Urgent call for reform of auditing policies at top firms
Sector has been 'brought into disrepute' after banking crisis
The auditing of major Irish companies and the financial statements put out by leading firms have been "brought into disrepute'' by the banking crisis and fresh reforms are needed, a submission to the EU by the influential body which regulates accountancy bodies and auditors has said.
The group states in the submission: "The current model of financial reporting and audit has not met public expectations in an lrish context and has, as a consequence, been brought into disrepute.''
It has also emerged from the document that the 'Big 4' accountancy practices: KPMG; PWC; Deloitte and Ernst & Young, are now auditing over 90pc of the financial statements published by listed Irish companies.
In the document containing new proposals to reform how auditors and accountants work, the Irish Auditing and Accounting Supervisory Authority says the Irish population as a whole now has a "legitimate interest'' in the financial statements of the banks and the audit work done on them.
It is time to allow auditors to move beyond just reporting the "normal'' issues they have reported over many years under accounting rules, states the organisation.
The organisation argues that auditors should be given "latitude'' from now on to report matters of public interest, possibly in public and not just if regulations or laws are broken.
In the case of big institutions, like banks, powers could be given to auditors to issue public interest reports, although this could only be done if the right legal protections are put in place.
The organisation, which oversees the accountancy bodies, says the standard statutory audit, when applied to big institutions, could be hugely expanded.
Conflict of interests
Ultimately, auditors are paid by the companies they audit, the organisation acknowledges, and as a result there are potential conflicts of interest. As a result, there may be a case for using third parties to pick auditors for important banking groups. For instance, the Financial Regulator could be used for this, states the group.
"It would seem not unreasonable that prudential regulators would have some degree of latitude, within specified parameters, to appoint auditors considered necessary or otherwise appropriate,'' states the organisation's chief executive Ian Drennan (right).
The other area the EU is looking at is how long some audit firms hold contracts with certain companies. Mr Drennan suggests that limiting firms' tenure as auditors should be considered.
While limiting the time and changing auditors risks losing a certain level of knowledge, such a move would help public confidence and help make auditors more independent, states the submission.