Rules for bank auditors during crisis since 'found wanting' - Banking Inquiry
Rules for bank auditors in place during the economic crisis have since been 'found wanting', a former leader Audit partner of Bank of Ireland said today.
Mr John McDonnell of Price Waterhouse Coopers (PwC) told the Banking Inquiry that the rules which applied had the time had since been tested and found wanting and changes had now been made.
Accounting rules at the time of the financial crisis “did not allow the recognition of future events or risks”, said Mr McDonnell.
He stressed, however, that at the time these were the “prevailing rules” and had to be applied “notwithstanding one’s view of their fitness for purpose”.
Mr McDonnell told the inquiry that audits did not exist "to provide general comment or opinion on a company’s business model”.
He explained that the primary purpose of an audit was to provide an independent assurance to shareholders that the financial statements had been prepared in accordance with international financial reporting standards (IFRS).
These financial statements were “not intended to provide all the information that users may need to make economic decisions” said Mr McDonnell.
“Matters such as stability and capital adequacy are outside the remit of accounting standards.”
Mr Ronan Murphy, Senior Partner at PwC said his company was the statutory auditor of Bank of Ireland from 2001 to 2010, Bank of Scotland (Ireland) for 2009 and AIB for 2001.
He said bank auditors now needed to find a way to “give much more insight” about comes out of an audit.
If investors wanted to know where critical judgements were made “we have to consider how to respond”.
Mr Murphy said there needed to be “much more transparency around the gap between what stakeholders expect and what we can deliver.”
He defended auditors against public comments that they were not sceptical enough saying “our reporting in public is limited by statute to our audit report”.
There was no capacity for the auditor to make comment on the quality of the judgement within the financial statements.
Audits from the start of the financial crisis, he said, “were clearly challenging due to the inherent uncertainty facing the Irish and global economies and the particular issued face by Irish Banks”.
His company stood over the quality of the audits and financial statements for their three clients “and the robustness of the audits opinions”.