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Seanad Éireann debate -
Wednesday, 28 May 2003

Vol. 173 No. 5

Companies (Auditing and Accounting) Bill 2003: Committee Stage.

SECTION 1.
Question proposed: "That section 1 stand part of the Bill."

I am not sure whether I should make this point on section 1. Why was this sweeping and complex legislation not subjected to regulatory impact assessment, of which I was not aware until recently? The OECD report on regulation, published in March 2000, strongly recommended that all Irish legislation and regulations should be subjected to regulatory impact assessment before being enacted. That conclusion, with which I and I am sure everyone else agrees, was endorsed by the Department of the Taoiseach this time last year when the Taoiseach and the Tánaiste declared they would publish a consultation paper on better regulation. If we want to remain a competitive economy which will attract industry and be good for business, we should ensure we do not take steps to hinder this. I understand the reason the Taoiseach and the Tánaiste said something should be done about it. If the Bill had been subjected to regulatory impact assessment, the costs, problems and complications involved, to which we have not given enough attention, would have come to light. It would not have been necessary for me and at least 25 others who made submissions to the Minister to table amendments in an attempt to mitigate some of the difficulties. I hope the Minister of State can tell me the reason this was not done as it appears to have been identified as Government policy. Will consideration be given to carrying out a regulatory impact assessment in accordance with Government policy? Will he consider delaying further progress of the Bill until that is done? I hope I have raised this point under the relevant section.

In my 16 years here I have not seen a Bill break new ground in terms of early consultation like this one. I would welcome an assurance from other Members of the House who have experience of this in both this and the other House. This Bill was published in draft form. The heads of the Bill were published and circulated to every group with an interest in it. It has been on the website of the Department of Enterprise, Trade and Employment for more than seven or eight months against the advice of the Department of Justice, Equality and Law Reform and the will of many members of the Government. Prior to that, every regulatory authority in the country was asked for its views on the issues involved before drafting began and both during and after drafting. It was done on the basis of European regulations. This may not allay the fears of Senator Quinn but it is the first time I have seen the draft heads of a Bill made available prior to the deliberations of the Cabinet. It was an example of openness and transparency which I have not seen in any Department in my 16 years as a Member of this House.

Senator O'Toole has explained what has happened in recent months. The Bill was drafted on foot of the report of the review group on auditing, a substantial tome. More correspondence has been received from different sectors of industry, including accountancy bodies, individual accountants, directors, associations and the company law review group. This will be considered while we are discussing the Bill and we will listen to the points made by Senators on different sections. We will then bring it through the other House and any changes made following the views expressed will be brought back before this House. It will be given considerable consideration before being finalised.

I do not want the Minister of State or Senator O'Toole to think I was suggesting that a lot of work had not been put into the Bill. I accept that Senator O'Toole has put a huge amount of work into it. However, last year the Taoiseach launched a consultation paper on better regulation and said all laws in the future should be subjected to a regulatory impact analysis. That criticism was levelled at us in 2000 by the OECD. The Government and the Taoiseach responded by saying that in future we would have a regulatory impact analysis. This is the most definitive regulatory Bill we have had since. The OECD criticised us because there was a danger that Ireland would become over-regulated. It seemed logical that when the State heard this criticism, it decided to do something about it by having a regulatory impact analysis in the future. However, that has not happened.

The Minister of State and Senator O'Toole have said the Bill has been on the Department's website and people have had an opportunity to express their views. However, that is the case with most Bills. I am sure Senator O'Toole is correct that this process is longer and more open but we have always had the chance to make submissions. Some 25 submissions have been made on this Bill in recent weeks because we did not do a regulatory impact analysis. If we want our nation to compete with other countries, we cannot place ourselves at a disadvantage.

I made an error when I spoke on Second Stage by assuming that all the large international companies in this country would have to set up an Irish company and that this Bill would apply to them. I was incorrect. Many of the large international companies which operate in Ireland do not set up a separate Irish company. The Bill does not apply to many of those large companies. This means it will apply only to an established Irish company competing with a foreign company in Ireland, not to a foreign based company. There are large costs involved.

This will make it attractive for companies to move their head offices to the North, Scotland or elsewhere to avoid the regulations being introduced here. While the legislation will have serious costs implications for Irish registered companies, it will not apply to non-Irish registered companies. A regulatory impact assessment has not been conducted of the legislation which will act against the interests of Irish-based companies which compete with companies based abroad.

I welcome the Minister of State and wish the Bill well. I appeal to Members to expedite it as quickly as possible. All the professions affected by the legislation made a submission earlier to the Joint Oireachtas Committee on Enterprise and Small Business. Senator O'Toole is like the 16th member of the Government and has played an important role. He is president of the ICTU and an excellent public official. He was involved in the preparation of the report of the review group, which led to this legislation.

Companies generating a turnover less than €315,000 should not be audited. The threshold should be increased to €4.5 million. I hope the Minister of State will address this anomaly as companies will be put at a disadvantage as against companies in the North and Europe. It is unusual that both the Minister of State and Senator O'Toole have had an input into the legislation. I would like to hear their views on this issue.

The US Securities and Exchange Commission is the leading financial regulator and authority in the world. I stated on Second Stage that what was happening in Ireland was also happening in the United States, Canada, Australia, Europe and the United Kingdom. The SEC is a God-like body in this field, to which every American and foreign firm is beholden. Yesterday it held a public meeting, which is unusual. A report on the meeting stated:

In a move that gives investors more information, the U.S. Securities and Exchange Commission voted 5 to 0 in a public meeting for chief executives to disclose their conclusions about the effectiveness of their companies' internal controls and procedures for reliable financial reporting . While the new rule holds corporate executives' feet to the fire, it also forces the accounting firm that audited the company's financial statements to attest to the adequacy of the internal controls.

I do not want to hear a Member say over the next three hours that we are doing something that has not been done elsewhere.

I met representatives of the auditing standards board in the United Kingdom last week. They are framing legislation very much along this line and the same is happening in Europe. It is misleading to state we are introducing regulations that will raise the bar for Irish companies and put them at a competitive disadvantage with foreign direct investors. That is not the case and I have plenty of evidence to prove this. The American Congress has issued directives on the surveying of the Act and the SEC has taken a decision in the past 24 hours. The commission will make many more decisions like it in the next period. That is where we are going.

I will bow to Senator O'Toole's knowledge and experience. However, he is incorrect in regard to one issue. In all other countries these regulations apply to companies quoted on the Stock Exchange in which the public can invest. They provide protection for investors. However, this is the first time these stipulations will have been placed on private companies, whatever their size. I will address this in a later amendment. There is a significant difference between a family business or a private company and a public company in which outsiders invest. Perhaps Senator O'Toole has information that I do not posses but I am not aware of such regulations being applied to private companies anywhere. The Senator, therefore, is incorrect to state the bar is not being raised higher for Irish companies.

Question put and agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."

When is it intended to enact the Bill? Will the entire Bill come into force at the same time?

The Bill's enactment will be staggered. The Minister will commence various sections on different days, as required. The board must be established. The entire Bill will not be enacted on the same day.

When will the audit requirements take effect?

The Bill must be passed first which is not likely to happen until the autumn session.

I appreciate that. Is it intended to enact the legislation within a matter of months rather than years?

Question put and agreed to.
Sections 3 and 4 agreed to.
NEW SECTION.

I move amendment No. 1:

In page 7, before section 5, to insert the following new section:

5.–(1) Subject to subsection (2), unless a person is a qualified person, he shall not:

(a) describe himself as an accountant, or

(b) so hold himself out so as to indicate, or be reasonably understood to indicate, that he is an accountant.

(2) Subsection (1) shall not prevent any person who is:–

(a) a turf accountant, or

(b) a legal cost accountant, or

(c) within a category of persons prescribed by regulations made by the Minister,

describing himself as, or holding himself out to be, as the case may be, a turf accountant, a legal cost accountant, or within the relevant category of prescribed persons.

(3) In this section ‘qualified person' means a person who is:

(a) a member of a prescribed accountancy body who is entitled, by the constitution or bye-laws of that prescribed accountancy body, to call himself an accountant,

(b) qualified in accordance with section 187 of the Companies Act 1990 to be an auditor of a company or a public auditor of an industrial and provident society or a friendly society,

(c) within a category of persons prescribed by regulations made by the Supervisory Authority as being entitled to use the name accountant, or

(d) otherwise certified by the Supervisory Authority as being a suitable person to use the name accountant.”.

I welcome the Minister of State. I recognise the valuable work done by the review group on auditing, ably chaired by our colleague, Senator O'Toole. I hope the Minister of State will approach this debate in a spirit of giving. I delayed addressing the issue raised earlier until we reached my amendment. This issue is of paramount importance as, given his background, the Minister of State will appreciate. The public must be properly protected by ensuring all persons acting as accountants fall under the scope of a supervisory authority, as intended by the review group.

The review group acknowledged that business and consumers would benefit from being able to distinguish between those professionally qualified and those who were not. It did not recommend that the term "accountant" be defined due to legal complexity and costs associated with enforcement. However, these arguments are not of such magnitude that they override the public interest. The ability of persons to act as accountants outside the new regulatory framework is a matter of concern, as it will mislead the public and create an unfair advantage for those persons who are not members of professional bodies. These persons will not be subject to supervision and will, therefore, be in a position to provide services for the public without the need to comply with appropriate standards, including ethics.

I am surprised this issue is not addressed in the legislation. There is little point in establishing this new supervisory mechanism if it provides both an incentive and a capacity to operate outside it. Confidence will only be restored in the profession and financial services by ensuring everybody operates on a level playing field. This is an essential development from the consumer's perspective. The consumer should be entitled to know that when he or she walks into a so-called accountant's office, the person is what he or she says. The Bill will lose a key part of its effectiveness if it is not amended to provide recognition for the title "accountant".

An opportunity to improve protection for the consumers of accountancy services will be lost if this issue is not addressed. That is the reason I strongly urge the Minister of State to accept the amendment. Anyone can call himself or herself an accountant. We know there is no restriction. We went through this argument before when I referred to it on Second Stage. It is an issue that needs to be addressed. I tabled the amendment in that spirit.

I fully support the views of Senator Coghlan on this issue, on which the audit review group spent some considerable time. The consumer would be protected if we could protect the term "accountant". I am concerned that I could put up a plate outside my office saying, "Joe O'Toole, Accountant" without being attached to any body or subject to any regulation. When I tried to do something about this issue, I failed to find a form of language acceptable to the lawyers. I would be very happy to support Senator Coghlan's great idea. It would be brilliant if we could do it. The title "solicitor" is protected by legislation. That word seems more open to double entendre than the title “accountant”. If it was possible in that case, it should be possible in this case. While I have not been able to do it, I support the proposal of Senator Coghlan, if it is possible to accept it legally.

It would not be possible for the Minister of State to accept the amendment at this stage and I would not recommend him to do so. A Bill is in preparation which will provide for the registration of architects, quantity surveyors and other professions. There are constitutional issues affecting such legislation. Although I did not discuss this with the Minister of State and did not get advice from the Department, I have read the draft of that Bill and there is no control over the word "architect". Anybody can legally call himself or herself an architect, an engineer or a quantity surveyor. The Department of the Environment and Local Government is preparing the legislation.

I recognise that Senator Coghlan has good intentions and is moving in the right direction but on the wrong Bill. Accepting the amendment could delay the Bill considerably. We generally know what chartered accountants are and what their qualifications are. However, this is a separate issue. Amending the Bill could leave it open to constitutional challenge. Even though they do not have the written qualifications, there are people practising with a number of years' experience who might be as good as any chartered accountant. The amendment is not practical. Although it is possible the Minister of State will have a different view, this is an issue for another day.

I do not agree with Senator Leyden; this is a critical point in the Bill. As it is about regulating accountants, if we do not define the term "accountant", at the very least the Bill can be evaded simply by erecting a plaque declaring a person to be an accountant without being a member of one of the prescribed bodies in the Bill. There are several ways to do this. The most difficult, as others have mentioned, is to describe the job of an accountant and define it in a way that can be inserted into the Bill. It is not necessary to go down that road. It can be described by either academic or post-academic qualifications.

The easiest and most sensible approach is to prescribe that only members of particular organisations can call themselves accountants. There are many other powers in the Bill that allow the Minister to make regulations that govern the way in which those bodies work. If the Bill stated a person must be a member of one of six organisations governed by regulation in order to be called an accountant, this would catch everybody affected by it. That is what the Minister of State should do.

