Opinion: So two is not enough. What about six, or even eight? Numbers do matter, as they increase the degree of influence. But how valid is the contention of the Institute of Chartered Accountants in Ireland (ICAI) that their representation on the Irish Auditing and Accounting Supervisory Authority (IAASA) is just not sufficient?

The European Commission, the executive arm of the EU, will publish its audit strategy towards the end of this month. It will propose that all member-states should have public oversight boards to act as watchdogs. It will also include a directive that all these boards be dominated (my italics) by members who have no connection with the accountancy bodies.

The ICAI is urging that representatives from the accountancy profession should comprise 40 per cent of the IAASA, based on "other jurisdictions where such a function exists". That would provide the accountants with five or six members - considerably more than the two specified in the Companies (auditing and accounting) Bill 2003, which comes before the Committee Stage in the Senate next Wednesday.

Already some politicians have suggested that the limit should be raised. And the Minister of State at the Department of Enterprise, Trade and Employment, Mr Noel Ahern, has implied that, as there is no restriction as to the profession of the chief executive who will be an ex-officio director, the accountants could end up with three members. Also, the numbers could be increased by ministerial order.

The ICAI argues that, without greater representation of members of the profession on the IAASA board, it will be "unable to fulfil its functions, which require a high level of specialised technical knowledge and experience".

It also states that, while it has always supported the establishment of the Financial Reporting Review Panel, it "believes that the skills required to carry out a technical review of financial statements are not the same as those required to supervise the profession, which is the primary function of IAASA".

That is a facile suggestion; many users of accounts are capable of differentiating between clarity and fudge.

It could be argued that greater representation would provide accountants with too much influence. While the addition of one or two extra representatives should not impinge on the board's independence, giving the accountants five or six members would defeat the purpose of the IAASA. Also, it would be pure folly to appoint an accountant as chief executive who should not only be outside the accountancy profession but should also be the policeman for the board.

While the ICAI has welcomed the publication of the new Companies Bill, it warns that it does not achieve its purpose of implementing the Review Group on Auditing (RGA) recommendations and "without significant redraft, successful implementation may not be possible". Specifically it is concerned that the requirement for company directors to prepare a statement for inclusion in annual reports confirming compliance with "relevant obligation" could have serious consequences.

"The proposed legislation is inconsistent with the RGA recommendations, in that it requires directors to make public disclosure of breaches even when they have already been reported to the appropriate authority, and will apply to all companies which require an audit."

The ICAI argues that this creates barriers to competition and potentially undermines Ireland's ability to attract inward investment.

A contrary view has more validity. The main thrust of the Bill is to increase transparency and provide an independent watchdog to supervise the auditing fraternity. This follows a failure of the profession to convince the public that accountants were capable of regulating themselves. The Goodman and DIRT inquiries spring to mind.

Now it has to be admitted that the accountancy profession has come a long way in penalising offending practices and partners.

And of great importance has been the setting up of the Office of the Director of Corporate Enforcement (ODCE) under Paul Appleby. Significantly, his department has just published the names of about 300 companies, some of whose directors could be the subject of liquidators' applications to restrict them. These are now going to swamp the courts as yesterday's deadline passed.

Contrary to the ICAI's views, the requirement for directors to include compliance statements in annual reports should give investors and traders the greater confidence needed in the aftermath of the Enron and WorldCom scandals. These led to the US authorities passing the Sarbanes-Oxley Act, which led to the establishment of the US Public Company Accounting Oversight Board (PCAOB).

This will have major implications for European auditors, including auditors of domestic companies such as AIB, Bank of Ireland, CRH and Waterford Wedgwood. According to the EU Commission, the draft US rules imply that all major EU audit firms will have to register with the PCAOB; that the personal data of tens of thousands of people working for those firms should be transferred to the US; and that the audit firms have to give access to audit working papers and any client documents. The PCAOB will be able to sanction the audit firms if their work is unsatisfactory.

Under the rules, US audit firms have to be registered by October 2003 and foreign audit firms with US share listings by May 2004.

The EU Commission is totally opposed to these moves. Internal Market Commissioner Frits Bolkestein has called for a moratorium on the registration "so that effective transatlantic and international solutions can be agreed to restore confidence in financial markets without imposing disproportionate burdens on EU businesses and audit firms".

As the provisions about foreign audit firms are in the Act, a change of heart by the US Congress would be needed, which could be difficult. Instead, it looks as if a bitter dispute between the US and the EU could be looming.

"The PCAOB's approach may lead to mounting pressure to require US audit firms to register in the EU," Mr Bolkestein says in diplomatic language.

"That would be unfortunate because it is not in the interest of the audit firms and not in the interest of the investors who pay ultimately for the cost of registration."

In other words; if you do it to us, we will do it to you. Confrontation ahead: US v EU

bmurdoch@irish-times.ie