The auditing of the 2008 accounts of the six banks and buildings societies that were the subject of the Government guarantee of that year was “satisfactory”, the regulatory body that oversees the profession has concluded following a major review.

However the Chartered Accountants Regulatory Board (Carb) report also concluded that the international standards governing the audits were “wanting” and has recommended a shift towards a more “principles based” regime.

The in-depth review, conducted by six Carb staff and headed by a senior Scottish expert, chartered accountant David Spence, took a number of years and involved a detailed examination of the records of the auditing firms involved and a questioning of the relevant personnel.

KMPG audited the 2008 accounts of AIB, Irish Life and Irish Nationwide, while EY audited those of Anglo Irish Bank and EBS, and PwC those of the Bank of Ireland. However the report does not mention particular banks or firms and is more general in content. Carb director Heather Briers said this was because it can only name firms if there is a sanction against them, and has no authority to regulate or name banks.

The report focused on the issue of loan impairments, which was the dominant topic for auditors working on the 2008 accounts. The Carb investigation found that the firms involved all devoted substantial resources to the issue and substantially more time than was the case with the 2007 accounts. The work included input from colleagues in foreign branches of the global firms.

However a new international rule, enshrined in law within the EU, and which had been introduced in 2005, dictated that provisions could not be made for loan losses deemed likely to occur in the future, and that this applied “no matter how likely” the losses were. Rule IAS 39 ensured that impairments could only be recognised in respect of circumstances existing at the balance sheet date.

The effect of the rule, which was designed to stop banks trying to “smooth out” their profitability over an extended period, using the level of impairments held on the books, meant that some auditors began to question whether the rules were “fit for purpose”.

Some banks tried to compensate for the effect of the rule by issuing statements warning that loan losses might increase significantly depending on how the then crisis in the property market developed.

However the report said more emphasis should be put on the “true and fair” stipulation for audited accounts, as against the qualification that was so in relation to the relevant accountanting standards.

“Carb believes that all interested stakeholders should discuss how a principles-based framework for the future could be developed,” the report said.

Carb chairman Don Thornhill said no member of the Carb board who might have had a perceived conflict in relation to the report, was involved with its production.