[Full text] It was L P Hartley, who famously opened a novel with the wonderful, evocative sentence: "The past is another country, they do things differently there".
Concluding that the judgements of those he investigated in the course of an independent inquiry "were arrived at professionally and with integrity ... even though, with hindsight, the position appears now as it did not appear at the time the judgements were made", Professor JP (Ian) Percy seems to share Hartley's sentiment.
But before considering the findings and recommendations of the Percy Report, let's recap for a moment on where all this came from.
In the Spring of 1999, more than 90% of the members of The Institute of Chartered Accountants in Ireland (ICAI) voted in favour of rule changes to bring about greater transparency and openness in the Institute's Disciplinary procedures.
Under the new rules, in June 2000, the ICAI's Complaints Committee appointed Professor Percy to conduct inquiries arising out of the findings of the Report of the Public Accounts Committee (PAC) and to determine whether any prima facie case of misconduct existed which should go before the ICAI�¢??s Disciplinary Committee.
An expert consultant in auditing and corporate governance matters, Professor Percy is a former President of the Institute of Chartered Accountants of Scotland, has chaired the Accounts Commission for Scotland, served as Vice-President of the Auditing Practices Board, and has acted as an Inspector for the Department of Trade and Industry in the UK.
Having read and considered the report of the Comptroller & Auditor General dated July 1999 dealing with the C G& A's investigation into the administration of DIRT and related matters, and the first, second and final reports of the PAC Committee, Professor Percy identified certain individuals and firms with whom he conducted interviews during the period October 2000 to June 2001. He has confirmed to Accountancy Ireland that he received the cooperation of all of those whom he sought to interview.
As a result of his inquiries, Professor Percy concluded that there does not exist a prima facie case of misconduct against any ICAI member or member firm.
In his view the judgements made by ICAI members were arrived at professionally with integrity based on the evidence available to them at the time. This is an important point that has been taken up by a number of commentators including the Tanaiste, Mary Harney.
The question of course that leads from it is whether the changes that have taken place in auditing standards, in corporate governance, in company law, in Revenue practice, and so on in the intervening years are sufficient to prevent another DIRT-type situation in the future.
While views on those questions may vary you can't argue against the fact that there is a much greater sensitivity today, not just in the accountancy profession but throughout the entire business community, to the need to be sure that actions taken will stand up to public scrutiny. How influential that increased sensitivity will be remains to be seen and is probably something that cannot be measured.
It is also the case that since the setting up of the Cadbury Committee in 1991, which incidentally Professor Percy was a party to, there has been an ongoing focus on corporate governance.
And, of course, it is not just auditors who are in the spotlight.
As Professor Percy points out in his report: "it is not the external auditors' function to prevent non-compliance with law or regulations". That responsiblity rests elsewhere and we will no doubt see increased public awareness of that fact when the Office of the Director of Corporate Enforcement gets into full swing. It will be interesting to monitor its impact on the controversial audit expectation gap issue.
All of which is not to say that there are no lessons for the accountancy profession from the DIRT episode. The Percy Report recognises this and in its recommendations says that consideration should be given by the ICAI together with the Central Bank and / or the IAASA as to whether regulations are necessary in respect of the qualifications required of internal auditors of the banks, the standards of auditing they apply, and the professional disciplines they should adhere to.
The report also recommends that consideration should be given by the ICAI as to whether any guidance should be issued for members serving on boards or audit committees in relation to corporate governance.
The Percy Report will doubtless be debated within the profession over the coming months. Whatever your view on these issues, and we've seen views from both sides of the fence in media coverage, the fact that an independent process instigated by the ICAI has taken place and that findings have been published provides a basis from which we can learn and move forward.
Accountancy Ireland Vol 34 No 1 February 2002