I want to briefly go through the main points of our written submission. I confirm that we welcome the Bill. We welcome the need for an improved strengthening of the regulatory structure of our profession and the supervised self-regulation that the RGA recommended and is enshrined in the Bill. We made that point to the review group on auditing. We commend the main thrust of the Bill and the main strengthening it does in a number of areas.
However, this morning we want to concentrate on the areas which we think need to be improved to achieve the objectives of having a Bill which works well and which helps Irish business to do good work, but also means that the standards of regulation in Ireland are equal to the best in the world. We do not want to go too far ahead of the best in the world because that affects competitiveness issues. We want to point out a few areas in which we believe there could be beneficial changes made to the Bill to help with the general broad thrust.
First, the issue of the structure of IASA and the balance of representation on the board has been raised a number of times. The board as proposed in the Bill has a limit of two accountants out of 13 members. We believe this needs to be rebalanced. We absolutely accept that the board should not be dominated by accountants and that, therefore, the majority of the board should not be accountants. We agree with that, but for the working of the board and for it to have a good understanding of the technical and practical business issues which arise, we believe there is merit in increasing the number of accountants allowed to be members.
We represent the profession which has members working in practice, but of the bodies represented here this morning the majority of our members probably work in business. They are financial directors, financial controllers and non-executive directors of companies. We believe it is not just the practising element of the profession which needs to be represented around the table of IASA, but those people experienced in business as well. Members of the committee will have seen submissions from IBEC and other bodies that would encourage the wider representation from business, including financial expertise which will inevitably mean accountants, so we would hope for that move.
We also think that it might be worthwhile working with IASA to make sure we can get the balance right on the board because inevitably there will be conflicts of interest between Government regulatory bodies represented on the board of IASA. There will be dual responsibilities on some of the members sitting around the table of IASA and we look forward to working with IASA to make sure those possible conflicts are well dealt with.
In terms of the role of IASA and its scope, we believe it should go wider than just the members of the professional bodies or the prescribed bodies, which is what the Bill sets out to do. We believe there is a public interest and a consumer interest in making sure that the profession of accountancy is encompassed within the scope of regulation and supervision, especially as audit scope increases. In other words there will be more and more companies in Ireland that will not require statutory audits. We believe that there will be more and more people who will be calling themselves accountants, offering services to businesses - especially small businesses - who may not be within the regulatory regime. The stronger and more effective the regulatory regime is, the more incentives there might be for some people to go outside it.
We welcome the ability to have the definition of accountant included in legislation in the interest of consumer protection and public protection. The issue was debated in RGA and we believe this should be considered further.
On disciplinary procedures within our profession, the structure of the Bill is that IASA would oversee continuing self-regulation of the profession. I was a member of the review group on auditing and we debated the balance between the profession continuing to carry out self-regulation and the need to have independent oversight. What we got in both the structure of the Bill and in the RGA is pretty much that. We believe that balance is delicate and we need to have oversight rather than doing. We need to have a balance between making sure the IASA can oversee the regulations, but does not get involved in them. If we have that structure of oversight, we will probably need to have a protection to stop IASA being dragged into all the little things because if IASA has the power, for example, to annul decisions of the disciplinary committees of the institutes, then every time anybody has a complaint against the institute they will run to IASA and say: "Please stop this and do all that".
That would almost make a nonsense of the supervised self-regulatory process, which has the benefit of experts involved in the area, who know the standards which should be applied. It would also result in my office becoming involved in too much detail. Accordingly, we propose a slight restructuring. We welcome the ability of IASA to review our processes and ask us to make changes to ensure they are up to scratch. We believe the power of intervention should not be used very lightly and we would welcome further limitations being placed on that in the Bill.
The Bill adds statutory weight to our disciplinary process. As the committee will be aware, we have had a couple of high profile, long-running disciplinary cases. One difficulty is that we cannot easily get non-members to give us evidence. We welcome the provision in the Bill for our committee to have the right to compel witnesses to attend. There is another provision which requires all our decisions to be confirmed by the High Court. That means that, every time we discipline a member, that decision cannot be confirmed except by going to the High Court. That will add extraordinary delay and some cost to our processes. Many minor transgressions need to be disciplined or fined but do not need High Court involvement. As the Bill is currently structured, all bodies authorised to audit would have to go through this process. That could mean, for example, that if the Association of Chartered and Certified Accountants had to deal with a situation involving a member who is a financial director of a company in Bombay, theoretically, it could not discipline that member without going to the High Court to have it confirmed. Changes will be needed in the Bill to make sure it works effectively. As it is currently structured, in my view, it will not work.
