statutory auditors. The Bill provides sanctioning and investigation powers for the director that are similar to those of lAASA. Sanctions imposed by the authority and the director are subject to court approval to ensure fair procedures. The remaining sections are technical, mainly relating to operational matters such as exchange of information, avoidance of conflicts of interest and delegation arrangements within the authority.

Section 51 inserts the new Part 27 into the Companies Act 2014. This Part contains 124 sections and is arranged in 22 Chapters. It sets out in detail the rules governing how statutory audits must be carried out, the standards that auditors must meet and how IAASA and the accountancy bodies supervise those audits and auditors. It provides for IAASA to add to any international auditing standards adopted by the EU and to allow for a proportionate approach to small undertakings. There are also provisions for the additional report that an auditor must prepare in the case of a client that is a public interest entity. These enable the authority to add to the requirements of the report and state that the report must be given to the directors. Regulators such as the Central Bank and the Revenue Commissioners may also request a copy. The obligations on public interest entities under this Part include the requirement to have an audit committee. Some of the significant new requirements for public interest entities such as auditor rotation and the cap on non-audit services are provided for directly by the EU regulation. However, the question of how frequently an auditor must be changed was left to member states to determine.In line with the 2016 recommendation of the Joint Committee of Inquiry into the Banking Crisis, it was decided the appropriate period for Ireland was ten years. Measures in Part 27 also include requirements that IAASA and the bodies have quality assurance inspection regimes in place, provisions for the investigation and disciplinary procedures of the accountancy bodies, the rules for the public register of auditors that is kept by the Registrar of Companies, the process for aptitude tests for auditors and audit offences, and the procedures for investigating and sanctioning auditors. Measures on third country auditors are also contained in this Part.

Sections 53 to 72 make amendments to a number of legislative Acts to replace the term "public auditor" with "statutory auditor". The requirements of the audits to be carried out under these Acts will not change. This brings me to the end of this substantial legislation. While it is a technical Bill, at its heart are important issues of public policy and I look forward to hearing the views of Senators. I commend the Bill to the House.