I understood the point made by Senator O'Toole who has been actively involved in this. It is not appropriate to have a Bill called the Companies (Auditing and Accounting) Bill without defining the term "accountant". When Senator Coghlan said a turf accountant could be regarded as an accountant, I realised the intricacies of this. Some 40 years ago the State determined an establishment could not be called a hotel without meeting certain stipulations. In the 1960s there were people operating as chemists, even though they had no qualifications. Senator McDowell is correct in saying it would be wrong to pass this Bill without establishing safeguards against such vague legislation.

The purpose of the Bill is to give power to Irish Auditing and Accounting Supervisory Authority to supervise the regulatory functions of the recognised accountancy bodies as well as other prescribed accountancy bodies. It provides for the supervision of the area of auditing and auditors. Having spent too many years studying to become an accountant, I was often upset about people without such qualifications sticking up the name "accountant" and perhaps taking business away from me.

The effect of Senator Coghlan's amendment would be to give statutory protection to the term "accountant". This was considered in some detail in the audit review group report which forms the basis for the Bill and of which paragraph 11.4 sets out the arguments for and against protecting the title by statute. The review group concluded that, on balance, there was no compelling case in favour of recommending statutory protection for the title at the time. It went on to recommend that the matter be kept under review and that the supervisory authority should make recommendations, if appropriate, to the Minister in the light of such a review.

Arising from submissions received from a number of accountancy bodies late last year, I sought the views of the interim board of the Irish Auditing and Accounting Supervisory Authority which was of the opinion that it would be premature to re-examine the question of statutory protection for the title "accountant". However, it stated that when the new supervisory regime had been fully introduced and its effects measured, this could be revisited. It must be revisited. This will happen if I have anything to do with it when that body is established. I will be unable to accept the amendment.

While I am glad to hear some of those comments, with respect, this matter should be at the root of the Bill. Every day in this House we preach and argue about the rights of and protecting the consumer. How can we establish a new regulatory body, which I fully support, as do Members on both sides of the House, to deal with the supervision of the members of the bodies concerned when the Bill does nothing to protect consumers from unqualified people? The amendment offers a very simple solution by providing that only those who are members of the bodies in question can call themselves accountants, which is very reasonable.

I agree with the thrust of the Minister of State's remarks in saying he wants to revisit the issue. I would prefer to deal with it now and believe that is the way the Minister of State's heart is inclined. With respect, this is the way his head should also go. I must press this important matter.

Unlike Senator O'Toole and not having been a member of the audit review group, I still do not understand the cogent argument against simply requiring a person to be a member of one of the groups in order to be called an accountant. Can the Minister of State indicate the number calling themselves accountants who are not qualified in what we consider to be the normal way? I know of some myself and it is fairly commonplace. It would be helpful if the Minister of State indicated the number of accountants, or people we understand to be accountants, who are members of this group and the numbers operating outside the group.

The real difficulty is that if we go through an investigation or disciplinary process, with all the standards in this Bill being imposed, if someone falls foul of that process he or she can simply opt out of the prescribed body and continue to operate. The situation is different for solicitors or medical practitioners; if they fall foul of ethics, the rules of the profession or the law, they are effectively debarred from practising. That will not happen if the elaborate disciplinary procedure in the Bill is transgressed, as people can simply opt out and continue to practise as if nothing had happened. That is entirely unsatisfactory.

I am convinced that this matter must be addressed and, given what is happening, a definition will have to be found. This was discussed by the review group, though that group is primarily aimed at the auditing profession. There are legal questions regarding the definition of an accountant.

Senator McDowell asked why people cannot become members of various bodies but they would have to go through examinations and so on to do so and some of them would not want that. Can one deprive a person of the living they have earned for 20 or 30 years?

How commonplace is this?

I am committed to ensuring this area is re-examined in the immediate future.

How commonplace is it?

It is not excessively common.

Question, "That the new section be there inserted," put and declared lost.
Section 5 agreed to.
SECTION 6.

Amendments Nos. 2 to 6, inclusive, and Nos. 8 to 10, inclusive, are related. Amendments Nos. 23 and 25 are also related to amendment No. 3. These amendments may be discussed together by agreement. Is that agreed? Agreed.

I move amendment No. 2:

In page 8, subsection (2), line 8, to delete paragraph (e) and substitute the following new paragraph:

"(e) the Institute of Directors;”.

The authority is very heavily weighted in favour of the public sector and non-business members. With the exception of the two IBEC nominations, there is no place here for company directors, despite the fact that sections 26, 40 and 43 will have a very important impact on companies and their directors.

There are better solutions but my solution removes the Pensions Board, since its remit will be well covered by the Irish Association of Investment Managers and the Irish Stock Exchange. I also propose to remove the Revenue Commissioners and the Director of Corporate Enforcement, as both bodies have extensive powers of initiative and enforcement. They do not need to be involved in any further level of oversight in this area. In their place I propose membership and places for the Institute of Directors, though the IMI may be better, for Forfás, for the Small Firms Association and for ISME. The intention is that experienced company directors, executive and non-executive, be nominated by these boards. The Government amendment increases the number of accountant places, though two of those places should be filled by accountants who are not involved in audit practice but who are either executive finance directors or non-executive directors.

I move this amendment out of concern that this Bill will have serious implications for boards. It will make it very difficult for some boards to operate with the same degree of attention to ensuring their businesses survive. I therefore do not want to see a lack of balance among board members in the authority. I am not sure if my proposals are accurate or ideal but there are concerns about this and the Minister of State should accept the principle of my argument, even if he has difficulties with some of my suggestions.

On a point of clarification, section 6 sets out the membership of the company, because this is a company limited by guarantee. There are a dozen or so bodies, mostly commercial bodies or State bodies, which are members of the company.

The other section we are dealing with sets out the membership of the board. Is it the Minister of State's intention that the two be coterminous – that bodies such as the Central Bank, the Revenue Commissioners and so on, which are members of the company, should also be represented on the board? As far as I can see that is not explicitly stated here.

On a separate point, the Minister of State is correctly proposing that the new independent regulator should be represented as a member of the company. It is right that this should be the case but I urge him to ensure that it is the consumer element of the IFSRA which is represented. Individual consumers, as opposed to corporate consumers, are not specifically or directly members of the board or represented as members of the company, when that should be the case.

To understand my opposition to amendment No. 2 it is necessary for me to explain the more substantive changes I am introducing through the amendments being discussed as part of this grouping.

The combined effect of amendments Nos. 6, 8, 9 and 10 is to increase the total number of directors of the Irish Auditing and Accounting Supervisory Authority from 12 to 14. The two additional directors will be nominated by the accountancy bodies and the Law Society of Ireland. It will also raise the maximum permitted number of accountants in the supervisory authority from two to four and it requires designated bodies, as set out in section 6(2), to consult with each other when any one of them wishes to nominate an accountant for appointment to the board of the authority.

Amendment No. 3 to paragraph (f) arises from the recent establishment of the Irish Financial Services Regulatory Authority on a statutory basis and is therefore purely technical in nature. Amendments Nos. 23 and 25 also derive from this. The addition of the Law Society of Ireland to the list of designated bodies which are entitled to nominate a director to the supervisory authority, through amendment No. 6, is an acknowledgement of the contribution their nominee would be likely to make, in particular to ensuring disciplinary procedures operate in a fair and equitable manner.

Regarding Senator Quinn's suggestion about directors being put on the board, sub-committees will be set up and the supervisory authority will be allowed to bring in any number of accountants, directors and people of whatever expertise is deemed necessary for any exercise. There will accordingly be an opportunity to bring in expertise for particular occasions.

I understand the Minister of State's comments and I know his intentions are correct, but I must not have made my case or else it has been misunderstood. Senator McDowell talked about consumers and a very high portion of consumers are board members, yet board members are likely only to be represented by the two IBEC nominees. If this is to be driven by users of the system, surely board members who will be seriously affected by it should be guaranteed not only two places when so many State organisations do not have to show a bottom line to survive. We do not hear too often of State companies going out of business but we hear of commercial companies going out of business. We are establishing a statutory body to influence and to have a say, but we are not allowing consumers any more than two token places and perhaps membership if invited on to some sub-committee. I am concerned about this imbalance.

Maybe the names I picked, the Institution of Directors, ISME or Forfás, are not the correct ones. Although consumers are to be board members, we do not seem to be allocating them anything other than a token two seats.

While I understand the amendments tabled by Senator Quinn to add nominees from the Institute of Directors, Forfás, the Small Firms Association or the Irish Small and Medium Enterprises Association as designated bodies entitled to nominate directors to the supervisory authority in substitution for certain bodies set out in the Bill, I confirm to the Senator that arising from representations from various interested parties, I have already given consideration to these. I see such bodies as having the potential to contribute more to the authority's functions in relation to the review of accounts. As a result of amendment No. 24, which we will discuss later, the authority will be able to call upon any requisite external expertise in respect of that facet of its work. In addition, subsection (1) allows the Minister to prescribe additional bodies by regulation. Equally, the Minister can, under section 46, provide that a designated body ceases to be so designated. A Minister can make changes.

For the reasons I have already given in relation to the composition of the board, Senator Coghlan will understand that I am not prepared to accept his amendment No. 7 which would increase the accountancy representation beyond that which I have proposed.

Amendment No. 7 has been ruled out of order.

I am genuinely confused about the relationship between sections 6 and 11. Section 6 sets out the eight designated bodies and then there is a catch-all which refers to the prescribed bodies which are basically the accountancy bodies. Section 11 sets out the composition of the board, which is two persons nominated jointly by agreement by the prescribed accountancy bodies, two persons nominated by the Minister and one each nominated by the designated bodies, which is a reference back to section 6 or to the eight bodies set out in that section. That, on the face of it, appears to add up to 12.

Section 6 sets out the membership of the board.

It sets out the membership of the company.

Section 11 sets out the membership of the board. The membership of the board includes a representative of each of the designated bodies referred to in section 6, of which there are currently eight, plus the prescribed bodies which are the accountancy profession representatives. It totals eight plus two nominated by the Minister and two nominated by the prescribed bodies.

Yes. Two are nominated by the accountancy bodies, two by the Minister and eight by the nominating bodies and a chief executive officer. We are increasing it.

Is the Minister of State increasing it by one?

We are increasing it by two, that is, the designated bodies by one, which is the Law Society of Ireland, and the accountancy bodies by one.

I wish to reiterate the earlier point I made. The consumer protection element of the Irish Financial Services Regulatory Authority, IFRSA, should be represented on the board. While it is right to say that most clients of accountancy are likely to be corporate bodies and represented by one of the designated bodies in section 6, there are also individuals who might require separate representation. The consumer element of the IFRSA, which was recently established by the Houses of the Oireachtas, should be represented on the board as opposed to the Central Bank element which is already separately represented as far as I can tell. I hope that makes sense and is not too complicated.

Chapter 15 of the report deals with the prudential regulation. That would come under the audit of financial institutions, not under this Bill.

I do not see why it does not. If we are looking to regulate the accountancy bodies effectively and to ensure their disciplinary procedures are operated in the interests of consumers—

The Bill does not deal with consumer protection.

We are giving a specific power to the supervisory body to investigate whether a member of the public or a company was properly treated by an accountant. There is clearly a strong consumer protection element in the Bill which should be reflected on the board.

The Minister of State pointed out that a future Minister is "empowered". The members listed include the Irish Business and Employers Federation, the ICTU, the Irish Association of Investment Managers, and the Irish Stock Exchange. Those I have highlighted include the Pensions Board, the Central Bank of Ireland, the Revenue Commissioners and the Director of Corporate Enforcement. It is heavily laden with State organisations, only one of which represents directors of companies. That is unbalanced. The Minister of State said that under section 24, the supervisory authority may delegate some or all its functions and powers to a committee established. It may delegate them but it does not have to do so. When they are so biased in favour of State organisations, which do not have to make a profit to survive, it may never get around to doing that.

The Minister of State's heart is in the right place but a future Minister may not have the same approach. Can we not make this change now to ensure a better balance than at present? Of nine bodies, only one is representative of directors. The imbalance is heavily against not only the private sector, but against those who have to make a profit to survive. The Minister of State should give serious thought to this matter.

I support Senator Quinn's point. There is a bit of an imbalance, a point with which I am sure the Minister of State would sympathise. If he cannot accept the Senator's amendment, perhaps he could guarantee it will be addressed in the near future, as in the case of the earlier amendment regarding the title of accountant and the definition. It seems that not only is the Minister of State sympathetic, but that matters are under constant review.

