I will continue from where I finished. Section 7 implements an option in the European Union, EU, directive that was not previously exercised. It provides that the Irish Auditing and Accounting Supervisory Authority, IAASA, may add to the contents of the audit report. This will give IAASA the flexibility to ensure that Irish audit report requirements are kept up to date and in line with international best practice into the future.
Sections 9 and 10 are not related to the EU audit requirements but together introduce an important and urgent amendment to the current law on filing a company's annual return. The changes in the Bill effectively reinstate the rules that were in place prior to the 2014 Act but now in the District Court. This is because the number of orders granted under the current law is undermining advancements made in timely filing of annual returns. This is an important transparency measure and safeguard for third parties such as suppliers and other creditors who rely on the information supplied by annual returns.
Sections 16 to 45 are concerned with the functions and powers of, and the interactions between, the bodies charged with the various aspects of audit oversight. This is an appropriate point to speak about the nature of audit oversight and how it is arranged under the Bill. Public oversight of auditors encompasses five specific tasks. These are the approval and public registration of people and firms to act as statutory 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. Until June 2016, the oversight system was arranged with a number of competent authorities. The main examples were the Irish Auditing and Accounting Supervisory Authority, known as IAASA, and the six recognised accountancy bodies. With the introduction of the new EU laws, there has been a move to a structure with just one competent authority that is to have the ultimate responsibility for public oversight of audit. The Bill retains the designation of IAASA in this regard, which was introduced in the 2016 statutory instrument. This gives IAASA the responsibility for the oversight of all five tasks.
I welcome this change. It is clearer and reduces the possibility for gaps or conflicts. However, the recognised accountancy bodies have an acknowledged expertise and experience in the area of audit oversight. This has been built up over many years. They have made an important contribution to the development of audit as a profession and consequently it is right that we recognise that fact and secure their involvement into the future. For these reasons, the Bill takes an option in the EU directive and sets out the everyday management of some of the five tasks to be carried out by the recognised accountancy bodies. The model in the Bill follows from the one put in place in 2016 and introduces some new features to further support good co-operation and ensure effective enforcement. The recognised accountancy bodies 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.
When it comes to the audits of public interest entities, IAASA is charged under the EU regulation with performing quality assurance inspections of those audits. Moreover, any investigations that arise from those inspections must be done by IAASA and any resulting disciplinary action is also a matter for IAASA. IAASA is also responsible for the adoption of auditing standards. 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 IAASA are sections covering the recognition of the accountancy bodies and the grounds for that recognition. A key part of recognition is that the body carries out oversight tasks on its own members to the satisfaction of IAASA. Accordingly, the Bill provides powers for IAASA to direct or intervene in how the tasks are performed.
Section 28 enables IAASA to take a task back 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 over that task. Section 32 extends IAASA'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 that IAASA has the appropriate capability to match the fact that it has ultimate responsibility. They are also intended to give flexibility, so that the recognised accountancy bodies and IAASA can work together to provide a streamlined and efficient service.
Sections 34 to 39 set out IAASA's investigation and sanctioning powers with respect to auditors. They also make some amendments to those powers with respect to other members of accountancy bodies that are not approved statutory auditors. Section 35 is detailed and provides for administrative sanctions. It includes rules on the application and publication of those sanctions and on appeals and reporting of breaches. Similar to earlier provisions, there are also 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. In the interests of fair procedures, these sanctions are subject to court approval unless they are agreed as part of the settlement process. The fines are increased from those in the 2016 statutory instrument. This section also includes additional administrative sanctions not contained in the directive in order to better align IAASA's powers with the sanctions the recognised accountancy bodies may apply to their members.
When it comes to directors of companies who have contributed to breaches of audit rules by a statutory auditor, the Director of Corporate Enforcement is the competent authority. The Bill provides sanctioning and investigation powers for the director that are similar to those of IAASA. The remaining sections here are technical, mainly relating to operational matters, such as exchange of information, avoidance of conflicts of interest and delegation arrangements within IAASA.
Section 51 inserts the new Part 27 into the Companies Act 2014. This Part contains 124 sections and is arranged in 21 chapters. In summary, this Part 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. With respect to the conduct of audits, this Part provides for IAASA to add to international auditing standards and to allow for a proportionate approach to small undertakings. There are also provisions on the additional report that an auditor must prepare in the case of a client that is a public interest entity. These provisions enable IAASA to add to the requirements of the report and state that the report must be given to the directors and they may submit it to regulators such as the Central Bank and the Revenue Commissioners. There are also obligations on public interest entities, for example, the requirement to have an audit committee. Some of the more high profile requirements of public interest entities, such as audit rotation and the cap on non-audit services, are provided for directly by the EU regulation.
The question of the mandatory period for the rotation of its statutory auditor by a public interest entity was considered thoroughly in the context of determining the approach taken in SI 312 of 2016 and it was decided that the appropriate period for Ireland was ten years. Members may recall that this is in line with the recommendation of the report of the Joint Committee of Inquiry into the Banking Crisis published in January 2016. An exceptional extension to this period of up to two years is permitted, subject to an application to and determination by IAASA.
The provisions in Part 27 include requirements that both IAASA and the bodies have quality assurance inspection regimes in place. They also provide 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 and the process for aptitude tests. Audit offences and the procedures for investigating and sanctioning auditors are also included. Measures on third country auditors are contained in this Part.
Finally, sections 53 to 72 make amendments to a number of legislative Acts to replace the term "public auditor" with "statutory auditor". This does not change the requirements of the audits to be carried out under these legislative Acts.
This brings me to the end of this substantial legislative measure. A small number of amendments are under consideration which I plan to bring forward on Committee Stage. Deputies may have other proposals for amendment and I look forward to debating those in due course. I commend the Bill to the House.