OPINION:THE PAST few months have seen the banking sector come under intense criticism from policymakers, the media and the public for what are perceived as failings that contributed greatly to the economic crisis.

There has also been a degree of scrutiny of the role of the auditor, and a number of different analyses of the challenges facing the auditing profession. Questions have been raised regarding the adequacy of the current system of audit and the legal framework within which it operates.

Company accounts are only as good as they are trustworthy and the auditor is a key figure in establishing trust and confidence in the reports issued by companies. Markets hate uncertainty and as we currently see, capital markets without confidence can have very serious consequences for us all.

At its simplest, if capital markets harbour any doubts about a company’s accounts and the quality and accuracy of the audit, that company will find it extremely difficult to raise funds from debt or equity markets. It is essential that company audits provide a fair and accurate portrayal of the financial health of a company.

As the Dáil Committee of Public Accounts commented on its inquiry into Dirt a decade ago: “The formal opinion itself [the true and fair view] is critical to the view formed by the various users [stakeholders, customers, Government] and, ultimately therefore, to the trust placed by them in the integrity of limited liability and incorporation.”

A number of challenges face the profession, challenges that have been made more difficult by seismic changes in the global economy and consequently on financial markets in the past two years. The first challenge is the “audit expectation gap” and describes the difference between what an audit is and what users sometimes think it is. The second is the legal liability framework within which the Irish audit profession operates.

These issues must be addressed, not for the sake of auditors who should properly bear the consequences of their actions, but because the failure of a major auditing firm would cause serious difficulties in capital markets globally and, in Irelands case, impair our ability to support the international investment that must be a key element in our recovery. This systemic risk has been commented on widely both here and internationally, and many believe that it has yet to be satisfactorily addressed.

On the first issue, I believe the audit profession needs to be open to debate with all stakeholders who rely on accounts and audit reports how the expectation gap can be meaningfully addressed. We should ask ourselves whether existing accounting standards and norms really improve the users’ understanding of the financial statements provided to them. We need to consider whether there are steps that we can take that will give rise to better, more relevant audit reporting.

A linked issue is that of auditor liability. Irish company law prohibits the limitation of auditor liability and this, combined with the legal principle of joint and several liability, ensures auditors are liable for losses caused by their actions and failures and for those who may have primary responsibility for such losses.

As Aidan Lambe of the Institute of Chartered Accountants in Ireland has said, more than ever there now exists a real threat of a major auditing firm failing. In all other EU jurisdictions, some form of limited liability is possible, some more effective than others, but Ireland’s regime is the severest in Europe.

We also must address the risk in the system that arises from the dominance of such a small number of very large firms. We would suggest that introducing a system of joint audits, where accounts of large corporations are audited by two or more auditors, is preferable to the current system of a single auditor.

No doubt, opponents of joint audits might accuse us of making a self-serving proposal. But joint auditing is mandatory in France and South Africa and has been widely adopted in Denmark, Germany, Switzerland and India. The Hundred Group of Finance Directors in the UK has suggested a joint audit system could create more choice in the audit of FTSE 350 companies.

A joint audit regime would offer clients more choice and an opportunity to diversify and minimise risk. It would also more effectively allow greater rotation of auditors and can minimise the disruption caused when a single audit firm is changed.

Joint audits might be unpalatable in some quarters, but the profession runs the risk of failing its clients if we do not address current imbalances.

Mark Kennedy is a partner at audit and accountancy firm Mazars