Amendment No. 24 gives the power to the Minister to look at how matters are developing and at the need to bring in additional bodies. The Minister may do so under regulation rather than introduce legislation.

I accept that. It is reasonable to deal with this matter in that way. It would be helpful if the Minister of State recognised the underlying principle in the point being made by Senators Quinn and McDowell.

As a director of a company, I am affected by this. There should be some voice for directors, who, in many ways, are being made subject to much of the regulatory activity. I strongly support Senator McDowell in acknowledging individual consumers. Now that there are consumer protection bodies, it would be reasonable to suggest that they be included. It is not necessary to make changes in this regard at this stage, but it would be useful if the Minister of State would consider the possibility of making them in the near future. Once one sets up committees, it is quite difficult to change their personnel and their makeup. Things tend to become set in stone and it is often some years before changes are made.

Amendment No. 24 states that "the Supervisory Authority may delegate some or all of its functions and powers under sections 23 to 26”. Since the word “may” is used, there is no guarantee that delegation will happen. The authority may decide to delegate only to a committee and not to the board itself. If I am interpreting the Minister of State's point properly, he is incorrect.

Amendment No. 24 will allow directors of companies to be made members of audit review groups, which will be sub-committees of the board. If necessary, the board can bring in experts from any area to serve on these sub-committees.

I would prefer to see the Minister operating under the powers afforded to him under section 46(1) regarding the addition of people to the board.

The Minister can do that. If he decides to designate any body, that body will be able to recommend a person for the board.

Is one not still stuck with the cap of 15 members?

That can be varied under section 46, but I will have to check that for the Senator.

It is a case of moving from possibility to potentiality.

The number can be varied under section 46(1)(d).

I feel strongly that my case has not been understood. There is an imbalance in that only two of the 15 board members will be from the private sector. These are the people who depend on the survival of their companies, yet we will be loading the board representatives from State companies and people who do not have to be successful at the end of the year. I do not understand that. The Minister of State is saying that they "may" be invited to serve on a sub-committee. The imbalance is so great that I have difficulty in accepting his point.

Is the amendment being pressed?

No, but I would like the Minister of State to reconsider the position before Report Stage tomorrow.

Amendment, by leave, withdrawn.
Government amendment No. 3:
In page 8, subsection (2), line 9, to delete paragraph (f) and substitute the following new paragraph:
"(f) the Irish Financial Services Regulatory Authority;”.
Amendment agreed to.
Amendments Nos. 4 and 5 not moved.
Government amendment No. 6:
In page 8, between lines 11 and 12, to insert the following new paragraph:
"(i) the Law Society of Ireland;”
Amendment agreed to.
Question proposed: "That section 6, as amended, stand part of the Bill."

A later amendment, which we have already discussed, states that the prescribed bodies must agree among themselves who should be their representatives. If they do not do so, it would be wise to provide that the Minister will make the appointments instead. It would not surprise me if there was a failure to agree on the representatives. I am trying to be helpful.

We discussed what the Senator has suggested, but we decided to leave the decision up to the prescribed bodies.

What if they do not agree? It It seems that a default mechanism appointment is required if there is no agreement among the six bodies that exist at present.

Someone should have the power to break the logjam in that eventuality.

The bodies will just have to agree. It is as simple as that. We will not direct them.

Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."

I am not entirely clear on section 8. It gives extremely wide-ranging powers to the authority to prescribe what should be the accountancy bodies' regulatory and disciplinary procedure. I know that the Institute of Chartered Accountants, which is the largest of the accountancy bodies, has an elaborate disciplinary procedure. Does the Minister of State intend to endorse the disciplinary procedures that are already in place or will he or the bodies go to the authority with a clean sheet and set out a completely new disciplinary procedure? If so, what sort of structure does he envisage?

The statutory body will have to set up the details of regulation to which the accountancy bodies will have to comply. It is not up to the Minister. We are setting up the supervisory authority and it is up to it to go through the details.

The articles of association of the company have to be set up with the consent of the Minister. I accept that this does not give him direct power to set out what should be the disciplinary procedure. Does the Minister of State anticipate that the existing procedures will be endorsed or does he expect radical changes? Obviously, it would be useful for us to know that.

As Minister, one does not anticipate anything—

Deputy Michael Ahern is the Minister of State. He should anticipate everything.

—and I do not either.

The reason I am making this point is that other parts of the Bill presume that the disciplinary procedures that are currently in place, including the disciplinary committee and the appeal mechanism, such as it is, will continue to operate. That is why I want clarification on whether it is anticipated that these procedures will remain in place.

The functions are set out in section 9 which states:

(1) The Supervisory Authority shall do all things necessary and reasonable to further its objects.

(2) Without limiting its responsibilities under subsection (1), the functions of the Supervisory Authority are as follows:

(a) to grant recognition to bodies of accountants for the purposes of section 187 of the Act of 1990;

(b) to attach under section 192 of the Act of 1990 terms and conditions to the recognition of bodies of accountants, including terms and conditions–

(i) requiring changes to and the approval by the Supervisory Authority of their regulatory plans, and

(ii) requiring their annual reports to the Supervisory Authority on their regulatory plans to be prepared in the manner and form directed by the Supervisory Authority;

(c) to require changes to and to approve—

(i) the constitution and bye-laws of each prescribed accountancy body, including its investigation and disciplinary procedures and its standards in the area of ethics, and

(ii) any amendments to the approved constitution or bye-laws of each prescribed accountancy body, including amendments to its investigation and disciplinary procedures and to its standards in the area of ethics.

That is what the supervisory authority shall do. It shall do all things reasonable to further its objects.

It can do almost anything. It can go to any of the prescribed bodies and tear up its existing disciplinary rules or constitution or refuse to recognise it.

From a practical point of view, it is not going to do that.

I am not objecting to that. I believe it is reasonable.

I cannot see the supervisory authority going into each of the accountancy bodies with the intention of changing its regulatory systems.

That is what I wanted to know.

Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."

The question of what exactly is meant by the word, "standards" has been causing some grief to the accountancy bodies. It is used in section 9(2) (f) which lists one of the functions of the supervisory authority as “to undertake under section 24 investigations into possible breaches of the standards of a prescribed accountancy body”. It is later defined as ethics, codes of conduct and so on. This seems to encompass a corpus of possible legislation and codes.

Has the Minister in mind to be more specific about this and to put a general requirement on accountants to behave according to set standards? At the moment the Bill does not do that. It is imposing, potentially, an extremely wide onus of responsibility on accountants.

I have some experience of the disciplinary procedures of the Law Society. There are certain things solicitors are obliged to do. These range from the most basic, such as returning telephone calls from clients, to complying with various accountancy requirements. Nowhere in this Bill are such requirements set out in relation to accountants. Perhaps they should not be set out in this Bill. However, there should be at least one codified set of rules which accountants are obliged to observe and which would be referred to in the Bill, even if not set out in full.

The bones of what Senator McDowell is looking for may be in paragraph (h) which gives some of the functions of the supervisory body as “to co-operate with the recognised accountancy bodies and other interested parties in developing standards relating to the independence of auditors and to monitor the effectiveness of those standards”. It could be helpful if some sort of gloss on what is meant by standards in these circumstances were included in the definitions clause.

In section 23 there is a list of what is meant by "standards" in relation to prescribed accountancy bodies. The section lists ethics, codes of conduct and practices, independence, professional integrity and auditing and accounting standards. We will be looking at this again because concerns are being expressed by the accountancy bodies with regard to this area and submissions have been made to us.

Question put and agreed to.
Section 10 agreed to.
SECTION 11.

Amendment No. 7 cannot be moved. It has been ruled out of order as it would involve a potential charge on the Exchequer.

Is that because of the extra director?We can push this a little far at times, Sir.

Acting Chairman

The amendment is out of order.

Amendment No. 7 not moved.
Government amendment No. 8:
In page 10, subsection (1)(a), line 22, to delete “12 directors” and substitute “14 directors”.
Amendment agreed to.
Government amendment No. 9:
In page 10, subsection (2)(a), line 29, to delete “2 persons” and substitute “3 persons”.
Amendment agreed to.
Government amendment No. 10:
In page 10, lines 39 to 41, to delete subsection (3) and substitute the following new subsections:
"(3) Subject to a regulation undersection 46(1)(d),the board shall not include at any one time more than 4 directors appointed under subsection (2) who are members of prescribed accountancy bodies, and of those 4 directors–
(a) 3 may be nominees of the prescribed accountancy bodies, and
(b) one may be a nominee of a designated body.
(4) If, at any time, more than one designated body proposes to nominate a member of a prescribed accountancy body for appointment to the board, the designated bodies proposing to do so shall decide among themselves which one of them is to nominate such a member.".
Amendment agreed to.
Section 11, as amended, agreed to.
Sections 12 and 13 agreed to.
SECTION 14.
Government amendment No. 11:
In page 13, lines 41 to 43, to delete subsection (7) and substitute the following new subsection:
"(7) Before consenting to the imposition of a levy under this section, the Minister shall consult with the prescribed accountancy bodies and may consult with any other persons who, in the Minister's opinion are interested in the matter.".

The change involved here has the effect of committing the Minister to a consultation process with the prescribed accountancy bodies in relation to the imposition of the levy provided for in this section.

I commend the amendment to the House.

Amendment agreed to.
Question proposed: "That section 14, as amended, stand part of the Bill."

This section sets out the funding mechanism for the authority, 40% of which will be paid for by the State through a grant from the Department of Enterprise, Trade and Employment and the remainder apportioned by the supervisory authorities between the various prescribed bodies. I am not clear as to the distinction between that and the reserve fund. There seems to be a distinction between what one can spend the annual budget on and what one retains the reserved fund for. I am not clear about this and I ask the Minister to clarify it.

The justification given for having a reserve fund is that it may be necessary, at short notice, for the authority to go to court or to incur a substantial legal cost and that its ability to act needs to be underpinned by having a reserve fund. I do not understand why that cannot be done through the annual budget and why it is necessary to have a reserve fund specifically for that, if the reserve fund is exclusively reserved for something of that kind. Is the distinction between the two clearly defined or is it merely extra money which can be used as needs be?

Under section 15(1) (a) the supervisory authority shall, subject to any limit that the Minister may specify, establish and maintain a reserve fund to be used only for the purposes of performing its functions and exercising its powers under sections 24 and 26. Section 24 refers to the investigation of possible breaches of standards of prescribed accountancy bodies and section 26 to a review of whether accounts comply with Companies Acts.

The fund is intended to deal with those situations, if they arise. No one knows how many such situations may arise in the course of a year. That is the reason for it.

Perhaps my confusion arises out of the fact that I do not totally understand the distinction between section 23 and section 24. No doubt we will come to that in due course. Since the funding mechanism is linked to it maybe the Minister of State could help me at this stage.

As I read it, section 23 allows the supervisory authority to determine whether the appropriate procedures have been gone through or whether the procedures of a particular body are right, whereas section 24 allows the investigation of a particular case where a complaint is made specifically to the supervisory authority. The distinction between the two is not clear cut and there is not a case for a different funding mechanism.

In the normal way in which the IASA will carry out its duties, it will not actually be investigating cases, but will simply apply the rule, as it were, to ensure that the bodies are investigating cases properly. The Bill allows the authority to undertake the investigation itself in certain cases, and in such situations it would incur costs. It is unlikely that would happen very often. It is clearly stated that the IASA will not be in a position, for instance, to second-guess a properly structured and undertaken investigation. The IASA is not supposed to be there as a court of appeal. In the event of there being an objection against the way in which an accountancy body did its work, and the view was taken for example that due process was not followed, or that the proper steps were not taken, or that the case was dealt with incorrectly, then the legislation allows for the IASA in such exceptional circumstances to conduct its own investigation.

A famous or infamous case, depending on one's point of view, is currently being investigated by one of the accountancy bodies. It is an investigation into the practices of one of its own members. I refer to the Blaney case, which has being going on for a number of years. It has already cost something in the order of €2 million. The legislation is designed to avoid a situation where the IASA itself could not undertake an investigation if it needed to. If the structures work properly, it should never have to undertake an investigation itself. It was a combination of that issue and other unanticipated issues that gave rise to this area of the legislation. There is also the question of potential court challenges to the authority itself, and the need for the authority to be able to defend itself in such situations.

