Special Committee on the Companies (No. 2) Bill, 1987 díospóireacht -
Tuesday, 12 Jun 1990

SECTION 194.

Mr. Leyden

I move amendment No. 240:

In page 146, between lines 36 and 37, to insert the following subsections:

"(2) Where the auditors form the opinion that the company has contravened section 198 but that, following such contravention, the directors of the company have taken the necessary steps to ensure that proper books of account are kept as required by that section, subsection (1) (b) shall not apply.

(3) This section shall not require the auditors to make the notifications referred to in subsection (1) if they are of opinion that the contraventions concerned are minor or otherwise immaterial in nature.".

Section 194 provides that where a company's auditors form the opinion that the company is not keeping or has not kept proper books of accounts, they must notify the company and the Registrar of Companies of that fact within seven days of forming such an opinion. Amendment No. 240 would modify the requirements of section 194 in two ways. The section currently requires the auditor to notify the company and the registrar of two things: first, where the company is contravening section 198 which requires proper books of accounts to be kept, or, secondly, where the company has contravened that section. In the second of these cases, in other words where the contravention is in the past, it has been suggested to the Department that the company might actually have put its house in order in the meantime and, that in such situations, the duty in subsection (1) (b) to notify the Registrar of Companies, ought not to apply. This is a reasonable proposition and subsection (2) provides accordingly.

Second, I feel the existing section is somewhat rigid and inflexible. It applies even to the slightest, most minor departures from the rules of section 198 about keeping proper books of accounts. I do not think this particular section ought to concern itself with such minor sins since that would be applying an element of over-kill to the situation. The proposed new subsection (3) would make this clear.

Mr. J. Bruton

I think this is an eminently reasonable amendment, and I agree with it.

Amendment agreed to.

Question proposed: "That section 194, as amended, stand part of the Bill."

Mr. J. Bruton

Subsection (1) at the very beginning states "if at any time the auditors of a company form the opinion that the company is contravening or has contravened, etc". The phrase "at any time" is one that has caused some concern to accountants. They feel that, in a sense, they are only looking at a company with a sufficient degree of concentration to be able to be confident that they will detect all relevant contraventions at the time they are actually doing the audit. They do not feel that it is fair to ask them to report contraventions that might come to their attention purely casually, while the audit is not actually taking place. It is the practice for the audit to be done annually and there would be a month or more devoted to it, but in between they are not in touch with the affairs of the company to any great extent. If they were required to be, it would obviously push their costs up considerably. They are wondering what would happen if they heard a bit of information in a pub that something had gone astray after the audit had been completed but before the next audit was due to take place. Would they be under some legal obligation? Would that put them under an obligation under section 194 to report that sort of tittle-tattle, in the sense that they would not be in a position, not actually doing the audit at the time, to verify it. I do not know how real this point is but it is a point that has been raised with me. Perhaps the Minister would like to comment.

Mr. Leyden

Deputy Bruton is making the point that this phrase "at any time" might put certain pressure and costs on the company. "The auditors of a company form the opinion": they have to form the opinion that a company is contravening or has contravened. The hypothetical situations which Deputy Bruton raised certainly could not be envisaged in this Bill. It would not be appropriate. First of all, they would have to form the opinion. I do not think they could form the opinion from casual conversation in a pub about this particular section. I think the profession might be over-sensitive about this point. I cannot see any way we can make it work. There is no amendment down at this stage. We are satisfied about the words "form the opinion" and "at any time" during the period that they are auditors of the company. That is a broad provision. You could not specify whether it was past, present or future. It has to be.

Mr. J. Bruton

If you like it would be "if at any time during the audit". However, I see——

Mr. Leyden

I am afraid, Chairman, I would have to stick to "at any time". We are trying to concentrate the minds as much as possible basically and we do not want to leave them that they will have no responsibility for events taking place within that company. Some of the bigger company auditors are very much involved throughout the year in the activities of the company. There is no reason to be concerned about the actual responsibilies. It does not put any more responsibilities on them than they should have as auditors of a company.

Chairman

On amendment No. 240A auditors are not required to make the notification if they consider that the contraventions are minor or immaterial. If the contraventions are not minor or immaterial but are major, it would seem to me that the responsibility should remain on the auditors even after the audit has expired.

Mr. J. Bruton

I would go along with that. I am raising the matter because it was raised with me and I am satisfied.

Question put and agreed to.