Seanad debates

Thursday, 12 July 2018

Companies (Statutory Audits) Bill 2017: Second Stage

 

10:30 am

Photo of Pádraig Mac LochlainnPádraig Mac Lochlainn (Sinn Fein) | Oireachtas source

I am happy to welcome the Bill to the House today. I welcome that the Government addressed some of the initial problems with the Bill in the Dáil. My colleague, Deputy Quinlivan, tabled two amendments which sought to remove the changes the Minister wanted to introduce to the audit exemption for SMEs and the proposed change from the District Court to the High Court. Although the measures the Minister proposed to introduce sought to tackle businesses that repeatedly filed late, the measures would have had an impact on some SMEs and accountants who had genuine reasons for filing late. I am glad the Minister withdrew her amendments after listening to Opposition concerns.

This is important legislation, and I will address the general scheme of the Bill now. The Bill stems from European-wide reform of auditing practices that were introduced in response to the financial crisis that crippled Europe and bankrupted this country almost a decade ago. The key aims of these reforms will place new obligations on statutory auditors designed to enhance their independence and support the quality of their audits, place new and more stringent obligations on companies known as public interest entities, and designate the Irish Auditing and Accounting Supervisory Authority as the competent authority with ultimate responsibility for the oversight of statutory auditors.

Although the financial crisis was severe across Europe, it was catastrophic here, primarily due to the mismanagement of our finances by previous Governments. The Bill is a brick in the legislative wall needed to prevent the wild west economics that we saw under their watch. I welcome the Bill being brought before the Houses with the intention of strengthening auditing practices in line with our European colleagues. Audits are incredibly important tools for determining whether an organisation is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. This information is critical for investors, creditors and shareholders of undertakings, and it is crucial that this information is accurate and reliable.

Reform and changes are needed, as a number of deficiencies were identified in audit practices in the aftermath of the financial crisis. The collapse of Anglo Irish Bank and the nationalisation of other Irish banks are clear and expensive reminders of how old auditing rules failed in financial institutions here. Problems were also identified in this area on a pan-Europe basis. An excessive familiarity between the management of a company and its audit firm was identified as risking conflicts of interests and identified as posing a threat to the independence of statutory auditors and to their ability to exert thorough professional scepticism. A lack of choice of audit firms due to the dominance of certain global players was also identified as a concern.

Sinn Féin will support the Bill, despite the EU audit package reforms being diluted down as it progressed through the European legislative process. Saying that, these reforms aim to have more oversight and higher standards for the auditing process, which is welcome. The majority of changes under these reforms will affect public interest entities. These include companies such as banks, insurers and companies that are listed on the main market. The Bill will introduce the option of the State having the ability to designate an undertaking as a public interest entity if the undertaking is of significant public relevance due to its size, business or number of employees. It also seeks to strengthen the audit committee for public interest entities. These committees are established to provide a link between the board of a company and its auditors, serving as an intermediary to maintain a level of separation and independence between a client and its auditors.

Another change is the ability of an auditor to provide other services, such as tax, bookkeeping, payroll, valuation and management services to the client company. By restricting the other services an auditor can provide to a client company, conflicts of interest are reduced. I note that Ireland is to avail of an exemption in regard to certain tax and valuation services. As I alluded to earlier, if previous Governments focused on such measures when they were in power, the total economic collapse of our country could have been avoided.

One question I have about the Bill is the effect Brexit will have on it. The EU audit package was developed only a few years ago, but that was at a time when it was assumed Britain would be in the EU for the foreseeable future. We now know this is not the case. Many audit firms here have major operations in Britain and also work on an all-Ireland basis. Does the Minister have any assurance that Britain will maintain these new standards that are to be introduced after it leaves the EU to ensure undertakings find it easier to implement changes and to maintain a harmonisation of high standards?

I hope this legislation will prevent a repeat of the failures in this area that compounded the financial crisis and resulted in a decade of hardship for the citizens of this country.

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