I take the point made by Senator O'Toole. I know what it is like to be part of an investigatory body when a case comes up and one has to go back to the sponsoring bodies to seek funding. It is proper that the authority should not have to face such a situation.

With regard to the limit that the Minister may specify, does the Minister anticipate specifying a set limit or reviewing it year by year? Authorities such as the IASA are not meant to be savings banks. They should not be taking money from people. The Minister might specify a sum of €1 million or €2 million, but how would he decide? I find Senator O'Toole's justification of the authority otherwise acceptable.

I accept the clarification by Senator O'Toole. It is sensible. I am not sure that, on the face of it, the Bill is clear in this area. Section 24 requires that there should be a public interest element in it. It also says that on its own initiative or following a complaint from just about anybody, the supervisory authority can undertake an investigation into the work of a member of an accountancy body. I accept it is not intended this should happen regularly, and that there is a requirement of public interest, but the public interest is not defined, and it is left up to the authority to decide if there is a public interest or not. In those circumstances, the distinction between section 23 and section 24 is not as clear-cut as it might be.

Senator O'Toole said the authority was not an appeals body. I accept it is not intended to be such, but in effect it is being given the paraphernalia of powers to act as an appeals body if it wishes to do so. There is a danger of which we must all be conscious, that by setting out those powers, people are encouraged to use them. People will be encouraged to use the authority as an appeals mechanism to decide issues on the facts or merits rather than on the basis of due process, which is clearly what is intended. I am not sure that those two critical sections are sufficiently tightly drawn to ensure that the distinction remains real. We are discussing this issue in the context of the funding mechanism. I am not sure that the funding mechanism should be defined in such a blunt fashion, allowing for the reserve fund to be used only in relation to section 24, and not section 23.

The funding can be used both for sections 24 and 26, not section 23.

Not section 23. The normal review of the mechanisms will be—

It will be funded out of the normal budget. Senator Maurice Hayes asked what size of fund would be considered. The fund for the equivalent UK body is over €2 million. We are considering a fund of €1 million.

And the annual budget? The same sum or a bit more?

We will have no figure until the board has been set up and a chief executive appointed.

The memo says something about the Department providing a figure such as €600,000. That was the estimate.

Yes. That is simply the sum to start it off.

Question put and agreed to.
Section 15 agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."

I always think it is a good idea to allow bodies that are set up on a statutory basis to retain any money they have left over. To provide for a clawback, saying in effect that money not spent in one year will be taken back by the Department of Finance the following year, is inviting a body to spend money it does not need to spend.

Question put and agreed to.
SECTION 17.
Government amendment No. 12:
In page 16, subsection (2), line 29, to delete "terms of conditions" and substitute "terms or conditions".

This is a purely technical amendment to correct the mistitled draft Bill as published. I commend the amendment to the House.

Amendment agreed to.

Acting Chairman

Amendments Nos. 13 and 24 are related and may be discussed together by agreement.

Government amendment No. 13:
In page 16, between lines 31 and 32, to insert the following new subsection:
"(3) The Supervisory Authority may from time to time engage the services of professional and other advisers.".

The amendment to section 17 is tabled to allow the supervisory authority to constitute the mechanism it considers most suitable to undertake reviews of accounts pursuant to section 26 in the most appropriate manner, and with a membership possessing the requisite expertise to discharge those functions. Bodies such as the Institute of Directors, the Boardroom Centre, the SFA or ISME may have a role to play in groupings constituted to undertake this work.

Amendment No. 13 simply signals that the services of professional and other advisers may be procured by the supervisory authority as it considers it appropriate. These provisions in combination should ensure that an adequate level of technical and other expertise is available to the supervisory authority. I commend these amendments to the House.

Amendment agreed to.
Section 17, as amended, agreed to.
Sections 18 to 22, inclusive, agreed to.
SECTION 23.

I move amendment No. 14:

In page 21, lines 3 and 4, to delete paragraph (a) and substitute the following paragraph:

"(a) appealing the decision of that body relating to that matter that was the subject of the enquiry to the High Court,”.

This section deals with the intervention powers of the supervisory authority. This amendment has been tabled to ensure that due process is followed in seeking to reverse the decisions of disciplinary committees. The supervisory authority will have the power to approve the regulations governing the professional bodies' disciplinary arrangements. It will also have the authority to supervise the application of these regulations. In addition, it has been granted the power to annul the decisions of the disciplinary committees. This ability ignores due process and is, I submit, a contravention of the right of the individual member. It is unfair to subject an individual to a lengthy disciplinary process, as a result of which the member is obliged to accept that something can be wiped away with a stroke of a pen.

I accept, however, that the supervisory authority has a role in this, particularly if there are reasons why it is unsatisfied with the outcome of a disciplinary procedure. I propose that rather than having the power to annul a decision of the accountancy bodies, if the supervisory authority, having reviewed the bodies' procedures, concludes that the proper procedures have not been followed, it should be empowered to appeal the decision to the High Court. This is in line with the recommendation of the auditing review group, as Senator O'Toole, who chaired it, will attest.

This is a point about which the accountancy bodies are agitated. I understand their point as I referred to it some minutes ago. We may unwittingly leave the supervisory authority open to becoming a court of appeal, which is not intended. The intention, as I understand it, is that the authority should simply review the procedures to ensure they are properly dealt with. In practice, if somebody is investigated and an investigation comes out in a particular fashion, if it is open to the supervisory authority in effect to nullify the decision of the earlier disciplinary procedure, then it becomes a court of appeal.

The amendment proposed by Senator Coghlan, which has the agreement of at least one of the accountancy bodies, is reasonable. The accountancy bodies came to the conclusion that they should be entitled to appeal to the High Court, rather than simply wiping the slate clean, and either demand that a further investigation occur or substitute their own decision. I support the amendment.

I had some difficulty in understanding what the Senator was seeking to achieve with the amendment as tabled. The substitution of the words of the amendment has no logical bearing either in the immediate context of section 23 or as regards the paragraph for which he proposed it in substitution. In the circumstances, I am unable to accept this amendment. However, having listened to the explanation which the Senator has now given, I am prepared to give further consideration to the essence of what he is seeking to achieve.

In that case, I am prepared to withdraw the amendment to allow for further consideration. I will hear the Minister tomorrow.

There are difficulties when a body is both regulatory and arbitratory, in that the body has to build Chinese walls inside its own organisation so that the same people are not engaged in the investigation as were involved in the original decision. It might be easier to proceed along the lines that Senator Coghlan has suggested.

It is a technical amendment which is possibly in the wrong place. That is being considered.

I accept that could be possible.

It would be possible to address the substance of the amendment.

On the basis that the Minister is sympathetic to the substance, I withdraw the amendment. We will hear the Minister tomorrow.

Amendment, by leave, withdrawn.

Acting Chairman

We move to amendment No. 15. Amendments Nos. 16 to 20, inclusive, are related. Amendments Nos. 15 to 20, inclusive, may be discussed together, by agreement. Is that agreed? Agreed.

Government amendment No. 15:
In page 21, subsection (6), line 37, to delete, ", before the expiry of the notice,".

In each of these amendments, the provision for an appeal to be lodged within a certain timeframe is being separated from its place in the original subsection and being constituted as a separate subsection. The objective is to make the Bill clearer as to the timeframe within which appeals have to be made to the court. I commend the amendment to the House.

Amendment agreed to.
Government amendment No. 16:
In page 21, between lines 38 and 39, to insert the following new subsection:
"(7) An appeal under subsection (6) must be brought before the expiry of the notice given under subsection (5) to the prescribed accountancy body and the member concerned.".
Amendment agreed to.
Government amendment No. 17:
In page 21, subsection (7), lines 42 to 44, to delete "may, within 3 months from the date of any decision of that body relating to the matter, appeal to the High Court against that decision" and substitute "may appeal to the High Court against any decision of the prescribed accountancy body relating to the matter".
Amendment agreed to.
Government amendment No. 18:
In page 21, between lines 44 and 45, to insert the following new subsection:
"(8) An appeal under subsection (7) must be brought within 3 months after the Supervisory Authority was notified by the prescribed accountancy body of its decision.".
Amendment agreed to.
Section 23, as amended, agreed to.
SECTION 24.
Government amendment No. 19:
In page 23, subsection (8), lines 32 and 33, to delete ", within 3 months from the date of the decision,".
Amendment agreed to.
Government amendment No. 20:
In page 23, between lines 34 and 35, to insert the following new subsection:
"(9) An appeal under subsection (8) must be brought within 3 months after the member concerned was notified by the Supervisory Authority of its decision.".
Amendment agreed to.
Question proposed: "That section 24, as amended, stand part of the Bill."

The accountancy bodies are concerned with the definition of "the public interest" and with the discretion of the supervisory authority, which seems unlimited, to determine that it should carry out an investigation in the public interest. They are anxious that some effort should be made to spell out what the phrase means or at least to include an objective test; in other words, to require that a matter should be in the public interest rather than its being the opinion of the supervisory authority that it is in the public interest.

They are also concerned that the investigatory procedures of the bodies should have been completed so that if the supervisory authority receives a complaint from a member of the public – from a client, for the sake of argument – he or she should, in the first instance, refer it to the accountancy body so that its internal disciplinary procedures or investigation should take place first. If necessary, an investigation should then be carried out by the authority but it would not, in the first instance, carry out an investigation simply because it has received a complaint and deems it to be in the public interest.

One of the problems in putting legislation together is that one can either go through the detail and prescribe as much as possible or else leave it to the authority. I agree with the clear and relevant points made by Senator McDowell. I know it to be the intention of the supervisory authority unanimously to follow the procedure outlined by Senator McDowell – in other words, it should always go to the body itself. It would be the intention that this be indicated in the protocol of activities or in regard to the work of the body.

I must take some responsibility regarding the question of the public interest as I was insistent on its inclusion. However, I could not come up with an objective test for it. The only example I could give was to say that if a matter which was not anticipated and should be investigated was raised in the Dáil or Seanad – for example, that an elephant walked into the chief executive officer's office and disturbed the auditor – and if that matter was not covered by the legislation in any objective way, there should be some subjective way of dealing with it. There is a gap in the legislation, as Senator McDowell rightly indicated.

I do not know how to define "public interest" because it changes over time. The tribunals brought up matters of public interest which were also interesting to the public, and everybody was confused as to which definition they were talking about. All Members know what we mean by "public interest", though it is like the old saying, " I couldn't describe it to you but I will know it when I see it." I accept that is not a very objective way of doing business but it is, of its nature, subjective. I do not know if we can come up with words to describe the public interest, which means it may be possible for somebody to define "public interest" as something which is not in the public interest. That is the issue which has been raised and I cannot answer it. We will have to rely on the good sense of the people sitting around the table, although I am not sure that is possible.

There is an enormous difference between the public interest and what the public is interested in. Quite a lot of what the public is interested in is not in the public interest.

While the public might be interested in the auditor's private life, it would not be in the public interest. That is what it boils down to.

I would expect that the supervisory authority would approach the accountancy bodies if there is an investigation to be carried out, and not go in immediately with a bulldozer.

Is there any reason in principle why we cannot set that out in a subsection of the Bill?

It is felt that there is no necessity to include it in the legislation.

Can the Minister at least provide that the authority would consult with the prescribed bodies even if it does not say that it will refer to their disciplinary procedures? That is not too onerous.

It is a valid point.

I can conceive of circumstances where the authority might want to—

We do not want to tie its hands in particular cases by stating that it must consult.

Why not? It would not kill the authority.

There may be circumstances where it might not be appropriate to do so.

If the authority still has the power to investigate, requiring it to consult with the bodies in the first instance is hardly that onerous. It can simply ignore what they say. I cannot see that any harm would come from telling them that the authority is intending to pursue a particular investigation.

It is our opinion that we would not put it into the Bill and that they would have to consult. If the membership of the supervisory authority will be comprised of eminent and sensible people, it will operate in a manner that will ensure co-operation between the various accountancy bodies and themselves.

The subsection allows the supervisory authority, on its own initiative or following a complaint, to start an investigation without any requirement that there should a prior investigation by the accountancy bodies. There is not even a requirement for the authority, based on what it believes is in the public interest, to speak to the accountancy bodies in the first instance. I can understand that the Minister of State would say that the supervisory authority will be comprised of good people, appointed by him, and that it will not make any decision that will trample on the interests of the accountancy bodies. On the other hand, however, the accountancy bodies would require – they are entitled to do so – some sort of solace in terms of their being consulted. If not, then they should be assured that their investigative procedures will be exhausted before the authority begins an investigation. In fairness, we should make provision for them in this regard.

