A 250-page report by the Audit Review Group has given the State's accountants much food for thought and, despite putting a brave face on it, they are finding many of the 80 recommendations hard to digest.
David Simpson, president of the State's largest accountancy body, the Institute of Chartered Accountants in Ireland (ICAI), acknowledges the level of anxiety within the profession which is to have sweeping changes foisted upon it because of its failure to detect widescale DIRT evasion in the 1980s and 1990s. He is keen to stress the ICAI has been proactive in embracing change in recent years and is confident that the proposed oversight board will be hard-pressed to find faults with the existing self-regulatory regime and could ultimately be a very positive development for the profession.
The accountants could hardly have been surprised by the contents of the report, which was presented to the Dail Committee of Public Accounts (PAC) this week. The PAC, through the DIRT Inquiry, had established many shortcomings in auditing practices, which it believes facilitated tax evasion on a huge scale for a prolonged period. The Inquiry also raised concerns about the independence of auditors and made a further dent in public confidence in the profession.
The report aims to "plug the holes" and ensure that auditors will not be able to claim in the future that they were not aware of wrongdoing in corporate Ireland.
The most fundamental change is that the ICAI and the other accountancy bodies will have a big brother constantly looking over their shoulders, supervising how they regulate their members. Mr Simpson is very sensitive to the suggestion that self-regulation has been withdrawn from the profession, although he suggests that could be the eventual outcome if the board is overly aggressive.
"Self-regulation is not ending but if the oversight board decides it wants to intervene or second guess or undermine our disciplinary committees then self regulation would, in effect end."
The report advocates the creation of an eight-member board, primarily drawn from outside of the accountancy profession, to monitor and report on how effectively the bodies are regulating the accountants.
The ICAI has taken exception to the range of powers to be assigned to the board claiming it will create one of the toughest regulatory regimes in the world. The board will have the power to supervise investigations, discipline and appeals arrangements at each body and can impose fines of £100,000 where supervisory failures occur.
Mr Simpson says its greatest concern is the extent to which the board might become interventionist. "If the board simply reviews, monitors and assesses how the recognised bodies carry out their regulatory function and then publishes an annual report that says we have looked at the processes and are happy that they work, then its presence will not have huge implications for the profession. If, however, the board were to intervene, as it can, and investigate specific cases then obviously there is a situation there where individual practices could be affected."
The Tanaiste, Ms Harney has given the accountants and other interested parties a two-month breathing space to allow for further discussion on contentious issues. Mr Simpson says it will be using that time to get a better feel for the role the board is likely to adopt and will be seeking further details on situations where financial sanctions can be imposed.
"The board as we envisage it will be very helpful. For the first time there would be a body of professional people who will become experts and will really understand regulation, who will be able to interface with Government. We don't want this to become a bureaucratic quango. We want it to decide whether we are good regulators.
"We believe the report is introducing some of the toughest regulatory regimes in the world. The board can investigate and intervene in specific cases and I don't believe there is an oversight board in any other jurisdiction that can actually do that" says Mr Simpson. While the board could be very helpful, the Institute has warned it will not tolerate it undermining its own disciplinary work. "If that happened, we would have to say you can't have your cake and eat it and ask them to regulate. But you have to ask would regulation be done any better. Would this oversight board have the expertise to effectively regulate the whole accountancy profession in Ireland?"
The ICAI spends over £1 million a year monitoring its 11,500 members. Members and their firms are subjected to regular visits as part of the ongoing review of professional standards. "Self-regulation is not just discipline, it's monitoring professional standards and practices. Those visits are very detailed and very comprehensive and reports are made back to institute committees. Meanwhile the disciplinary arm looks at complaints against members and member firms. Those complaints are investigated and where a case exists this is forwarded on to a disciplinary committee" he explains.
The ICAI has established a series of high profile inquiries into allegations of professional misconduct by some of its members arising out of evidence given to the various tribunals of inquiry. Mr Justice Blayney has overseen the investigation into members named in the McCracken report and two years on his findings are now being appealed. The appeals committee will shortly meet to address member's objections.
It has also appointed Mr Ian Percy, who chaired the Maxwell Inquiry in Britain, to examine the role of its members in the evasion of DIRT.
The DIRT hearings will be held in public following a change in ICAI membership rules and Mr Simpson is confident this development will do much to restore confidence in its regulation of the profession.
At the PAC, the Tanaiste referred to the very privileged position enjoyed by the profession in being allowed to regulate itself but firmly stated this structure hadn't always worked. Common criticisms hurled at the institute are that fines imposed for wrongdoing are too small and little damage is done to the reputation of those involved. It has also been accused of going easy on the big five firms, with smaller members bearing the brunt of any censure. Mr Simpson insists that the profession should be given a chance to prove that it is an effective regulatory body. "I think a lot of people don't understand that the profession recognises the need for change."
He rejects suggestions that such changes were only embraced when it became obvious that they would eventually be forced upon them following the damaging revelations which highlighted tax evasion schemes designed by accountants.
"It is not fair to say we simply responded to tribunals or criticism. We will continue to change and to look at what we are doing. We are not stupid people. We believe our disciplinary practice is effective but people haven't been able to see that and that is a fair criticism and is one of the reasons why we have changes."
