Presentation to Members of the Complaints Disciplinary and

Presentation to Members of the Complaints, Disciplinary and Appeal Committees ICAI Training Day Radisson Hotel, Dublin 1 March, 2005 Ian Drennan Chief Executive (Designate)

Overview • 2003 Act – Overview • The Authority – Overview • Objectives/Values/Assumptions • Approach • Going Forward • Powers & Sanctions

The 2003 Act • RGA’s recommendations given the force of law by the Companies (Auditing and Accounting) Act, 2003. • The 2003 Act deals principally with: – 1. Provisions for the establishment of the Authority; and – 2. ‘Other Measures to Strengthen the Regulation of Auditors’, including: • statutory backing for prescribed bodies’ disciplinary procedures; • statutory backing for accounting standards & requirement for the disclosure of accounting policies; • audit committees; • disclosure of auditors’ remuneration (analysed by audit, audit related and nonaudit); and • Directors’ Compliance Statements.

The Authority • While established by statute, and therefore a State body, the Act provides that the Authority will be constituted as a company limited by guarantee. • Company’s objects: – ‘To supervise how the prescribed accountancy bodies regulate and monitor their members; – To promote adherence to high professional standards in the auditing and accountancy profession; – To monitor whether the financial statements of certain companies and other undertakings comply with the Companies Acts; and – To act as a specialist source of advice to the Minister on auditing and accounting matters. ’

The Authority • A ‘Prescribed Accountancy Body’ is defined as: – a ‘Recogised Accountancy Body’; or – any other body of accountants prescribed by the Minister. • A ‘Recognised Body’ is one that has been granted recognition for the purposes of section 187 CA, 1990 (i. e. for audit purposes) • Currently 6 recognsied bodies: i. e. – – ACCA ICAI, ICAEW, ICAS ICPAI IIPA

The Authority • Act provides that the Authority will derive its funding thus: – 40% from the exchequer; and – 60% from the Prescribed Bodies. • Authority also has latitude to levy certain companies for ‘Reserve Fund’ purposes. • Reserve Fund is ringfenced and can only be used for the purposes of meeting expenses properly incurred in performing functions and exercising powers under sections 24 and 26 i. e. investigation and enforcement activities relating to members and companies respectively.

The Authority • Authority currently operating in interim mode. • On formal establishment, Board will comprise 15 directors, nominated thus: – 2 (including the Chairprson) nominated by the Minister; – 3 nominated jointly by the Prescribed Bodies; – 9 nominated by the following bodies (1 each): • IBEC • IAIM • Pensions Board ICTU ISE IFSRA Law Society Revenue DCE – Chief Executive Officer. • A maximum of 5 of the 15 directors may be members of prescribed accountancy bodies.

Authority’s Statutory Remit • The Authority’s statutory remit, insofar as it directly relates to the prescribed bodies, can be broadly divided into the following categories: – Approval; – Supervision; and – Investigation/enforcement.

Approval • The Authority’s approval functions include: – Approval of bodies’ constitutions, bye-laws, regulations and standards, together with any subsequent amendments thereto. – Granting of recognition for the purposes of section 187 CA, 1990 (i. e. for audit purposes). – The attachment of conditions to recognition. – Pre-approval of bodies’ regulatory and monitoring plans.

Supervision • The Authority’s supervisory functions include: – Supervision of the investigation and disciplinary procedures of each prescribed body, including by requiring access to its records and by requiring explanations about the performance of its regulatory and monitoring duties. – Supervision of how each recognised accountancy body monitors its members and the performance of ‘section 25 reviews’ of those members. – Section 25 provides for the review of members of recognised bodies for the purposes of determining whether the body in question is, or has been, regulating its members in the manner approved. – Review of bodies’ reports on their regulatory and monitoring activities.

Investigation/Enforcement • To conduct enquiries under section 23 into whether a prescribed body has complied with its approved investigation and disciplinary procedures. • Where not satisfied that a prescribed body has complied with its approved investigation and disciplinary procedures, the Authority may impose sanctions on that body. • To undertake investigations under section 24 into possible breaches (by a member) of the standards of a prescribed body. • Where a member is found to have committed a breach of a body’s standards , the Authority may impose any sanction available to the body on the member.

