Some of the measures in the Companies (Auditing and Accounting) Bill currently on its way through the Oireachtas go beyond those being introduced in other jurisdictions and could serve to drive business away, writes Colm Keena
According to Mr David Devlin, an accountant with PriceWaterhouseCoopers and president of the European Federation of Accountants, some of the proposals in the Bill are "too radical" and should be reconsidered.
In particular, Mr Devlin said the proposal to require company directors to report on their companies' compliances with company and tax law was a cause of concern. He also expressed unhappiness with the proposal that all public limited liability companies would have to have their own audit committees, even if they are fully-owned subsidiaries; and the proposal that all private companies have an audit committee.
Writing in the current issue of the Irish Banking Review, Mr Devlin said that urgent reform of the financial reporting process and improved corporate governance were required to restore confidence in capital markets. He said there was a clear link between lack of confidence in the stock markets and the perceived unreliability of financial statements.
However, he said reform should not involve just accountants but all elements of the financial reporting supply chain, including management, directors, audit committees, company advisers and shareholders.
"For our own domestic reasons, as well as due to the role played by foreign direct investment and financial services in Ireland, it is important to have in place corporate governance arrangements of the highest quality, so that Ireland is seen as a good place in which to do business. This will enable us to overcome the history of Irish scandals which are still under investigation."
Mr Devlin said the Government was by no means alone in taking steps to strengthen controls and restore confidence, but that key elements of the Companies (Auditing and Accounting) Bill 2003 went further than recent EU or US proposals.
He said the directors' compliance statement requirement "could well lead foreign investors and others wishing to conduct business in Ireland to consider whether they would be better advised to avoid this responsibility by choosing to conduct their business through a company incorporated in Northern Ireland or elsewhere."
He said the long-term cost to business of not introducing changes would be much greater than the costs associated with the new standards for auditing and accounting and in oversight and enforcement arrangements. However, he suggested a review of the proposals "to see if they meet our requirements in line with the best global standards, while not imposing excessive costs or responsibilities which go further than seem necessary by reference to international norms."
In the same issue of the Irish Bankers' Federation journal Prof Niamh Brennan of UCD's Department of Accountancy said that accounting is "an art, not a science". "The precise numbers and amounts in profit and loss accounts and balance sheets suggest a precision that does not exist. The reality is that financial reports are the product of mulitiple subjective judgements by company directors."
She said a clean audit of those financial reports did not guarantee their accuracy as the auditors did not examine every financial transaction entered into by the company concerned. At the same time excessive stock market focus on short term earnings announcements pressurised managers into exploiting ambiguities in accounting rules in order to manage earnings.
"Individuals who wish to defraud or manipulate the system will always find a way to do so, notwithstanding even the best regulation."