Compliance statements are another major issue in the Bill. We are not against compliance. We absolutely support the need for companies and their accountants, auditors and directors to be compliant citizens of the State and its laws. We welcome the focus on compliance and other recent reforms such as the corporate governance initiative in relation to the Stock Exchange and the introduction of the office of Director of Corporate Enforcement. While we welcome the thrust of compliance, we believe the manner in which the compliance statement is structured in the Bill will not work very well.
In today's Irish Independent, there is a summary of issues and concerns being raised by business people in this regard. There is a real concern that this will make Ireland look tougher than every other country in the world. The review group on auditing stated that we should be up with the best in the world but should be careful not to affect our competitiveness. At present, a Scottish Development Agency representative, with this Bill in hand, could point out to an American company the requirements it would have to comply with in Ireland but not in Scotland. We need to be very careful in putting in a good regime not to make it too tough.
The UK Act requires chief executives of only plcs to confirm that they present fairly their financial statements in all material respects. This Bill requires the directors of Irish companies, not just plcs from a turnover of €300,000 upwards, to go through a statement every year confirming that they have complied with all laws. That is fair enough. However, it is then necessary to deal with non-compliance cases by washing dirty linen in public. In the review group on auditing, we debated this matter and maintained that there is not a public interest in having every company confess all its sins in public. For example, a bank which may have transgressed inadvertently in one of its branches currently deals with the matter with the regulator of the Central Bank. If it has to publish details every time it does something wrong, that could damage confidence in the financial institution concerned.
Matters of compliance are often of a very delicate nature in which lawyers may need to become involved. It is sometimes very unclear as to whether there is non-compliance. If we have to publish all instances of non-compliance against a broad range of legislation - we understand the requirements in relation to company and tax laws - that may affect companies, including environmental, safety and competition laws, all matters of extreme complexity, we believe that represents a step too far. That may be used by our competitors in other countries seeking foreign direct investment to portray Ireland as not operating a level playing field.
We recognise that auditors have a role in this matter and we support their involvement in confirming the compliance statements of directors. We also seek further provisions which will probably not be included in this Bill. There are a number of situations where auditors are required to act as whistleblowers, including reporting to the Director of Corporate Enforcement on breaches of company law, the obligation to report to the Garda on instances of fraud, new money laundering responsibilities to be added soon and responsibilities under the Central Bank in relation to financial services reporting. Not all of those requirements are consistent, each having been developed under its own legislation and in its own context. Auditors are faced with a plethora of different structures for whistleblowing. We would welcome a consistent, coherent approach whereby auditors can support the public interest and do their job in an economic, efficient and sensible manner for Irish business and the public.
I wish to refer to two further matters. We welcome the provision in the Bill with regard to companies having audit committees. Strengthening corporate governance is a good idea. We are not sure about widening that requirement to include private companies. Indeed, that is also recognised in the Bill, which suggests that while private companies should have them, they can refrain from doing so and simply explain their reasons for it. The onus is placed on large private companies to give an explanation. One could have a large private company in which the two shareholders were the two directors and they would still have to have an audit committee. That does not make much sense. Japanese companies investing in Ireland will have a subsidiary set-up in this country. They like to be compliant with the law. Although they may have just two directors in an Irish subsidiary controlled from overseas, they will have to have an audit committee. They may regard that as impractical but will not want to say they do not have an audit committee or are not complying with the law. While we believe it should be encouraged, there should not be a requirement in law for large private companies to have audit committees.
There is a detailed list of sensible roles and responsibilities for audit committees but we do not consider it sensible to put them into legislation as the requirements for audit committees change over time. There has been considerable development in the last five to ten years. In the UK and the US, those requirements are put in a code of practice, rather than in law which takes time to change. We would be happy to work with ODCE or IBEC and others in drawing up an acceptable code. However, we believe it is dangerous to put it in law.
Finally, I wish to refer to the review of financial statements. The Bill proposes a provision for plcs and large companies to be examined for compliance with the law and accounting standards. A very good example of that type of regime has existed in the UK for the last ten years, involving a financial reporting review panel which has worked very well. We support the provision of a financial reporting review panel but I wish to make two points. First, I am not sure that IASA is best placed to do the review because it would have to make the decision as to whether a company complies with accounting standards. I am not sure that a body not consisting of accountants would be the appropriate forum. It could be done by a sub-body or a body overseen by IASA but I am not sure IASA is the right "court" for that task.
Second, the detailed procedures are, again, set out in law whereas we believe that might be best done outside of law because of the process which has to be followed. There is a UK example and a Europe-wide requirement for review of financial statements is about to be brought into operation at EU level. Rather than having to amend the law every time there are changes in this area, especially with the introduction of international accounting standards, we believe the process for the review should be taken from outside the Bill.
Those are the main points we wish to make and we will be glad to answer any questions from the committee.