I expect that the supervisory authority will act reasonably.

It does not have to act reasonably; it merely has to determine what is in the public interest and proceed from there.

It is common sense that it has to act reasonably, particularly if it wants co-operation and does not want to be stymied at every hand's turn in its work. I do not feel it is necessary to include in the Bill a stipulation that the authority will have to consult with the bodies.

In all legislation relating to ombudsmen there is a presumption that people will exhaust domestic remedies. If there was a presumption that people making a complaint should have used the normal processes of the organisations, power could then be reserved to the supervisory body. On occasion, there might be an appalling case where people recognise that there was no point in sending them back down that road. When it is necessary for the authority to act in the public interest, it should state the reasons for doing so.

If the Minister of State does not come any distance towards us on this point, I will signal my intention to put down a Report Stage amendment on this matter. The basic principle is that this is an oversight authority; that we are preserving the self-regulation of the accountancy bodies, but that this oversight body will ensure that this is done properly. This is a power of first instance, under which someone can complain to the authority and, on the face of it, totally bypass the accountancy bodies. The authority will then be in a position to investigate if it decides it is in the public interest to do so. If the basic self-regulation principle is being maintained, there should, at least, be some linkage back to the internal disciplinary procedures of the accountancy bodies. The Minister of State is correct to say that there is a need to have a power, in the first instance, to investigate in exceptional circumstances. However, there should be some linkage between the two, rather than giving blanket power to the authority to bypass the internal disciplinary procedures if it believes that is the correct route to take. The formulation used by Senator Maurice Hayes seems reasonable.

We will give consideration to the Senator's proposal.

Question put and agreed to.
Section 25 agreed to.
SECTION 26.

Acting Chairman

Amendments Nos. 21 and 22 are related and may be discussed together by agreement. Is that agreed? Agreed.

I move amendment No. 21:

In page 25, subsection (3)(b), lines 24 and 25 to delete “, or may be,”.

I suggest the deletion of the words "may be" and "may arise" in the subsections to which the amendments refer. It seems astonishing that the supervisory authority will be given power to act if it thinks there may be a problem. It is stronger than that because the term "appears" is used. A citizen, or in this case a company, is entitled to some protection against what might be no more than an opinion or a suspicious mind. Subsection (3) states that "the Supervisory Authority may give notice to the directors of a relevant undertaking concerning its annual accounts where . it appears to the Supervisory Authority that there is, or may be, a question whether the annual accounts comply with the Companies Acts." That seems logical, but the term "it appears to the Supervisory Authority that there is, or may be" is used. It is over the top, unnecessary and almost tautology to state this or stretch it way beyond where it should be.

The second amendment relates to subsection (4) (a) in which reference is made to “the matters in respect of which it appears to the Supervisory Authority that the question of compliance with the Companies Acts arises or may arise”. I hope the Minister of State understands the point I am making. It is over-the-top to use the term “appears” and then add the phrase “arises or may arise”.

The existing text offers flexibility to the supervisory authority in assessing the question of compliance of company accounts with the obligations under the Companies Act. It is my view that the Senator's amendments will unduly restrict the scope of the supervisory authority in making such amendments. Accordingly, I regret that I am unable to accept these amendments.

I am sorry the Minister of State feels that way, because I believe the terms used in the Bill are over the top. It would be different if the term "appears" was not used in the first line of both subsections. I would have thought it correct to use the term "it appears to the Supervisory Authority that there is a question of whether the annual accounts comply with the Companies Act". However, the term "or may be" is used further on. Companies and citizens are entitled to some protection against someone's opinion or the fact that a person may be suspicious by nature. The Minister of State should reconsider the position.

If it appears to the supervisory authority that something has gone wrong, then it should investigate. I hope the Minister of State will indicate that he will consider changing the position.

It might be helpful, in order to avoid the appearance of an illusion, if we were to use the term "if the Supervisory Authority forms the view that there is or may be". It is the use of the terms "appearing" and "or may be" with which Senator Quinn and several other Members find difficult to come to terms. If the authority forms a view that there is a problem with a company, it shows that it has examined the matter carefully. If it has a suspicion that there still might be a problem, that is covered by the form already used.

Senator Quinn wishes to remove the words "may be" and "may arise", but the directors will still have to be responsible for all matters of business in a company. We are ensuring that the directors will be responsible for any matters that arise. We must also ensure that the responsibility of the directors does not disappear with the deletion of those words.

My point relates to the use of the terms "it appears" that something happened or that "it appears that it may arise". I agree with Senator Maurice Hayes's suggested wording. If the authority formed the opinion that it, may arise, I would be satisfied. The current wording seems far too extreme and it raises the possibility that someone with a suspicious mind, who would not have to prove anything, could cause action to be taken by the supervisory authority against a company. In my opinion, the wording used is over the top.

The officials will review the points made by Senators Maurice Hayes and Quinn. This will not be done in time for tomorrow's Report Stage debate. However, the matter will be dealt with by the time the Bill is taken in the Dáil.

Amendment, by leave, withdrawn.
Amendment No. 22 not moved.
Government amendment No. 23:
In page 27, lines 1 to 4, to delete subsection (12) and substitute the following new subsection:
"(12) The Supervisory Authority shall consult with the Irish Financial Services Regulatory Authority before making any decisions under this section with respect to a company regulated by the latter Authority, including a decision to give notice undersubsection (3).”.
Amendment agreed to.
Section 26, as amended, agreed to.
SECTION 27.
Government amendment No. 24:
In page 27, lines 20 to 22, to delete subsection (1) and substitute the following new subsection:
"(1) The Supervisory Authority may delegate some or all of its functions and powers undersections 23 to 26 to a committee established for that purpose and constituted as follows:
(a) in the case of functions and powers under sections 23 to 25, committee consisting of directors of the Authority and such professional and other advisers as the Authority considers necessary;
(b) in the case of functions and powers under section 26, a committee constituted in the manner described in paragraph (a) of this section or consisting of only such professional and other advisers as the Authority considers necessary.”.
Amendment agreed to.
Section 27, as amended, agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."

I am not sure if I am on the right section, but perhaps the Minister of State might be of assistance. I am aware that this section requires the High Court to confirm certain payments – fines, effectively – imposed by the authority. I understand it is also the case that fines imposed by the disciplinary process of the accountancy bodies must be confirmed by the High Court. I am not sure if that is dealt with under this section. If it is not, I will come back to it.

It is dealt with under section 45.

Perhaps I could ask at this stage whether it is the view of the Minister of State – I presume this is done on legal advice – that the supervisory authority could not impose fines without confirmation by the High Court. Is that the advice that has been received?

Senator Coghlan has put down an amendment with regard to that matter. We will be dealing with it later.

The amendment in question relates to section 30.

With regard to the supervisory authority as opposed to the disciplinary procedures, is it the Minister of State's advice that it cannot impose a fine? Section 28 deals with the authority fining accountancy bodies for not keeping to its rules.

The fine has to be confirmed by the court.

Is there a reason for that?

It is the legal advice.

We are told the High Court has to do it.

It cannot be done by the authority.

The authority would be acting as a court and it would probably be unconstitutional.

I am advised that the legal advice is that the decision of the authority has to be confirmed by the court.

Question put and agreed to.
Section 29 agreed to.
SECTION 30.
Government amendment No. 25:
In page 29, subsection (3)(b), line 6, to delete paragraph (viii) and substitute the following new subparagraph:
"(viii) the Central Bank and Financial Services Authority of Ireland;".
Amendment agreed to.
Question proposed: "That section 30, as amended, stand part of the Bill."

Is it clear that the Freedom of Information Act does not apply to the supervisory authority? I presume it would have to be added to the list of bodies covered by the Freedom of Information Act 1997 and obviously it is not there yet. I seek confirmation from the Minister of State that he does not intend that it would be added.

If the Freedom of Information Act is to apply, it will be applied by the Minister for Finance.

Is it intended that it will apply?

I am advised that, as yet, a final decision has not been made on that.

While it would be reasonable for the actual operation of the authority to be subject to the FOI Act, if files dealing with individual cases were to be accessible under it this would run counter to the section and it clearly is not intended now. This is a difficult Chinese wall to define, but I thought we could try to elucidate it in some way. Individual cases, in so far as it is intended to keep them confidential, are confidential, but the actual operation of the office, as far as I understand it, is outside the FOI Act.

The FOI Act would apply to most bodies when they are set up, but in this particular case no final decision has been made as yet by the Minister for Finance.

The Senator's point is reasonable because it would be wrong, and damaging to the intent of the legislation, if people were able to acquire the commercial confidential information of a particular firm simply by using the FOI Act. As Senator McDowell said, there is a distinction to be made between the operation of the organisation and the information on which it makes its decision.

I will take note of the point the Senator made. With regard to commercial information obtained under the FOI Act, there are many exceptions and conditions which would safeguard such information. We will come back to Senator McDowell when we have further information with regard to his question.

Question put and agreed to.
Sections 31 and 32 agreed to.
SECTION 33.

Acting Chairman

Amendment No. 26 is a Government amendment. Amendments Nos. 27, 28 and 57 are cognate and the proposal is to discuss amendments Nos. 26, 27, 28 and 57 together, by agreement. Is that agreed? Agreed.

Government amendment No. 26:
In page 31, paragraph (b), line 6, to delete “adding” and substitute “inserting”.

These are technical legal drafting changes to conform to drafting norms. I commend the amendments to the House.

Amendment agreed to.
Government amendment No. 27:
In page 31, paragraph (c), line 13, to delete “adding” and substitute “inserting”.
Amendment agreed to.
Section 33, as amended, agreed to.
Section 34 agreed to.
SECTION 35.
Government amendment No. 28:
In page 33, line 8, to delete "adding" and substitute "inserting".
Amendment agreed to.
Government amendment No. 29:
In page 34, lines 24 and 25, to delete "under this section" and substitute "referred to in subsection (2)".

This is a more precise clarification of the circumstances under which an investigation can be initiated and it simply refers to the requirements of the previous subsection. I commend this technical amendment to the House.

Amendment agreed to.

I move amendment No. 30:

In page 35, to delete lines 18 to 51 and in page 36 to delete lines 1 to 13.

Section 35 deals with the statutory backing for the disciplinary arrangements of the prescribed accountancy bodies. I propose these deletions to ensure that the disciplinary procedures are efficient, not subject to undue administrative delay and that evidence can be compelled from persons other than members. This point has received little public discussion thus far, but I am aware from my research and consultations that it is critically important to the accounting bodies. They believe it undermines the new principle of supervisory self-regulation and will damage existing disciplinary procedures.

The review group recommended statutory backing for the disciplinary arrangements of the accountancy bodies to assist the bodies in processing cases and thus increase efficiency. The area of weakness in an already robust system concerned the lack of ability of the bodies to compel evidence from third parties who were not members of a professional body. Section 35(2) and (5), which introduced compellability, are, therefore, welcome.

There is a rider attached to the Bill, however – perhaps to compensate for the new powers afforded to the accountancy bodies in section 35(6) and (10) – that necessitates any monetary sanction imposed by the accountancy bodies' internal disciplinary procedures to be confirmed by the High Court. The effect of this will be to delay and undermine the internal disciplinary process which the Bill aims to support.

Many sanctions imposed by the accountancy bodies are done by way of consent, but who would now accept a consensual order when the matter, irrespective of the size of the monetary penalty involved, has to be referred to the courts? I suggest that we will see an unwillingness to have cases, however trivial, determined in this fashion. The effect will be to undermine the respective institutes' capacity to resolve even minor difficulties. The Minister will appreciate that from his own membership in the past. The courts are already busy and this measure will only serve to tie them up even further. The measure is unnecessary and counter-productive.

To be fair, the Government's concern is no doubt to ensure there can be no claim that the new statutory backing afforded by the Bill to the procedures of the accountancy bodies is similar to that of the court – hence, the perceived need to refer all decisions to the court. This is a mistaken view. Even with their enhanced powers of compellability, there are fundamental differences between the respective powers of the disciplinary procedures under discussion and those of the courts. The relationship between the accountancy bodies and their members is governed by a contractual relationship, on which any sanction which arises is based. The accountancy bodies will never impose a sanction on a non-member, for instance. Comparisons with the power of the courts are, therefore, misplaced. This means further provisions are unnecessary and will have the effect of causing additional expense, delay and administrative burden. For these reasons, it would be reasonable to make the deletions prescribed in the amendment.

