Nyberg report criticises role of auditors

 

The Nyberg report into the Irish banking collapse has criticised the role of external auditors in failing to identify and warn of the risky lending practices being adopted by Irish banks.

The commission of investigation, conducted by Finnish financial expert Peter Nyberg, said auditors took a narrow interpretation of their job description and remained "silent" during the excesses of the boom.

It found the external auditors of the main Irish banks consistently failed to report “excesses over prudential sector lending limits” to the Financial Regulator.

The problems in the Irish banks were building for several years before the crisis erupted in 2008, it noted. These problems related to credit quality, sustainable lending practices and adequacy of internal procedures.

“They [the problems] were not generally operational problems related to the IT systems or the mechanics of loan documentation,” it said. However, auditors did not feel that commenting on the implications of such business model problems fell within their proper remit.

“In fact, it may be questioned whether they even saw them as problems since very few others appear to have seen them either. On these issues, they appear generally to have stayed silent,” the report concluded.

Nyberg’s 156-page report, however, did concede that even if auditors had reported concerns to the Financial Regulator, “it appears unlikely that anything would have been done about it as in general the regulator was already aware of such limit excesses”.

Accountancy firm Ernst & Young has initiated a High Court challenge to an investigation into its conduct as auditors when dealing with loans to directors of Anglo Irish Bank.

The firm is seeking orders halting the inquiry by special investigator John Purcell, who was appointed by the Chartered Accountants Regulatory Board of the Institute of Chartered Accountants of Ireland.

As a result of the global financial crisis, several initiatives are under way to explore ways of tightening audits control and make conform to the “watchdog” expectations.

Mr Nyberg’s said it would be useful if the Irish authorities, “building on their own experience, would take an active role in these deliberations”.