[Fulltext] The Companies (Auditing & Accounting) Bill 2003 is currently being debated. This new legislation establishes the Irish Accounting & Auditing Supervisory Authority (IAASA) and is causing concern amongst Irish business leaders. Daisy Downes reports.
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Representatives from the most senior ranks of Irish industry convened at Dublin's Four Seasons Hotel recently to discuss the implications of the Companies (Auditing and Accounting) Bill 2003.
Arguably the most significant piece of legislation affecting the Irish accountancy profession for many years, the Bill implements many of the recommendations of the Review Group on Auditing (2000) and establishes the Irish Accounting & Auditing Supervisory Authority (IAASA).
The Bill imposes a number of new requirements on Irish companies and their auditors and has major ramifications for the Directors of businesses at all levels. In the course of roundtable discussions, facilitated by The Institute of Chartered Accountants in Ireland, the issues causing most concern relate to the proposed Directors' Compliance Statement, new responsibilities for Audit Committees, and the structure and operation of the proposed Financial Reporting Review Panel (FRRP).
Directors' Compliance Statement
While no-one would argue that businesses should not comply with the law of the land, participants at the Roundtable Discussions foresaw that the proposed Directors Compliance Statement would cause significant difficulties for directors of businesses at all levels.
The Bill requires the directors of a company (other than one which is eligible to take advantage of audit exemption) to make a positive statement regarding the company's compliance with company law, taxation law, and other relevant statutory requirements. Failure by the directors to prepare a Compliance Statement or to include a report in the annual report will be an offence.
A company's auditors will be required to review the Directors' Compliance Statement. The review will be incorporated into the auditor's report on the financial statements. If the auditors form the opinion that the Directors have failed to comply with their obligations under the Bill, the matter will have to be reported to the Director of Corporate Enforcement.
Loss of competitiveness
Attendees at the Roundtable discussions predicted a loss of competitiveness, particularly vis a vis the United Kingdom, in attracting overseas investment to Ireland. American companies, in particular, it was felt were likely to choose locations such as Scotland in preference to Ireland because of the lighter compliance burden in the UK.
While there was consensus at the discussions that directors might reasonably be expected to ensure that their company complies with company and taxation laws, it will be difficult if not impractical, for directors to state that a company complies with "all relevant statutory requirements".
In the case of larger companies with overseas subsidiaries, queries were raised as to whether the Bill will require directors to state that the company complies with the laws of the overseas location as well as with that of Irish laws.
Small companies
In the case of smaller companies, cautions were sounded that many may not have the resources to put in place administrative procedures adequate to assure directors of the company's compliance with "all relevant statutory requirements".
The current criteria for small company audit exemption is a further cause for concern. At the moment, the threshold is �¢?�¬317k. A more realistic figure of �¢?�¬1.6 million is being suggested by the ICAI.
Code of practice
Participants at the discussions were of the view that there is a requirement for a Code of Practice on the Compliance Statement and there was view that the Institute should take a lead in developing such a Code.
Audit committees
There appears to be consensus that while the principles regarding Audit Committees may be enshrined in law, detailed rules on the functions of such committees are more appropriately dealt with in code since it is easier to change and so can react more rapidly to the environment in which business operates. There appears to be a lack of clarity in some of the provisions outlined for Audit Committees. and fear was expressed that the provisions of the Bill - particularly those relating to the relationship with the auditor - may cause some chinks in the unitary board. There is also concern about the implications and feasibility of some of the other requirements outlined in the Bill. The task of determining whether the individual subsidiaries of a large group have each kept proper books of account, for example, is likely to be a challenging one for some Audit Committees. And, the absence of a requirement for at least some members of the Audit Committee to have financial expertise is perhaps surprising. It is unclear where exactly the Bill fits with the Smith report. Clearly much remains to be resolved in this area.
Financial Reporting Review Panel
While participants in the discussion accept the need for an Irish Financial Reporting Review Panel, considerable concern was expressed about how such a panel will operate in practice. In the UK, the experience to date has been that the panel has been reactive rather than proactive although recent reports suggest that the approach may be about to change. Questions raised at the ICAI discussions included how, for example, companies to be selected for review. Will there be an objective process to establish whether the FRRP should take on a case? Are there safeguards against "crank" complaints? Who will conduct the reviews? There appears to be some consensus that the structures outlined in the Bill are perhaps not the most appropriate for achieving the objectives the Bill sets out. Some of the detailed provisions also came in for criticism. In particular, it is felt that where the FRRP issues a notice to directors setting out issues relating to their company, 30 days is not sufficient time for directors to conduct their own investigations and respond. The question of the competence of those conducting the reviews is another concern and participants in the ICAI discussions were anxious that a high level expert panel would be established that would have the expertise to do the job properly.
With so many questions still to be resolved , debate on this Bill will be lively. Accountancy Ireland is interested in getting readers' views on this issue.
Daisy Downes, MA, Dip LIS, ALAI, is editor of Accountancy Ireland.
Accountancy Ireland, Vol 35 No 2, April 2003