The Irish system works, apparently, because, since there are no rules,breaches of the rules are extremely rare, writes Fintan O'Toole
In demographic terms this is a very young society. In cultural terms it often seems to be a very old one. Its old age expresses itself, not in maturity, but in senility. There is a kind of collective Alzheimer's in which everything that happens is almost instantly forgotten. Someone steps outside the room, comes back in again and appears as a complete stranger.
Last week, for example, the stock markets were in a panic because of the continuing revelations of corporate fraud on a massive scale. After Enron came WorldCom and Xerox, after which no doubt will come many others. It was clear, moreover, that some of the biggest and most prestigious accountancy firms, which are always brought in to tell us all how to conduct our affairs, have lent their prestige to the flagrant cheating of stock-holders and therefore of pensioners and employees.
The natural question that arises from such a story is: could it happen here? That was precisely what Richard Downes asked Roger Acton, national director of the Association of Chartered Certified Accountants, on Morning Ireland on Thursday. Mr Acton's reply was that there was really nothing to worry about. Our accountancy culture is different, apparently.
Over there, said Mr Acton, there is lots of regulation, and rules just encourage people to find the loopholes. "You will find that for every rule that comes on stream there are going to be other people who will find ways around the rules." We, on the other hand, don't go in for anything as vulgar as rules. We have "broad principles backed up by strong codes of ethics . . . so even if there is no specific rule, the auditor would know that there is a principle."
The conflict of interest that arises because supposedly independent auditors are at the same time earning vast sums as consultants to the firms they are auditing may exist in Ireland, but "professional codes and professional ethics don't allow that to happen".
This Candide-like innocence may be refreshing in these cynical times. There is a delightful logic, too, to the notion that it is best not to have statutory rules since they only encourage people to think up ways of breaking them. The Irish system works, apparently, because, since there are no rules, breaches of the rules are extremely rare.
The degree of amnesia in these reassurances, however, is quite staggering. In the past decade we have the most flagrant examples of the failure by accountants to ensure that the affairs of some of the most important Irish companies were accurately represented in their accounts. A full tour of these scandals would be long and tedious, but the highlights are obvious enough.
The beef tribunal dealt with a massive tax evasion scheme at the Goodman Group of companies. Initially, the scheme was relatively simple, paying a large proportion of wages under the counter. Even after these payments were discovered by a diligent auditor from Stokes Kennedy Crowley, they continued for another four years. SKC, however, put in place a complex scheme that made it look like under-the-counter payments were really loans to employees. In reality, as the tribunal report made clear, the money was still just wages from which tax and PRSI was not deducted.
The McCracken tribunal threw up very serious questions for accountants Oliver Freaney and Co and Deloitte and Touche who were joint auditors to Dunnes Stores. Noel Fox, a partner at Oliver Freaney, was an adviser to Ben Dunne in the period when the company facilitated large-scale tax evasion by Michael Lowry. Oliver Freaney were auditors to Garuda, the company owned by Mr Lowry. Deloitte and Touche looked after the affairs of Charles Haughey, who was, amusingly, an honorary member of the Institute of Chartered Accountants in Ireland (ICAI). Payments to Haughey were not identified in the Dunnes accounts. The system of recorded transactions between Dunnes and Garuda was, according to Mr Justice McCracken, a "sham".
The Public Accounts Committee report on the DIRT scandal was highly critical of the auditors of AIB and ACC banks, PricewaterhouseCoopers and Ernst & Young. Neither firm made any provision in the audited accounts of the banks for massive potential DIRT liabilities, even though those liabilities were so big that they might render the banks technically insolvent. The true state of AIB's finances, in particular, was considerably worse than a shareholder reading the accounts might have been led to believe.
These three cases alone are enough to make it quite clear that the culture of accountancy and auditing in Ireland is subject to the same problems that are undermining the financial system in the US, even before we get this week's Ansbacher report or the reports of the Flood and Moriarty tribunals. While there are many honest accountants, there are clearly some who think ethics is a county in south-east England.