Auditors and other accountants should not be too surprised by the recommendations in the report of the Review Group on Auditing.

In the light of the DIRT Inquiry findings of the Public Accounts Committee, the revelations at tribunals such as McCracken, and investigations into companies by officers of the Department of Enterprise, Trade and Employment, it can be no surprise that the Review Group has recommended major changes in the regulation of the profession.

In its drive to provide an adequate level of public assurance that a satisfactory level of standards is in place, the group has made a total of 80 recommendations in its 16-chapter report. The recommendations are set out in chapters seven to 16.

The recommendations range from a new body with wider powers to oversee the accountancy bodies' regulation of their members and with the power to intervene in their operations; increased fines for professional misconduct; the publication of the names of auditors guilty of misconduct; and having a majority of non-accountants on the accountancy bodies' investigation disciplinary and appeals committees. The proposals are aimed at improving the supervision by the accounting bodies of their members and at improving the supervision of the bodies themselves in their roles as regulators.

In framing its recommendations the group was conscious of the very fine line between correcting the weaknesses of the existing system and avoiding the risk of replacing it with "an unduly burdensome and bureaucratic system" of regulations.

But the group stopped short of recommending the jettisoning of the current delegated self-regulation system for the supervision of auditors. It has, however, proposed that the supervision of this self-regulation system be significantly strengthened.

The Review Group has recommended a new statutory Oversight Board to take over the supervision of the framework for audit regulation currently operated by the accounting bodies from the Department of Enterprise, Trade and Employment. But it wants this Oversight Board to have enhanced powers and strong statutory support to encourage adherence to high professional standards, to undertake effective supervision of the accountancy bodies. This Board would have the power to intervene where accountancy bodies "are not carrying out their delegated regulatory functions to a sufficiently high standard".

It should be "predominantly independent of the auditing profession but be accessible, consistent and transparent in the performance of its work, while building on the existing infrastructure for supervision and discipline of auditors and their firms". It should be responsive to stakeholders "who have heretofore not been adequately catered for" and have the authority to intervene "in appropriate circumstances in the monitoring, investigation and disciplinary areas and act on its own account".

This new supervisory body is aimed at ensuring a more effective and equitable system of regulation. The power to intervene where an accountancy body is not carrying out its regulatory role should act as an important incentive to the bodies to improve their own investigative, disciplinary and appeals structures for dealing with complaints about professional misconduct. An overseer with powers to intervene would be a beneficial development, not least because of the significant differences and varying results between the different bodies in the way they operate self-regulation. And the proposed composition of the board with a maximum of eight members, only two of whom can be members of the accountancy profession, should ensure that the wider interests of business and the users of financial statements are taken into account.

On funding for the Oversight Board the Review Group recommended a 60/40 split between the accountancy bodies and the State with the costs to the accountancy bodies allocated according to a formula to be established by the Oversight Board after discussions with the bodies. The accountancy bodies are less than happy with this cost proposal.

Auditing is seen as the poor relation of the more lucrative accounting services such as corporate finance and tax advice and can sometimes be sold almost as a loss leader to get a firm access to provide the other more lucrative services to clients. But the proposed Oversight Board must be seen as a response to the failure of the profession to apply a satisfactory standard of self-regulation. And it would hardly be fair to expect the taxpayer to bear any more of the burden of this failure.

While the group has recommended that the accountancy bodies continue to manage their own investigation and disciplinary matters where there are complaints against members, it has made a number of important recommendations that should improve public confidence in this process. Proposals such as that disciplinary and appeals committee hearings be held in public and that investigation, disciplinary and appeals committees have a majority of independent members (non-members of the accountancy body) must be welcomed as providing a more transparent method of dealing with complaints.

The Group has recommended that the accountancy bodies continue to determine and impose sanctions but said that the level of fines should be substantially raised so as to apply "more meaningful penalties against members infringing or ignoring their duties of professional conduct".

An important recommendation is that members who fail to uphold standards should be named publicly together with the nature of the transgression. The accountancy bodies will have to maintain a register of members who have been disciplined and will have to notify the Oversight Board of all complaints made against members and their decisions on those complaints. At the same time the group has recommended that the ability of the accountancy bodies to investigate complaints should be strengthened with statutory powers to discover documents from members and from third parties, to take evidence under oath and to apply to the High Court for orders and directions including compelling members to co-operate.

The accountancy bodies now have an opportunity to put their views on the Review Group report to Minister Harney. They are expected to have some objections. But, in general, the recommendations appear to allow them the scope to continue to self-regulate within proposed strictures which are both a response to less than adequate self-regulation up to now and to the need to rebuild confidence in a battered profession.