[Fulltext] The last six months have not been good for our profession. First there was Enron. On this side of the world we tried to distance ourselves - it wouldn't happen here, substance over form, the requirement to show true and fair view irrespective of rules, a totally different approach than in the US, etc. We had some success. But then came WorldCom and Xerox. It was too much. WorldCom had nothing to do with different accounting principles. It was simply fraud - capitalising revenue expense in order to inflate profits. Xerox was about the timing of the recognition of income. And then of course there is Elan, an Irish-based company whose accounting practices are being investigated by the Securities and Exchange Commission (SEC) in the United States.
With the flood of media comment it became impossible to distance ourselves any longer as questions were raised about the accountancy profession worldwide. Of course we can never say that what happened there could never happen here but we can say, with some conviction, that there is far less chance of it happening. The primary objective for directors here is to produce financial statements which show a true and fair view whereas the primary objective in the United States is that the financial statements comply with rules laid down under US GAAP. Elan's annual report for 2001, for instance, shows that, under Irish GAAP it incurred a loss of US$887m whereas under US GAAP it made a profit of US$343m. If ever a case still had to be made for international accounting standards then one need look no further.
Ansbacher
Justice Finnegan directed that the Ansbacher Report be sent to us in our capacity as a regulator of audit work. The Inspectors had raised two points in this regard. One was whether their findings highlighted any deficiencies in the general practice of auditing in the banking sector. The second was the manner in which the audit work on Guinness & Mahon was carried out during the period 1971 to 1988. On the first point the Report of the Review Group on Auditing devoted an entire chapter to the audit of financial institutions. Legislation to implement its recommendations is currently on the way. In addition, in February of this year, the Auditing Practices Board issued, with our assistance, new guidance for auditors of Irish banks. We do not see that there is much more that can be done in this area.
On the second point, the conduct of the audits, the Inspectors acknowledged that audit files for much of the period no longer exist and any consideration of the matter on the basis of incomplete information must take cognisance of that limitation. At the time of writing we are considering the best way forward in the public interest and in the interests of our members.
Public Concern Cases
It is unfortunate that some of the so-called public concern cases have dragged on for so long. However there are positive developments as this column goes to print. We have learned from the process and any further cases undertaken will be under new, more efficient procedures which will have statutory backing in law.
Whither Self-Regulation?
The Ansbacher Report will doubtless give rise once again to calls for an end to self-regulation of our profession. In some ways this is an attractive proposition for us. We could not be criticised if investigations took too long, we would not have to "defend" the outcome of investigations if they did not meet public/political expectations and we could stand back and criticise the regulator. However, they are selfish reasons and, it is Council's view that the public interest is best served by proceeding with the model of supervised self-regulation recommended by the Review Group on Auditing.
So, after all that, should there be a crisis of confidence? In my view the answer is emphatically no. Is there a crisis of confidence? The answer, unfortunately, has to be yes.
Going forward, the Institute has to work closely with its firms who audit quoted companies, the Irish Auditing and Accounting Supervisory Authority, Government and its CCAB-I partners to address the current situation. This may not involve any change other than that which will come with the implementation of existing legislation contained in the Company Law Enforcement Act and draft legislation contained in the Companies (Audit and Accountancy) Bill 2002. Knee-jerk reactions or change simply for the sake of change should be resisted but we will not resist any change which may be necessary to reassure Government that we have a regulatory framework for the accountancy profession in Ireland which is second to none and Government must have the confidence and the courage to pass that message on to the markets.
Brian Walsh, FCA
Accountancy Ireland, Vol. 34, No. 4 August 2002