We have a genuine problem in this respect. The accountancy bodies currently impose fines on errant members. I understand such fines are not high and are imposed in most cases following an internal disciplinary procedure. In many cases, these fines or monetary sanctions are imposed following a consensual procedure in which, I understand, the complaint is admitted and the fine paid. The risk in insisting that this be backed up by a court order is that one will destroy any possibility of addressing the matter in a simple, straightforward fashion.

On the one hand, there is an argument that if somebody does wrong, the courts are the appropriate forum for imposing penalties, if necessary, in the full glare of publicity. This ignores the fact that there are venial and mortal sins and that the former are best dealt with efficiently. The use of internal disciplinary procedures should not be discouraged. I suspect that the legal argument will be made that if one sets out the disciplinary procedures in statute and gives them statutory backing, one must inevitably insist that the courts back up by court order any penalty imposed, whether it be the removal of the capacity to practice or simply a small monetary fine.

The argument is about balance. If somebody is about to be effectively expelled from a professional body, such a step should be backed up by a court order. However, in the event that a €500 fine is imposed, it is hardly necessary to require the accountancy bodies to seek sanction for it in the High Court. Perhaps the most sensible way to deal with the matter would be to set a level of fine above which fines would have to be confirmed and below which, by implication, they would not have to be confirmed.

Recommendation 10.21 of the report of the review group on auditing recommended that statutory support be given to the investigation and disciplinary regimes of recognised accountancy bodies. Section 35, which inserts a new section 192A into the Companies Act 1990, is designed to achieve this. In the construction of the section the same principles were brought to bear as regards the circumstances in which a supervisory authority has to apply to the court to impose sanctions as would now apply to the prescribed accountancy bodies. I am aware that at least some of the recognised accountancy bodies have expressed reservations about this structure in much the same terms as Senators Coghlan and McDowell.

It is necessary to ascertain the broadest possible spread of views on the matter in order to be in a position to take an informed decision on it. I have asked my officials to liaise further with the accountancy bodies to elicit the information to enable me to do this. In the meantime, I am reluctant to make the change provided for by the Senator's amendment. Furthermore, the provisions of section 25(2) (c) are interrelated and any amendment to section 35 could have consequential knock-on effects which would have to be considered as an element of any decisions. In the circumstances, I am unable to accept the amendment. Senator Coghlan will note, however, that I am having the matter reviewed.

Will the Minister of State confirm that he is sympathetic to a further review and that the matter is under active consideration?

Will the review take place before the Bill is brought before the Dáil?

Amendment, by leave, withdrawn.
Section 35, as amended, agreed to.
Sections 36 to 39, inclusive, agreed to.
SECTION 40.
Government amendment No. 31:
In page 41, between lines 39 and 40 to insert the following:
"‘internal auditor' means a person who conducts an internal audit;".
This amendment inserts a definition of "internal auditor", which term is used in subsection (9)(b). I commend the amendment to the House.
Amendment agreed to.

Acting Chairman

Amendments Nos. 33 to 39, inclusive, and 44 are related to amendment No. 32 and all may be discussed together.

I move amendment No. 32:

In page 43, to delete lines 15 to 53 and in page 44, to delete lines 1 to 46 and substitute the following:

"(2) Subject to subsection (3) and subsection (14) the board of directors of a public limited company shall establish a committee of directors to be known as the Audit Committee. The responsibilities of audit committees shall be determined by a Code of Practice as operated by listed public companies and approved by the Irish Stock Exchange.

(3) Subject to subsection (14) the board of directors of each unlisted public limited company shall either:

(a) establish an audit committee that meets the requirements of this section,

(b) state in their report under section 158 of the Principal Act that they have not done so and explain the reasons for their decision.”.

I return to a point I made at the beginning of the debate. Audit committees are almost universal features of listed public companies. They have a sensible role and provide a measure of protection and reassurance for outside shareholders who have little or no contact with the company in question. Many larger companies have a significant number of such shareholders. The role of audit committees is to act as a watchdog on behalf of the hundreds or thousands of outside shareholders.

The position in private companies is completely different. In the great majority, the shareholders form part of the management, the companies are tightly controlled and there is little danger of undue distance between shareholders and management. The need for a body to specifically represent shareholders does not arise.

The gist of the amendment is to remove from private companies the requirement to establish audit committees. Imposing audit committees on private companies would add little, if anything, to their controls. It would, however, make it necessary to hire, as described here, non-executive directors specifically for the purpose of establishing and consulting an audit committee. This is an extraordinary requirement. If companies wanted non-executive directors, they would appoint them. Bringing in non-executive directors would be of little benefit and add significant new costs to a private company's business. Accordingly, I propose excluding private companies from the requirement to establish an audit committee.

In regard to the specific responsibility of directors or audit committees, I propose the more flexible option of introducing a code of practice rather than laying down specific duties in legislation. This is, I understand, in line with practice in the United Kingdom and elsewhere. I also propose fewer restrictions on who qualifies as a non-executive director. This would ease the difficulty of finding sufficient numbers of qualified non-executive directors.

On the issue of cost, the private companies covered by the section are often family businesses which have selected board members for various purposes, as required. While they may not fit into this category, they do not have outside shareholders. The new section stipulates that companies of a certain size must comply with the requirement to establish an audit committee and seek non-executive directors who fit into this category, whether one wants them. The only reason they must be appointed is for the purposes of establishing an audit committee. Compliance with this requirement would add considerable costs for companies as it would not be easy to find non-executive directors who would act in the manner stipulated in the Bill because it would impose a burden on them.

A further aspect of this section is that many private companies of the size described compete with companies based outside Ireland, which trade here in competition with Irish companies. This means Irish companies will have to bear the additional cost of this provision, while having to compete with companies free of it. I do not understand the reason for introducing legislation and applying it to private companies, often family businesses, which have to compete with companies registered elsewhere and are thus not obliged to comply with the legislation.

Are they big family businesses?

Yes. As a State, we are saying we want to protect shareholders, which are probably family businesses. I do not understand it and believe it is unfair, particularly to Irish based companies. I can think of a number of companies to which it applies. It should not apply to family businesses or private companies.

I mentioned that I had said on Second Stage that I understood that many of the big international listed companies would have established Irish bases in order to operate in Ireland. I understand now that is not so and that they do not have to operate here or establish an Irish company. The provision does not apply to companies based outside the State, even if they are competing with Irish companies. I urge the Minister of State to give serious consideration to accepting my amendments which are clearly aimed at large family businesses which must often compete with non-Irish companies.

I have great sympathy with Senator Quinn's submission which has a lot of merit. It seems logical. The legislation is becoming cumbersome and will be difficult to operate. Does the Minister of State envisage having a separate professional group for the professional directors of 30, 40 or 50 companies? There is no restriction confining them to that role in only one company. One possibility is that a separate group could create the profession of roving director, auditor or assistant for these committees.

I commend the Minister of State on his openness. It reminds me of my time in a similar position when I always listened to the views expressed in the Houses, particularly the Seanad. Many Bills I brought through the Houses were amended in detail in the Seanad which has broad views on issues. The points expressed today may bring radical change to the Bill. I also like the views of Senator O'Toole who was present at the creation of the Bill. Senator Quinn has made logical points which should be taken into consideration.

I totally agree with Senator Quinn. Many of us mentioned this issue on Second Stage. Although the Minister of State was, and perhaps still is, sympathetic, the compliance statement should only apply to large companies with hundreds or thousands of shareholders. In such instances it may be necessary. Ignorance of the law is no excuse. Everybody must obey it. Senator Quinn has advanced the issue of this unnecessary requirement in the case of family businesses which increases bureaucracy and red tape. I support him on the issue.

If amendment No. 32 was accepted, Government amendments Nos. 33 to 39, inclusive, would be redundant. Amendment No. 44 is linked to amendment No. 32. I am unable to accept the Senator's amendments.

The effect of amendment No. 32 would be to restrict the scope of the mandatory requirement to establish an audit committee to listed public limited companies. It would leave it optional for unlisted public limited companies to establish an audit committee. If they decided not to, they would merely have to explain the reason. It would remove any requirement on any private company to establish an audit committee or explain the reason. It would also eliminate any laying down in legislation of a set of responsibilities to be discharged by audit committees.

Amendment No. 44 would mean that failure to establish an audit committee, by even the more limited category of companies that Senator Quinn proposes, would not be an offence. I would not be prepared to remove this sanction under any circumstances.

Recommendation 13.1 of the report of the review group on auditing recommended that boards of directors of public limited companies, financial institutions and public interest companies should be required by legislation to establish audit committees, the membership of which should be made up of non-executive directors. Other recommendations in the report elaborated on various aspects of what an audit committee should be required to do.

Section 40, as drafted, applies the mandatory obligation to establish an audit committee to all public limited companies. In the case of public interest companies, the obligation which the legislation imposes is either that an audit committee be established by a private company, or by virtue of section 40(3)(b), to which a clearly technical amendment is being tabled by me in amendment No. 38, that they explain the reason they have decided not to establish such a committee. In the circumstances I am not prepared to accept the limitations inherent in amendment No. 32. However, in the light of various submissions and representations, I consider it necessary to make a number of minor adjustments to the text of subsection (2) as published. Amendment No. 33 will place an onus on a company to provide adequate resources for an audit committee to enable it to properly discharge its responsibilities. This is a reasonable requirement.

Amendment No. 34 makes it clear that the directors of a holding company have no responsibility for determining whether subsidiary companies have kept proper books of account. This obligation is for the directors of the subsidiary companies. Amendment No. 35 clarifies that the recommendation of the audit committee as to who should be appointed as auditor is made to the main board of directors which, in turn, makes the recommendation to shareholders in the matter.

Amendment No. 36 substitutes the term "satisfying itself" for the obligation entailed in the text, as published, which was considered onerous. Amendment No. 37 is designed to allow the Minister prescribe by regulations any additional functions that should require to be performed by audit committees. This will allow the requirements to be updated as circumstances change.

Amendment No. 38 removes the negative connotations of the term "failure", as contained in the published text and substitutes the term "decision". Amendment No. 39 makes a similar change to subsection (3)(b), as achieved under the previous amendment in terms of greater precision in terminology. It also specifies the subsection to which it refers.

I cannot accept amendment No. 32 and commend my amendments, Nos. 33 to 39 inclusive, to the House.

This section goes to the core of the issue. Listening to Senator Quinn one cannot but have sympathy for some of the points he has raised. I note the Minister of State has responded to a number of the issues raised by the Senator on Second Stage.

I remind the House of how this issue arose. It came from both Houses, the establishment of the tribunal and the report to the Committee of Public Accounts – we all recall the particular case which—

Is the Senator moving to the compliance statement?

I am talking about the issue of the private family company. The issues raised by Senator Quinn are serious. Attempts have been made to do something in that regard but no doubt not enough from his point of view. Unfortunately, one of the reasons this arose is the various meetings between a family supermarket – certainly not Senator Quinn's – and a former Taoiseach. This was one of the issues. In submissions I received it was said we must include private companies for that reason. That is the reason there is a requirement to do so. It was a clear instruction from both Houses of the Oireachtas and the Committee of Public Accounts. When the Committee of Public Accounts looked at the report of the audit review group, it was just about satisfied with the part concerning this issue. It was not quite what it wanted as it wanted to raise the bar a lot more in the case of private companies.

While I have sympathy for the points raised by Senator Quinn, I remind the House of how this issue arose. It did not arise from the audit review group but from a direct instruction in the report of the Committee of Public Accounts. I had the job of explaining the issue to the committee. The late Deputy Jim Mitchell, who chaired the committee, was less than enthusiastic about this aspect of the report and said it did not go far enough. The others central to the debate were Deputy Rabbitte, Deputy Durkan and former Deputy Seán Doherty. If one reads the report and the discussions on it, one will see that they reluctantly accepted this issue and the compliance statement, on which I do not want to anticipate discussion. I want people to understand that is where it came from and that it was not dreamed up. It was a clear direction in the recommended report accepted by both Houses of the Oireachtas.

I endorse what Senator O'Toole said. It is always a little difficult to insert sections into Acts. My understanding of this section is that it only applies to large private companies where the balance sheet is more than €25 million or the turnover is more than €50 million. We are talking about substantial companies. There are undoubtedly family companies in this country which exceed those limits but there are not many of them.

It is bad law.

