Negotiations on an observer role for the Department of Enterprise, Trade and Employment at the Institute of Chartered Accountants' (ICAI) inquiry into professional or business misconduct by accountants named in the McCracken Tribunal report have run into difficulties.

With the inquiry due to start in the week beginning October 13th, the ICAI has not yet agreed to allow the Department to send an observer. ICAI chief executive, Mr Sean Dorgan insisted last night that no decision has been taken to exclude the Department from the inquiry. But the Department is understood to have sent a strongly-worded letter to the ICAI this week, insisting that it attend. One source suggested that the letter pointed out to the ICAI the powers that the Department could invoke to ensure its attendance at the inquiry.

In the Dail yesterday, Ms Harney said she was "very disappointed that the institute has not yet acceded to my request to have my Department observe the proceedings of the committee of inquiry. I am pursuing this matter vigorously with the institute". In a thinly-veiled threat to the institute, Ms Harney warned she had no reason "at present" to review the self-regulatory status of the accountancy profession. Industry sources said the ICAI has argued that there are serious legal difficulties militating against acceding to the Department's request. It is understood that the ICAI's legal advice is that the presence of a third party at the proceedings would amount to publishing the proceedings and any charges laid against the ICAI members involved.

The Department sought observer status at the inquiry because of "the enormous public interest in the matter" and to ensure that "justice should be seen to be done", Ms Harney said when the inquiry was first announced. The Minister wants to ensure that all the issues that come up at the inquiry are recognised by the Department so that the regulation of the financial sector can be improved.

The inquiry, the first to be carried out by a professional body into the conduct of its members, is to be headed by retired Supreme Court judge, Mr John Blayney. The ICAI has undertaken to publish the findings of the inquiry together with details of any sanctions imposed on the members.

The ICAI members named in the McCracken report included former Taoiseach, Mr Charles Haughey; Dunnes Stores trustee, Mr Noel Fox; and Dublin accountancy firm, Oliver Freaney, which acted as auditor to Mr Michael Lowry's refrigeration company, Streamline, and as financial consultants to Dunnes Stores.