A new Statutory board is to be established to police the accountancy profession by early 2001 - ending its long history of self-regulation. The recommendation is one of 80 which aim to tighten up the auditing process and prevent any future failure by the profession to detect widescale tax evasion.
An eight-member oversight board, which will be independent of the Government and the profession, will have wide-ranging powers and is akin to structures which are either in place or under consideration across the EU and in the US.
The report seeks to address the weaknesses in the self-regulatory process which, according to the review group, have lead to minimal and selective sanctions on offending members.
The establishment of the Oversight Board is the best way to satisfy the ongoing requirements for high standards in the auditing profession, according to the report, which recommends that it takeover the main statutory functions for regulation from the Department of Enterprise, Trade and Employment.
It will have responsibility for recognising the six accountancy bodies and must approve the constitution and ethical code and conduct rules for each one.
The accountancy bodies are to be allowed to continue to manage investigations and disciplinary hearings into allegations of misconduct by their members but the Board will have extensive powers to supervise those investigations. Where the body is deemed to have failed in its supervisory capacity the Oversight Board can impose sanctions, which may include public censure and/or financial penalties up to £100,000 in addition to any costs incurred. It will also have the legal option to decide whether a complaint which raises issues of public concern should be independently investigated.
The Board is to be given appropriate staff and funding resources and will be established on an interim basis pending legislation. Neither the chairman nor vice chairman will be members of accountancy bodies.
Members will be appointed for a five-year term by the Minister for Enterprise, Trade and Employment and will include no more than two members of the accountancy profession. The others will be drawn from the business sector, trade unions and Government departments.
The Board is expected to have a budget of £1.5 million which will be funded by the accountancy profession and the Government. The accountants will be required to pay 60 per cent with the Exchequer making up the rest.
The lines of communication between the State's regulatory authorities are also to be enhanced through the establishment of a liaison group which will ensure a good flow of information between the Board, the Central Bank, the Revenue Commissioners and the Offices of the Director of Corporate Enforcement.
On the thorny issue of ensuring the independence of auditors, the report calls for much greater safeguards. It suggests that all non-audit fees paid to an audit firm should be disclosed and explained in company annual reports. Where the non-audit fees earned are greater than audit fees the reason for this must be set out for shareholders - and the company must confirm it is satisfied this arrangement does not compromise the independence of the auditor.
The review group stops short of recommending the rotation of auditors to further strengthen their independence but does recommend that audit contracts should be awarded on an annual basis in an open and transparent fashion.
It wants to see a strengthened role for audit committees suggesting that they meet with external auditors a number of times each year, both in the presence of management and independent of management. Similar meetings should also be held with internal auditors, whose appointment should be endorsed by the audit committee.
The review group wants to see management letters from auditors to the board of directors on the accounts before the financial statements are approved plus an annual report from the audit committee to shareholders which should include their view on the director's compliance report. The external auditors must also give an opinion on the report.