I know the committee is in place to protect the public and shareholders. However, private companies deal and trade and the people with whom they deal and trade need some protection. I know the committee provides at least one of the elements of protection this Bill is looking to put in place. I am inclined to agree with Senator O'Toole. I would have lowered the bar rather than eliminating it altogether. Do we know how many large companies are involved?

I do not know but can picture many of them. The review committee on auditing referred to public interest companies, not private companies. That is different and adds a cost. The Minister of State's amendment No. 33 includes the words "establish and adequately resource". That cost will be imposed on the private company competing with other companies not subject to such a stipulation. We are doing this because of one case ten or 12 years ago, to which Senator O'Toole referred, where one large private company was found in the eyes of the Committee of Public Accounts to have done something incorrect, which it did. It seems we are passing a law which will hinder and shackle every private company in Ireland over a certain size, even if they are competing with other companies not subject to this stipulation.

I read an article in a magazine a few days ago which stated similar legislation was being introduced in many countries. However, I could not find one case where a private company was covered. This will be unique. We are now back to where I started today when I spoke about a regulatory impact assessment which we do not have. The Minister of State did not answer my query in that regard. The Government has a policy of saying we should have such an assessment. However, we have not done that in this case. We will now set standards which other countries in the world have not thought of setting. We will impose costs and regulations on private companies which do not have outside shareholders. That is wrong. The Minister of State must rethink this issue.

The businesses I know and in which I am involved are competing with other companies not subject to this regulation because they are based outside the State. We are saying that, although we do not have any regulatory impact assessment, we will set up something which other countries in the world have not done or are not thinking of doing. That will hinder Irish companies competing with other companies. The Minister of State is wrong to do this. My amendment seeks to remove private companies from it. I am thinking of family businesses which start small, as Senator O'Toole said, and succeed. If they do not succeed and they stay small, it will not affect them. That means we are encouraging them to stay small, not thrive and grow.

This is bad law because it is based on the only one instance given by Senator O'Toole which happened ten or 12 years ago. It is not in the interests of the State, its citizens or those companies competing with others. It is a mistake to say we will introduce a new law because of one instance which happened ten or 12 years ago and hinder Irish companies competing with non-Irish companies. I urge the Minister of State to rethink this issue.

It would be incorrect to present this as a knee-jerk reaction. I gave one example. I remind the House that the Legislature and everyone in both Houses were criticised by commentators, the public and everyone involved in the tribunals over the reason that and other such cases could have happened. That led to a huge inquiry, which produced two tomes, by the Committee of Public Accounts. It went through in detail the possibilities and the difficulties arising from this matter and came to strong conclusions. The audit review group diluted those conclusions to a certain extent and the Bill dilutes them further by raising the bar, as Senator McDowell said. Whatever else it is, it is not a knee-jerk reaction to only one case. Much consideration has been given to it. The Houses demanded that legislation be introduced to ensure this could not happen again. The issue was discussed at the Committee of Public Accounts. Whatever our decision, the issue has been given a lot of concentrated thought. It came as a direction from the tribunals set up by the Houses of the Oireachtas.

It must be remembered that it is not mandatory for private companies to set up an audit committee. PricewaterhouseCoopers did a review for the Department of how many companies were involved. The number is up to 100.

Are they large companies?

Yes. Private companies of public interest.

I am interested in the figure of 100 because I did not know the number. We are passing a law which will apply to those 100 companies, each one of which is competing with others which are not subject to this regulation. We are setting a standard which does not apply in any other part of the world and which other countries do not intend to introduce. We are saying it will apply to Ireland because we want to be whiter than white. However, we are doing this without a regulatory impact assessment which the State and the Government declared they would introduce. This is an impossible step for the State to take if it wants to be able to compete in businesses where there are competitors to whom this does not apply. It will apply only to Irish companies, not non-Irish companies. Some 100 Irish companies must now add resources which other companies will not have to do. We are doing this because of one instance which happened ten years ago. It is bad to make decisions on that basis. I urge the Minister of State to reconsider.

It is not mandatory for private companies to set up an audit committee.

I know but they must explain in their accounts the reason they are not doing so. That is the same as a qualification. A private company which goes to a bank and wants to borrow money will be asked for its annual accounts, which will include a qualification. Companies will have to do it and adequately resource it. That is the same as making it mandatory. Why are we setting standards in Ireland which are higher than anywhere else in the world without a regulatory impact assessment? This will affect 100 Irish companies competing with non-Irish companies. I do not understand it. I do not remember such legislation passing through the House on previous occasions.

I cannot allow the one company issue go. The point of the discussion was that people said was it not for an unfortunate incident in Florida, we would never have realised that this could be happening in Ireland. There is no way of knowing whether it happened previously. The Committee of Public Accounts responded that the Oireachtas had a duty to ensure legislation was put in place to make sure this could not happen in the future. A number of clauses have been proposed, which Senator Quinn feels do not go far enough. However, it must be recognised that while the bar has been raised, there is an opt out clause and an opportunity to give an explanation is provided. I do not know that the provision can be diluted more than that.

Is the amendment being pressed?

No, but I hope the Minister of State will reconsider it for Report Stage.

Amendment, by leave, withdrawn.
Government amendment No. 33:
In page 43, line 17, after "establish" to insert "and adequately resource".
Amendment agreed to.
Government amendment No. 34:
In page 43, line 45, to delete "and its subsidiaries have" and substitute "has".
Amendment agreed to.
Government amendment No. 35:
In page 44, to delete lines 8 to 10 and substitute the following:
"(h) advising the board of directors as to the recommendation to be made by the board to the shareholders concerning the appointment of the company's auditor;”.
Amendment agreed to.
Government amendment No. 36:
In page 44, line 24, to delete "ensuring" and substitute "satisfying itself".
Amendment agreed to.
Government amendment No. 37:
In page 44, between lines 33 and 34, to insert the following:
"(n) performing any additional functions prescribed by regulation under section 46(1)(m) of the Companies (Auditing and Accounting) Act 2003;”.
Amendment agreed to.
Government amendment No. 38:
In page 44, to delete lines 43 to 46 and substitute the following:
"(b) state in their report under section 158 of the Principal Act that they have decided not to establish an audit committee and specify the reasons for that decision.”.
Amendment put and declared carried.
Government amendment No. 39:
In page 44, lines 49 and 50, to delete "that chooses under subsection (3) to establish an audit committee" and substitute "that decides to establish an audit committee under subsection (3)(a)”.
Amendment agreed to.

Amendment No. 41 is related to amendment No. 40 and both may be discussed together.

I move amendment No. 40:

In page 45, to delete lines 18 to 23 and substitute the following:

"(a) is, or was at any time during the year preceding appointment to the committee, an employee of the company concerned, or

(b) is an executive chairperson of the board of directors.”.

I refer to the difficulty faced by companies, particularly if compliance legislation is enacted, in recruiting non-executive directors. For example, it is regarded as good policy to appoint a non-executive chairman. Such a person should be a member of an audit committee. On that basis, the word "executive" should be deleted. An executive chairman of a board would not be suitable but a non-executive chairman should be a member of the audit committee. It would be unhealthy if a non-executive chairman was not a member.

An individual who has left an executive position is a suitable candidate to work on an audit committee but barring him or her from taking up such a position for five years is excessive. While I propose that this should be amended to one year, I would be happy if an amendment was tabled to reduce the period to between one and five years. Executives have left their posts having held them for less than five years and they would be suitable to serve on audit committees.

Would it help if a distinction was made between private and public companies? I can see difficulties in this regard in a private company but, generally, public companies would be large enough to cast the play. It probably is preferable in such cases that a person other than the chairman should serve on the audit committee. There is no great problem in a private company and I presume that the audit committee would be treated in the same way as an internal audit unit, which is meant to skip line management and report to the top brass. The restriction on the chairman could be applied to public companies but flexibility could be adopted for private companies.

I support that point.

Private companies do not have to set up audit committees and it would not be best practice to amend the composition and terms of reference for the membership of an audit committee. The effect of Senator Quinn's amendment would be to allow an employee to be appointed to an audit committee one year after ceasing to be employed by the company and it would only debar an executive chairman from being a member. This relaxation of the criteria set out in the legislation would dilute the intended effect of the requirement. Accordingly, I am not prepared to accept the amendment. I commend my amendment to the House.

Is the amendment being pressed?

The amendment is being withdrawn with leave to reintroduce it on Report Stage.

Amendment, by leave, withdrawn.
Government amendment No. 41:
In page 45, line 21, after "concerned" to insert "or an employee of any subsidiary of the company concerned or of a subsidiary undertaking of the undertaking concerned".
Amendment agreed to.
Government amendment No. 42:
In page 45, to delete lines 34 and 35 and substitute the following:
"(b) any conditions prescribed under section 46(1)(m) of the Act of 2003;”.

The amendment is designed to offer a mechanism under which three specific obligations must be met. However, on reflection, the present text could be seen to be ambiguous in that the requirement under paragraph (b) could in certain circumstances be construed to be in conflict with section 40(5)(a). I propose to replace paragraph (b) with the ability to prescribe additional conditions by regulation under section 46(1)(m) so as to address this problem and provide flexibility to allow for developments in the operation of the section. I commend the amendment to the House.

Amendment agreed to.
Government amendment No. 43:
In page 45, line 47, to delete "be presented to" and substitute "be submitted for the information of".

The amendment is designed to clarify that the written terms of reference of the audit committee are to be submitted for the information of shareholders rather than requiring their agreement. The terms of reference are required to be approved by the board of directors. I commend the amendment to the House.

Amendment agreed to.
Amendment No. 44 not moved.
Section 40, as amended, agreed to.
Sections 41 and 42 agreed to.
SECTION 43.

Amendments Nos. 46 to 50, inclusive, and 52 and 53 are related to amendment No. 45 and all may be discussed together.

I move amendment No. 45:

In page 51, to delete lines 9 to 15 and substitute the following:

"(a) Irish Companies Acts, and

(b) Irish tax law;".

This section relates to directors' compliance and related statements, about which all of us got worked up on Second Stage. The reason I have tabled the amendment is to simplify the relevant obligations, allow the report to acknowledge if a report has been made to another regulatory authority and confine the compliance statement to large companies. Everyone acknowledges companies, accountants and auditors should comply with the law. Accountants and auditors are subject to significant whistle-blowing obligations. They are operating those legal provisions, as attested to in a recent article in The Irish Times.

This section, however, requires public disclosure of problems, even if they have been reported to the relevant authority for investigation. This requirement for public reporting will have serious consequences for all companies and directors as it could effectively result in self-incrimination. If a breach has previously been reported to the appropriate regulatory authority, further disclosure should be unnecessary.

The scope and complexity of the compliance statements proposed in the Bill will have a significant impact on Irish businesses. The Bill places an onerous requirement on the directors of all companies to make a positive statement that the company has complied with all tax, company and other relevant law and disclose the nature of the breaches, regardless of whether they have previously reported them. Given that the relevant obligations as stated are extremely wide, potential breaches of foreign tax and company law relating to subsidiaries and potential breaches of competition law, environmental law, etc. will require disclosure. Auditors and accountants without the necessary expertise will be asked to adjudicate on these areas, which will involve significant additional costs and go considerably further than comparative legislation in the United Kingdom and the United States. As the primary concern of the State is compliance with Irish tax and company law, the relevant obligations should be defined as such.

The requirement to prepare a compliance statement extends to small and medium companies. As it does not apply to branches of foreign companies, sole traders or partnerships, it could place small and medium-sized companies in Ireland at a serious disadvantage. As I said on the Order of Business, I am concerned about our competitiveness across the board. This provision could put us at a serious competitive disadvantage. As this appears to be contrary to the recommendations of the task force on small business, small and medium-sized companies, as already defined in the Companies Act, should be exempt from these requirements.

I am pleased that Government amendments have been tabled that ease the position of subsidiary companies in relation to audit committees and others. I wonder if the same applies here, as it would make a big difference. I am a director of three organisations, one of which is a large international company while the others are a regulatory body and a charity. As I stated on Second Stage, I would encourage the Minister of State to keep charities out of the ambit of this legislation and the Companies Act. This type of legislation is not suitable for charities and placing such requirements on them creates considerable trouble for them.

As a non-executive director, I welcome the thrust and intention of the Bill. I would find it difficult to make the declaration on areas other than those covered by the Companies Acts and tax law. While Senator O'Toole has explained the reasoning, this will make it difficult for people to be non-executive directors and deter them from taking up such positions. A few months ago I dealt with a company document which had to be done very conscientiously. With a 52 page document we received an 80 page document from legal advisers. I would be afraid we might create a cottage industry in which directors would feel the need to always be advised on these matters.

