I welcome the Minister of State, Deputy Sherlock, and his officials. We hope not to keep them all day. It should be a shorter meeting than usual.
Companies (Amendment) Bill 2012: Committee Stage
Sections 1 to 4, inclusive, agreed to.
TITLE
Question proposed: "That the Title be the Title to the Bill."
I would like to make two brief general comments. Like other members of the committee, I have received representations from the Professional Insurance Brokers Association in relation to the position of independent brokerage firms. I have been informed that although companies with a turnover of €8.8 million or less, a balance sheet of less than €4.4 million and fewer than 50 employees are exempt from the requirement to have audited accounts, this provision does not apply to independent brokers. Some independent brokers - there are at least 50 of them in my own city - have quite a small turnover. Auditing accounts is now fairly expensive. I am told it can cost up to €5,000. I know that a proposal to give a similar exemption to independent brokerage firms with a turnover below a certain level, and thereby bring them into line with other companies, has been in gestation for some time. I did not receive the representations from the Professional Insurance Brokers Association in time to submit an amendment. I will do so on Report Stage. Perhaps the Minister of State would like to make an initial comment on the matter today.
I would like to make another point that is not directly germane to the Bill. When the Minister of State, Deputy O'Dowd, spoke on this Bill in the Dáil last week, he referred to the big companies Bill that is to be introduced as part of a fundamental reform of company law. I would like to speak about the position of auditors in that context. Many people blame the banks, the Government and the regulator for the financial morass into which this country descended recently. Auditors seem to be strangely exempt from blame, however. I am thinking particularly of the "Big Four" companies, which audited the accounts of all the major financial institutions. It would be stretching language to suggest that they did a good job, or even that they did their job at all. The standard of conduct for an auditor was laid out more than 100 years ago by an English court of appeal in the famous Kingston Cotton Mill case. The succinct summary of the court was that "an auditor is not bound to be a detective or .... to approach his work with suspicion, or with a forgone conclusion that there is something wrong". The court suggested that an auditor should be "a watchdog, not a bloodhound". While there is no question of the companies I have mentioned being bloodhounds, it would be an abuse of language to describe them as watchdogs. The word that springs to mind, keeping with the canine theme, is "poodle".
The Deputy is being generous.
I am being extremely generous. There are various types of poodle. One type will roll over to have its stomach tickled when it gets a kind look from its master. The people working for the "Big Four", who do most of these big financial audits, have a statutory obligation to present a true and fair view. They are required to state whether, in their opinion, the accounts represent a true and fair view of the financial health of the company being audited. My contention is that the view that was presented in these cases was neither true nor fair. The people who were investing in and dealing with these companies depended on the auditors' picture of the financial health of the companies in question. The companies were not entitled to proceed on the basis of their own accounts. The doctor was not supposed to give himself a clean bill of health. The job of the independent auditor was to say whether this was right and whether it presented a true and fair view. In many cases, the auditing companies failed in that duty. They have not been held responsible to the same degree as the other actors in this tragic scenario. I know the accountancy profession is making some moves to clean up its act, but I do not think that will work in the absence of statutory regulation. I ask the Minister of State to use whatever influence he can to ensure this matter is dealt with comprehensively, for once and for all, in the new provisions relating to auditors that are to be included in the first part of the comprehensive legislation that is being prepared by the Government.
I agree with Deputy O'Dea. The Nyberg report was highly critical of the "Big Four" auditing companies. Before the collapse of Enron, we used to refer to the "Big Five". Arthur Andersen is only a small company now. The problem is that everything has become much more centralised. Even since the banking crisis, there has been criticism of one of the "Big Four", which was involved in a major scandal recently. The scary part is that it has become too centralised. Four auditing companies have the power to audit virtually all the major companies in the world. That is not good or healthy for business. It does not encourage people to have trust in auditors. Perhaps the Minister of State can consider a range of measures in this regard.
The problem mentioned by Deputy O'Dea when he referred to the Professional Insurance Brokers Association also affects other small companies, such as charitable organisations, that require auditing. I was involved with an organisation that was required to set up a trust and a limited company to get lottery funding for a community park. Our biggest outlay - it probably accounted for more than the income we were generating - was the auditing of the company books. When the park was up and running, its maintenance costs were minimal. The big cost for which we had to raise funds related to the auditing of the company books. Perhaps the Minister of State will examine the suggestion that there should be a review of the entire system of auditing companies. Deputy O'Dea referred to the watchdog as a "poodle". Even bears roll over to have their stomachs tickled. It depends on how they are trained.
Especially if they are Kildare bears.
We will not have anything on the record about Kildare bears.
We will have to look at Crufts next, the way we are going.
To continue the canine theme, perhaps we would not be in the situation we are in now if we had put a few more dogs in the manger.
I agree with the points that have been made by Deputies Lawlor and O'Dea. It is imperative to ensure the concerns they have espoused are taken on board when regulations come to the fore on foot of the European Commission's auditing proposals that are before us at present. The bottom line is that it is sensible to provide for a strong and robust auditing regime that is regulated by way of legislation. If it can be done at EU level, that is the way to go. I anticipate that this matter will be considered during the Irish Presidency. It is vital for us to ensure that concerns of this nature are articulated and can work their way into the final legislative outcome. There is no question about the fact that we take this issue seriously.
As public representatives, we all have experience of dealing with community groups. I am familiar with the credit union movement, which has been audited by particular firms and had to go back to those firms again following changes in the regulatory regime at Central Bank level. Credit unions have had to pay considerable sums to those companies. Certain issues arise in that regard. There is no doubt that the voluntary pillar, including the various community groups, is completely and utterly robust in how it conducts its business. The groups in question often have to pay for audit reports on two or three occasions to demonstrate that. That aspect of the system has to be examined and cleaned up. I take the points the Deputies have made. There is no question about the need for a robust auditing regime.
Deputy O'Dea mentioned that he and others have received a submission from the Professional Insurance Brokers Association. I understand that Deputy Lawlor has contacted the office of the Minister, Deputy Bruton, to highlight the issue. I anticipate that a significant response will be given on Report Stage and the matter will be dealt with. If amendments are proposed, or if further discussion can be facilitated, we will be very open to that.
Question put and agreed to.
I thank the Minister of State and his officials for attending today's meeting.
I thank Deputies for their contributions. I apologise on behalf of the Minister, Deputy Bruton, who is out of the country at present. He has asked me to convey his gratitude to the Deputies for their contributions to the debate.
I thank the Minister of State and his colleagues in the Department for dealing with this matter with such urgency. This issue was brought to our attention a couple of months ago by various companies that wanted a change to be made as quickly as possible. That was facilitated by those in the Department who worked on it. I thank them for that. I know there is a great deal of pressure to finalise legislation in the next month. I understand that Report Stage will be taken on Thursday, 28 June 2012.
Bill reported without amendment.