Chartered Accountants Regulatory Board
Author:
Daisy Downes
The Charter of the Institute of Chartered Accountants in Ireland requires that all Bye-Laws ratified by ICAI members are approved by the Irish and UK Governments. This includes the Bye-Law that will establish the Chartered Accountants Regulatory Board. The ICAI already has approval from the UK Government and is awaiting a decision from IAASA. It is intended that Liam O’Reilly will chair the new Board. He told Accountancy Ireland about the work that has been going on and the changes that are envisaged.
The decision to set up the Chartered Accountants Regulatory Board was taken by the ICAI in response to a perceived need, identified by the Strategic Review Group, for an independent regulatory body that would operate separately from the Institute.
The benefits would be two-fold: firstly, the new body would support public confidence in the profession by demonstrating clear independence in the important areas of the regulation and monitoring of Chartered Accountants while at the same time freeing the ICAI to more actively pursue its representational agenda and to improve the quality and quantity of the services it provides to its members.
The ICAI has already established a Representation and Technical Policy Department in order to meet the challenge of increasing the proactive representational stance of the Institute.
To establish the CARB, the ICAI firstly required the approval of its members. That was secured earlier this year. The Bye-Laws establishing the CARB then went to IAASA and to the UK Government for their approval. At the time of writing, approval from the UK Government has been secured, and the decision of IAASA is awaited. In the meantime, it has been announced that Liam O’Reilly will be the first Chairman of the new Board. In his first interview since agreeing to take on the role, he began by telling Accountancy Ireland when he expects to being work.
“The CARB itself should be formally up and running early in the New Year but we would hope to have an Interim Board in place in November. The Board will be made up of a majority of non-accountants. (5 accountants and 6 non-accountants) and our immediate priority is to identify appropriate people on the non-accountant side. We need to make sure that they understand business and that they have a fair idea the work, role and responsibility of accountants and auditors.”
As Chairman, Mr O’Reilly will be guiding developments. He is currently working closely with the ICAI on selecting the members of the Interim Board and, with ICAI Director, Heather Briers and others, on the drafting of a Strategic Plan, but he stresses that, in doing this, he does not want to pre-empt the views of his fellow Board members.
“Pending the appointment of the Board it is important that things don’t stop so we are working on the budget and plan for next year. Early in the New Year one of our first tasks will be to make sure that the views of the Board members are incorporated into the 2007 plan. Effectively this is a holding plan. January would be too late to start. I hope that the Interim Board will be in place in November and they will then shape the Strategic Plan and Budget for the next 3 years. While I have ideas of where we are going, it is important that my ideas are informed and tempered by those of the other members who have yet to be appointed.”
RESOURCES
Asked about resources, Mr O’Reilly stressed that the Strategic Plan and its associated resources will be developed and approved by the Board members, but added: “As the CARB is to be resourced by the ICAI, Council will be required to consider and approve the funding request presented to it. We will want to be effective and efficient.We have a responsibility to make sure that we are not over-regulating and not adding costs to the system. In setting up our role we don’t want to go overboard or be profligate. In relation to staffing, for example, the current staff of the Professional Standards Department within the ICAI will provide support to the Board. It is important to stress that the Institute has invested heavily in regulation over the last ten years and its decision to establish the CARB further demonstrates the commitment to remain at the forefront of regulation. I have no doubt that the Institute will wish to ensure that the Board is adequately resourced to fulfil its mandate”, Mr O’Reilly said.
GOVERNANCE
A Corporate Governance plan will set out reporting lines so that both the ICAI and the CARB are clear as to what each is responsible for.
“Good fences make good neighbours”, says Mr O’Reilly. “There is no doubt that the independence of the new body is respected by the ICAI and it is important to acknowledge the positive attitude of the Institute and of the staff that are involved in regulation. We are developing mechanisms within a Memorandum of Understanding to make sure that where conflicts arise they can be resolved in a way that maintains the independence of the CARB. That is one of the reasons why a majority of the members of the CARB are actually non-accountants.”