Objectives • In discharging its remit, the Authority will seek to achieve the following objectives: – To enhance confidence in the regulatory and monitoring processes governing members of the auditing and accountancy profession; – To protect and promote the public interest through effective, independent oversight; and – To ensure the constitutions, bye-laws, regulations and standards of the prescribed bodies conform to a common high standard consistent with international best practice.

Values/Assumptions • The discharge of the Authority’s remit will be predicated on the following values and assumptions: – The Authority will act in an independent and impartial manner. – Responsibility, in the first instance, for the regulation and, where applicable, monitoring of bodies’ members continues to reside with the prescribed bodies. – The Authority’s processes and procedures for exercising its statutory functions will be open, transparent, publicly available and widely communicated. – In determining the nature and extent of its supervisory activities, the Authority will seek to employ risk assessment methodologies.

Approach • In discharging its functions, the Authority will adopt the following approach: – Each prescribed body will be the subject of a thorough initial review. – As part of that review, each body’s systems, practices and procedures etc. will be ascertained and documented. – Confirmation of the accuracy of the Authority’s understanding of each body’s systems, practices and procedures will be sought.

Approach – Reviews will encompass, inter alia, examination of: • Constitutions/Memorandum & Articles etc. ; • Bye-laws; • Regulations; • Rules of Professional Conduct; • Ethics; • Applicable Standards;

Approach • Complaints handling procedures; • Investigative processes and procedures; • Disciplinary processes and procedures; • Appeals processes and procedures; • The examination of the foregoing will include an examination of, inter alia: – – – Complaints disposal by the Secretary; Consent order cases; Special investigator cases, where applicable; Cases referred to the Independent Reviewer; Committees’ determinations and sanctions imposed.

Approach • Admissions and licensing processes and procedures, i. e. granting, renewal, revocation of certificates and authorisations etc. ; • Monitoring processes and procedures, including: – – selection and risk assessment methodologies; monitoring cycles; monitoring emphasis and programmes; and follow-up to unsatisfactory monitoring visits.

Approach – Bodies’ processes and procedures will be compared any significant different emphases, deficiencies etc. identified. – Any deficiencies addressed as appropriate. – Board approval for bodies’ constitutions, bye-laws, regulations and standards etc. – The scope and frequency of subsequent reviews of each body will be determing having regard to appropriate risk factors, including, inter alia, results of previous reviews.

Going Forward • In addition to initial reviews of each body, the following work will be undertaken: – Examination of, and Board approval for, bodies’ annual regulatory and monitoring plans. – Review of bodies’ annual regulatory and monitoring activity reports. – Performance, on an ongoing basis, of risk based reviews of the bodies, with follow up action as appropriate. – Attendance at bodies’ hearings periodically as observer. – Monitoring, on an ongoing basis, of the adequacy of the bodies’ practices and procedures in light of international developments.

Going Forward – Accept and examine applications for Recognised Body status. – Attach, and continue to monitor adherence to, conditions to recognition. – Arrange for the regulation and monitoring of individually authorised auditors by the recognised bodies. – Examine proposals for, and/or require, amendments to bodies’ constitutions, bye-laws etc. – Develop relationships with the Authority’s counterparts in the EU and further afield. – Undertake any necessary statutory enquiries/investigations.

Powers & Sanctions Section 23 • The Authority may, for the purpose of determining whether a prescribed body has complied with its approved investigation and disciplinary procedures, enquire into: – A decision not to undertake an investigation; – The conduct of an investigation; – Any other decision by a body in relation to a possible breach by a member. • For the purpose of such an enquiry, the Authority may: – Inspect, and take copies of, all relevant documents in the possession or control of a body; and – Require a body to explain why it reached a decision referred to above and/or to explain how it conducted its investigation.

Powers & Sanctions • If not satisifed after completing its enquiry that the prescribed body complied with approved investigation and disciplinary procedures, the Authority may: – Advise or admonish the body; – Censure the body by doing one or more of the following: • Annulling all or part of a decision; • Directing the conduct of an investigation or the conduct of a fresh investigation; • Requiring the body to pay the Authority a sum not exceeding € 125, 000. • Any sanction imposed by the Authority must subsequently be approved by the High Court. • The body has a right of appeal to the High Court.

End of presentation. Thank you.