Obligations under the Companies Acts and tax law present no difficulty. However, paragraph (c) in the new proposal states: “any other enactments that provide a legal framework within which the company operates and that may materially affect the company's financial statements”. This would cover areas such as health and safety, and equality law, not only in this country but also elsewhere. If there is a contingency that would affect the financial standing of the company, that should be picked up by accounting standards. There is an element of social engineering in this and trying to ensure compliance with equality, health and safety, environmental protection, etc., which are not strictly financial matters and could be dealt with elsewhere.

The declaration at section 4(d) appears to be a belt and braces provision. The job of the non-executive director is to ensure systems are in place, applied and reviewed. I have no difficulty in making a declaration about the existence, operation and reviewability of systems. However, to be asked to express a view as to whether these systems are broken down in a particular place is either self-inculpatory or unnecessary. I ask the Minister of State to consider whether this is absolutely necessary. The combination of these provisions could well deter the very sorts of people we want. While they will not inhibit non-conscientious persons, the more conscientious people are about the job they are doing, the more concerned they will be.

Speakers have raised some very relevant issues. Senator Maurice Hayes has probably pinpointed what the legislation is trying to achieve and what it is trying not to do. Perhaps it would be easier if the Bill indicated in more precise terms what was required of the directors in a checklist format. Over the past two years the accountancy bodies have consistently advised that it should not be excessively prescriptive. In order that people can be absolutely clear, I would like this to be written down. A protocol of interpretation should be agreed which might be in place by regulation. I do not know if this is possible. Even it if is not, it is logical to recommend dropping paragraph (c) and limiting the requirements to the Companies Acts and tax law. Many arguments could be made for doing so.

All the advice I have seen suggests that it is almost as if the legislation offers an interpretation to people that they do not have to comply with other legislation. In order to try to balance this, the "materially affect" issue was included. It has been interpreted in this way:

This means, for example, that a company which avoids putting in a fire door is deemed to have made a profit to the extent that it has saved the cash on the door and that therefore the person is criminally liable.

That is an accountant's interpretation but it is the kind of nonsense we are trying to avoid.

The points made by Senators Coghlan and Maurice Hayes are very focused and should be dealt with. I have been saying to accountants and others who have talked about the Bill that it is not a matter of people saying their company needs to look at every legislative measure that might affect company law in any way, checking off those which affect the company's balance sheet. It is the other way round: people should look at their company's balance sheet, work out what might affect their company and how that applies to the law, including extraneous, non-taxation and non-company laws. What do I mean? Let us take a pro and con example.

If a company's directors become aware that their company is spewing all sorts of dirt into the Shannon without passing through the filtration systems required by law, thereby being absolutely uncompetitive with other companies as well as destroying the environment, this materially affects the balance sheet and they will be required to ensure that, having become aware of it, they disclose it. However, the step beforehand is this – how did they become aware of it?

Two things could happen. They might not become aware of it. They might be the most diligent directors – executive, non-executive, independent or whatever – but they might not become aware of it because others further down the line might be playing games or engaging in nefarious activities. On the other hand, if the company directors became aware that the chief executive determinedly appointed a woman as opposed to a man to a position, that would be a clear breach of the equality legislation but it would not have a material impact on the balance sheet. There would be no requirement to disclose this, apart from a certain moral compulsion, and it would not come under this legislation.

The accountancy bodies must be reassured on this issue. They must be confident that what is happening is reasonable, practicable and doable. People will generally agree with the views expressed by accountancy bodies, once one gets past the first paragraph.

Where does this come from? It comes from the argument made time and again at the tribunals, where directors said they did not know what was going on. There is a requirement for people to ensure they try to find out. Senator Maurice Hayes put his finger on how this should be done – the directors should satisfy themselves, not by going to every corner of the company, but by asking about the compliance procedures in place in their company and whether there is an internal checklist to see if those procedures work. The directors can be required to do no more than this. They should have the responsibility of ensuring this is done and should be accountable if it is not. However, if it is done but there are still breaches of the law, the directors should not be held responsible, and could not be if they had discharged their functions under the existing terms. Terms such as "materially affect" and others are an attempt to do this.

Genuine issues have been raised and the only way to address them is if people can be assured this will be done through agreement and discussion. Auditors and accountants rather than company directors would be best equipped to advise on this matter, though that does not really matter. There should be some form of understood protocol for operating this. That is the way forward.

In our last debate I, as co-founder of a small business, told the Minister of State that directors really had to earn their money. Every penny spent by small companies is critical. From talking to others in business there seem to be serious problems with the compliance statement.

Community-based and non-profit companies should be excluded from this provision. Those doing voluntary work may become directors of companies and though they are not paid, they will be responsible if the company does not act properly. Also, as co-owner of a small business, I know there are hundreds of laws on compliance. If the Minister of State could define the number, directors would know which laws were which and what they must be responsible for. The auditing and financing laws are straightforward but directors must inform themselves about others such as health and safety laws. If directors do not brief themselves, they can end up in the courts and one may find eventually that people will not take up directorships as it is not worth the money.

There should be a limited or at least precise number of laws in this area, while directors of non-profit and voluntary organisations should be excluded and there should be a threshold for companies required to comply with section 43. It should be set initially at a high level such as €100 million in sales, though Senator Leyden did not suggest that high a figure in the last debate, until there is experience of the operation of the provision.

I understand where Senator O'Toole is coming from and that this may appear heavy-handed. We do not want to put good people off. From my experience with a small company, a good director is worth gold.

I agree with the Minister of State's amendment. For far too long there have been too many golden circle directors who seem to go from one boardroom to another for a glass of brandy and a chat. Look at the AIB. It did not seem to care what was happening in America and none of its directors resigned or took responsibility for it, yet when I go to that bank, it is overcharging me for services. I am tired of this golden circle and will not support it. It consists of professional directors who go from one boardroom to another. They do not care if the companies concerned are involved with the Mafia in New York or pollution in Colombia. They wash their hands of the matter and are not interested. This provision will make them very interested. If they do not like the responsibilities, they should not take on the job. Most are very well remunerated – too well in most instances. I got no offers to become a director when, as a former Minister of State, I was out in the wilderness.

The Senator will not get any now.

I would have scrutinised their affairs honestly. I got one offer from an organisation and perhaps I was wrong but I was too conscientious to get involved with it. I would not take responsibility for its activities. If one saw a full list of directors, there are about ten people in ten different companies in Dublin. They should do their jobs and resign from five or six of the companies concerned in compliance with the rules and regulations. They should be responsible for the activities of their companies and sign off on them. If they do not want to do so, they should not get involved.

I am delighted this measure has been included. It is about time somebody accepted responsibility and a few directors resigned. Do the directors of the AIB have any shame? Despite the loss of $670 million in America, nobody shouted, "Stop". Not one director fell on his or her sword or even apologised to hard pressed customers. Let directors read this Bill and realise that once it is passed, they will have to ensure the companies from which they get their soft money must comply with all the rules and regulations, and the law.

Is the Senator launching another campaign?

So be it, if I am. Too often I have heard directors say they did not know the company was involved with the Mafia in New York, that it was polluting in Colombia or cutting down forests in South America, yet they have never said they would not accept remuneration or trips to the K Club or wherever they hold big events. This measure proves that Fianna Fáil is the real socialist party.

Hear, hear.

And the republican party.

The party does not get enough credit for taking action and ensuring the big fat cats are dealt with. They can telephone me at any time because I never got any votes or contributions from fat cats. I am not appearing before any tribunal after my years as a Minister of State with responsibility for trade.

That is not relevant to the Bill.

I did not go around with a begging bowl trying to get support to get re-elected to this or the other House.

I call Senator McDowell.

This is relevant from the point of view that I was never a director of any company. Those directors will have to take responsibility. The amendment tabled by the Minister of State is quite clear and nobody in this House is going to change it. I thank the Minister of State for being so strong on this matter.

I could hardly have put it better myself.

I hope the Labour Party can do better.

I would not disagree with anything Senator Leyden said which was all perfectly fair and reasonable. On the face of it, the requirement in the Bill is very simple. It simply states directors must sign off on a statement that the company has complied with the law, or at least some of it, that is, those elements which could impact on its accounts.

One wonders what all the fuss is about. Why is there a problem with this? As Senator White identified, the real reason there is a problem is that many directors do not ask questions. They go to a meeting once a month – perhaps less frequently – and may get a report, listen with one ear, do not ask questions and to all intents and purposes sign off on it. If this requirement encourages or obliges them to ask questions – nothing more than that – it will do a good job.

Senator Coghlan made a couple of interesting points which bear scrutiny. One was whether this requirement should be limited to smaller companies.

Family businesses.

On face value, one would be inclined to say, "Maybe so." Although I do not have any evidence, I suspect that in smaller companies and family business the board, as such, works less effectively in that there may not be many meetings, the directors do not ask any questions or, in the case of a family company, are likely to be members of the same family and simply do not ask questions. I am not sure that by limiting it to larger companies, it would have the desired effect.

Senator Maurice Hayes made a point about whether we should exclude non-profit companies or charities. I am a director of only one company – one of the partnership companies, obviously a non-profit one. However, it employs 25 people and uses a lot of money, almost all of which is State money. Should there be an obligation on me, as a public representative, as on other directors to ask those questions? There probably should be, notwithstanding the fact that it is not a profiting making company.

Let us face it, some of the financial practices of charities would not bear much scrutiny. It is perhaps no harm—

I was not proposing to exclude charities from regulation because they need to be regulated. While there should be a charities regulation body, they should be removed from the ambit of this form of—

Is not the difficulty that charities, in particular, go for high profile directors, big names, men and women who are well known and which they only really want as a rubber-stamp? They do not want them as directors who will ask questions. Perhaps that is too general a statement to make but I can think of examples in which that is the case and where there are well known directors of charities who, I suspect, do not ask many questions about the fundraising or accounting practices or financing of the charity concerned. I am not sure there is a case for excluding them. I do not think one could exclude them all.

Another point Senator Coghlan made with which I have more sympathy was that a breach of health and safety legislation, for example, might have been reported to the Health and Safety Authority or the relevant regulatory authority. Where a matter is already under investigation by a State regulatory authority, there is perhaps a case to be made that it should not necessarily have to be reported on an annual basis or separately signed off on by the directors. That case, on the face of it, seems to be a good one.

I have great difficulty with this. I was delighted to hear Senator O'Toole's argument and what he was trying to achieve. What we are all trying to achieve is something with which nobody could disagree. I strongly believe this compliance statement will be cumbersome, costly and, in most cases, ineffective. Directors will be required, under threat of a statutory offence, to certify that their company is in compliance with every aspect of the law.

Senator Coghlan suggested we should limit it to tax laws, which is correct. Directors will have to be able to certify that their company is compliant, not only with company and tax laws but also with environment, health and safety and employment laws. They will have to become policemen and detectives in their own companies. There is only one way they can do so which is by engaging expensive new internal audit or consultancy measures to check out every possible breach of the law before they certify compliance. That is what I understand this measure to mean. Apart from any other consideration, it will become extremely difficult to hire non-executive directors, as has been said by a number of speakers, willing to take on this burden of responsibility because it would be an offence if they failed to comply.

The most damaging aspect of the compliance statement is that it will distract directors from the very task for which they have been taken on. Most Members who have spoken did not talk about the need to make a company successful. The jobs which come from a thriving successful company in a highly competitive business mean having to focus one's attention on making sure the company succeeds, manages to compete and survive in the marketplace with others. That is the reason one takes on directors. Their main task is to help a company succeed in a very competitive marketplace. If one says directors must do this but that they must also become policemen, one will distract them from that very task. Their eyes will be taken off the ball in companies which must thrive and grow in the interests of shareholders, employees and the business as a whole. They will end up becoming detectives, policemen or watchdogs and will be scared if they do not do so.

Placing such a requirement on directors is bound to change their priorities. They are bound to say their main priority – we have heard most of this today – is to make sure they do not break the law. That should not be their main priority but one of them. Their main priority should be to make sure the company succeeds, thrives, creates jobs and is successful. That is what has made this nation successful in recent years. This provision will turn directors into investigators rather than entrepreneurs whose main job is to focus on making a business succeed. It will prove seriously counterproductive to that very objective, the strength of Irish business and, therefore, the whole economy.

Progress reported; Committee to sit again.
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