Asked how regulation will change as a result of the setting up of the CARB, Mr O’Reilly said that it will be a process of ‘evolution rather than revolution’
“Over the last 10 years things have been changing and developing and I would say that will be ongoing in terms of the evolution of the regulatory processes of the Institute. With the incidents in Ireland which led to the Review Group on Auditing proposals and other incidents abroad there has been a demand and a need to increase the oversight of the accounting profession. It is in the interests of Chartered Accountants themselves because they trade on their reputation. The ICAI’s organisation has within it a whole infrastructure for licensing, monitoring and disciplining its members. This works well and will continue to grow and develop. It will be CARB’s role to ensure that the good work that has been ongoing continues and, to the extent that there is a need for growth and change, to set the tone for the future. We are not in the business of over-regulation. We will be sticking very much by the principles that have already been set out by the Department of the Taoiseach. Efficiency, effectiveness and being a resource to the accounting profession will be key roles.”
In terms of organisational structure, the change reflected in the chart on page 6 (chart omitted from web version of this article) is that the Complaints, Disciplinary, Insolvency Licensing and Quality Assurance Committees will now report to the CARB rather than to the ICAI Council. The CARB will appoint the members of those Committees.
Given that the CARB will be dealing with Chartered Accountants, I asked Mr O’Reilly how it will respond to members of the public who bring forward complaints about accountants who are members of other accountancy bodies, or indeed of none.
“CARB has been set up to regulate and monitor Chartered Accountants. That said, as public citizens, if there are complaints about other accountants that are not members of the ICAI we will ensure that the complaint is directed to the appropriate body. There are existing working relationships between the accounting bodies in terms of how we deal with those matters. Where we receive complaints about accountants who are not members of any of the recognised accountancy bodies we will be bringing those to the attention of IAASA.”
“We should be conscious of the fact that CARB is one part of a whole infrastructure that has been set up over the last few years and, in Ireland, IAASA is central to that infrastructure. The CARB is also part of that in that its establishment will be subject to the approval of IAASA. It is important to say that,” Mr O’Reilly added.
Having been a member of the Interim IAASA Board himself, Mr O’Reilly is well placed to observe that we have yet to find out how IAASA’s relationship with the profession will evolve and what level of oversight it will engage in. That is something that will have to be worked out between the profession – the CARB in our case – and IAASA itself.
“The better the job is done by the individual Institutes the less likely it is that IAASA will have to get involved at a deeper level but they have adequate powers within the legislation to do that so it is very important that we work out a strong and co-operative role between ourselves and IAASA.”
IAASA is just one of the bodies with whom the CARB will have an important relationship. Other regulators with whom it will have direct engagement include the Public Oversight Board (POB) in the UK, and the financial regulators in the UK and Ireland. Mutual respect is fundamental to all of these relationships. The CARB will also have a relationship with the general public and with the users of accounts. Growing and developing these relationships will be an important element of the CARB’s strategic plan.
Mr O’Reilly says that CARB’s major job is to set the tone and policies and to make sure that the various Committees reporting to it are doing their job properly but he stresses that it is the Board’s role to supervise, not to be involved in the due process of its operational committees.
Asked what, in his view, the fears of Chartered Accountants about the new body are likely to be, Mr O’Reilly pointed to the obvious fear of the potential costs of burgeoning infra- and super-structure.
“I think that fear is going to prove to be unfounded. There is not going to be a new infrastructure put in place – the infrastructure is already there. The important job that is being done by CARB is to demonstrate clear independence in the way that the regulatory functions are discharged. It is important that anything we do is done in an orderly way. Things are changing, and have changed, so it would be foolish to say that there will not be further growth and development - but one of our tasks will be to make sure that happens in an orderly way and is not destructive or over-burdensome. Chartered Accountants are already aware of regulation and the tasks that they have been set in that regard are increasing. Our role is to make sure that the reputation of the accounting profession continues to be maintained. What has happened domestically and internationally is that there were questions raised about the profession and as a result of those questions being raised assurances are being given. On the part of the ICAI, those assurances are being made in terms of the establishment of the CARB.”
In establishing the CARB, the Institute of Chartered Accountants in Ireland is trail blazing. It is not the first time the ICAI has taken a leadership position on a major issue and it is unlikely to be the last.
Daisy Downes is Editor of Accountancy Ireland magazine.