A review group will be established to examine how to improve the effectiveness of the auditing profession and to consider whether the sector should continue to be self-regulated. The Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, will ask the review group to make a final report to her Department by May 31st 2000, she said yesterday.

The DIRT Inquiry report by the Dail Committee of Public Accounts (PAC) had recommended the establishment of a review body after its investigation highlighted serious defects and weaknesses in audits carried out by the major accountancy firms in the banking sector. The PAC report proposed a series of measures aimed at tightening up auditing procedures and ensuring stricter compliance with tax legislation. These proposals will be considered by the review group, but the Tanaiste has requested that its terms of reference should go beyond the PAC's findings and should also examine the operation of self-regulation.

Ms Harney said she believed the review would go some way towards improving public confidence in the auditing profession.

"The auditing profession is an extraordinarily important part of our business life. The complexity and diversity of roles and relationships in which auditing firms are increasingly involved makes this an opportune time to examine how the profession goes about its business and to ensure that it operates according to the highest professional standards" Ms Harney stated.

As part of the review process, the Tanaiste has invited any interested parties to make a submission to the Department of Enterprise, Trade and Employment before January 31st. The group has been requested to evaluate whether any new or revised structures and arrangements for self-regulation in the auditing profession are necessary to improve public confidence in the profession.

The announcement comes in the wake of Government approval of amendments to the by-laws which cover the State's largest accountancy body, the Institute of Chartered Accountants of Ireland (ICAI). The amendments include new disciplinary provisions intended to ensure a more effective system for inquiring into misconduct or incompetence by individual ICAI members. The ICAI has already committed itself to an inquiry into the conduct of some of its members on foot of the PAC investigation into DIRT. The DIRT Inquiry report was highly critical of the auditors of AIB and ACC banks, PricewaterhouseCoopers and Ernst & Young. Any such inquiry will take place under the new code, which provides for public access to investigation and disciplinary hearings.

The review group will consider the PAC's recommendations, which include whether accountancy firms acting as auditors should be involved in the provision of other services, such as tax advice to the company.

It will look at the determination of auditors' fees and the relationship between the auditor and the company senior management. Another option to be evaluated is whether there is any merit in the proposal for the Central Bank to set the scope of management letters issued by external auditors to financial institutions and whether financial institutions should have joint auditors, one to be proposed and appointed by the Central Bank.

The PAC has recommended the introduction of a maximum five-year term for an auditor to a financial institution.

Ms Harney has recently announced the establishment of a new Office of the Director of Corporate Enforcement to ensure better and more effective compliance with the statutory provisions of the Companies Acts and related codes.