The government of the Irish Republic is establishing a review group to examine the role of auditors to the country’s financial institutions, with a six-month deadline to produce a report that could have major implications for the profession.
The inquiry follows a parliamentary committee investigation which uncovered the widespread use of bogus non-resident accounts by Irish banks in the recent past to avoid deposit interest retention tax or DIRT, and which highlighted serious defects and weaknesses in audits carried out in the sector by major accountancy firms.
In its report, the committee was sharply critical of PricewaterhouseCoopers, auditors to Allied Irish Banks – the main bogus account offender – as well as Bank of Ireland. It also criticised Ernst & Young, in connection with ACC Bank, and KPMG in its work with National Irish Bank.
Among the measures proposed by the committee, aimed at tightening up auditing procedures and ensuring stricter compliance with tax legislation, is that an auditor’s term be limited to a maximum of five years, after which a new firm must be appointed.
It questions whether an audit firm is placed in a potential conflict of interest when it also provides the client with accounting, tax and consultancy services. Another recommendation is that financial institutions should have joint auditors, one of which would be appointed by the Irish Central Bank.
These proposals, together with the issue of whether the sector should continue to be self-regulated, will now be examined by the review group, which has been asked to report by May 31. Enterprise Trade and Employment Minister Mary Harney, announcing the review, said she believed it would ‘go some way towards improving public confidence in the auditing profession’.
The Institute of Chartered Accountants of Ireland is planning its own inquiry into the conduct of some members mentioned in the parliamentary committee’s report.
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