Accountants beware - the new scrutineer has arrived

Ian Drennan, the chief executive designate of the body set up to act as a watchdog over the accountancy profession, has probably seen his share of the seamier side of Irish corporate life.

A former employee of the Comptroller and Auditor General (C&AG), Mr Gerry Purcell, he spent nine months working on an investigation of Irish banks' use of bogus non-resident accounts to aid customers in dodging their deposit interest retention tax (DIRT) liabilities.

That investigation was sparked by a series of media reports, and ultimately led to the Dáil Public Accounts Committee's DIRT inquiry, which left the great and good in Irish banking looking very small and decidedly bad.

Mr Drennan has recently left the Office of the Director of Corporate Enforcement (ODCE), which recently published the report of the High Court inspectors, Mr Tom Grace and Mr John Blayney, into a decade of shody practice in National Irish Bank (NIB). They uncovered various forms of skulduggery including aiding and abetting tax evasion, and overcharging customers interest and fees.

In fact, you could probably say that the seamier side of corporate life helped to create Mr Drennan, or at least his new job, chief executive (designate) of the Irish Auditing and Accounting Supervisory Authority (IAASA).

This body is the Government's response to recommendations made by one of the groups it established to examine how the various checks and balances in our corporate and tax law systems did not work, and what could be done to repair or renovate those systems to ensure that they had proper safeguards.

The group, chaired by Senator Joe O'Toole, was given the brief of coming up with a system to ensure that accountancy's self-regulating professional bodies, whose job it is to investigate and discipline members who step out of line, do their job properly.

The IAASA is that group's brainchild. Mr Drennan says that its job is not actually to regulate the regulators, and is more to act as a watchdog over both the professional bodies and accountancy practices and standards as a whole.

He explains that the body has four core functions. "The first is to supervise the manner in which the bodies regulate and monitor their members," he says.

"If the IAASA forms the view that a body has not followed its own investigative and disciplinary procedures, it can direct them to go through the process again. It can annul decisions and it has the latitude to impose a monetary fine in some circumstances."

Those powers mean that the IAASA can, for example, find out why one of the professional bodies has not investigated a member when it appeared that one was warranted, or scrutinise the manner in which the investigation was carried out. The fines can be up to €125,000.

Initially, Mr Drennan's work will focus on those professional bodies whose members are entitled to audit companies. These are the Institute of Chartered Accountants in Ireland and its English and Welsh counterpart, the Association of Chartered Certified Accountants (ACCA), the Institute of Incorporated Public Accountants and the Certified Public Accountants.

Its remit will eventually stretch to the Chartered Institute of Management Accountants and the Chartered Institute of Public Finance Accountants.

It will also fulfil a role similar to that of the Financial Reporting Review Panel in the UK.

"It can review the accounts of certain companies - that is those with a turnover of more than €50 million and total assets of €25 million - to establish whether or not they have complied with the Companies Acts," he says.

This effectively means that his office will have the power to review the accounts of the State's biggest companies, including its listed companies, to ensure that they give a true and fair view of their affairs.

This role effectively means that the IAASA will be scrutinising the audited accounts produced by companies that fall within its remit. However, Mr Drennan points out that breaches of company law in this area - for example, failing to keep proper accounts - are still the responsibility of his former employer, the ODCE.

"If we believe that accounting standards have not been adhered to, we can write to the directors and request an explanation, and we can demand, if it's appropriate, to have the accounts re-stated," he says.

"Ultimately, we can bring the issue to the High Court and get an order of non-compliance."

Mr Drennan explains that the High Court can make a range of orders, including demanding that the accounts and individual directors' reports be revised.

The erring companies will have to pick up the legal bill.

The legislation also allows the IAASA to pass on the cost of reviewing accounts to the company involved.

That part of Mr Drennan's role is heavily focused on directors, who have the ultimate responsibility to produce proper accounts in the first place.

The legislation, the Companies (Auditing and Accounting) Act 2003, will also require directors to sign compliance statements guaranteeing that their companies have the necessary internal controls to ensure compliance with the tax and company codes, as well as any other relevant legislation.

Ironically, Mr Drennan's new role means that he is a director himself. The State plans to establish the IAASA as a company, largely because it has a number of stakeholders, namely the State, the accountancy bodies and the Irish Financial Services Regulatory Authority. The accountancy bodies are part-funding the IAASA and will be represented on its board.

His first job will be to come up with a programme of work and, from there, staffing and budgets will be finalised. At that stage, the Minister will sign the necessary orders and the IAASA will be up and running.

It's temporarily based in Parnell Square in Dublin, but its permanent home is likely to be in Naas.

Mr Drennan knows a thing or two about accounting. He is a member of the ACCA and, like most people who share his qualification, began his training on the job after he left school. He worked in the private sector for a few years before joining the C&AG's office in the early 1990s.

He spent his time there auditing Government Departments, and agencies such as the IDA and Enterprise Ireland.

He then moved to the Department of Finance, where he had responsibility for auditing European structural funds and subsequently did a stint in the Department of Health before joining the ODCE.

There he focused on corporate compliance, and drafted guides for both directors and auditors. This meant that he spent a lot of time liaising with accountants and directors - the groups on which his new job is also focused.

He says he has no regrets about leaving the private sector at a point when demand and rewards for people with his skills was taking off.

"My father was a civil servant, so it's in my background to a certain extent," he says. "The opportunity presented itself and I applied, and I think it was the best thing I ever did."

Hopefully it will turn out to be have been a good thing for standards in his own profession as well.

Name: Mr Ian Drennan.

Position: Chief executive designate, Irish Auditing and Accounting Supervisory Authority (IAASA).

Background: He trained and qualified as an accountant (Association of Certified Chartered Accountants) after he left school. In the early 1990s, he joined the Office of the Auditor & Comptroller General, where he worked on the DIRT investigation. He subsequently worked in a number of other Government Departments, including health and finance, before joining the Office of the Director of Corporate Enforcement when it was established in 2001. He was recently appointed to the IAASA.

Why he is in the news: He is charged with getting the newly established auditing and accounting supervisory authority off the ground. It will have the power to monitor the self-regulating bodies that govern accountancy in the Republic and will also review the accounts of the country's larger companies, including those listed on the Irish Stock Exchange.