Shareholders need to assert their power to approve the appointment of auditors in order to ensure the independence of their work, according to the chairman of the International Accounting Standards Board Sir David Tweedie.

Stating that the issue of "who appoints auditors in the first place" was as important to ensuring auditor independence as the other work they may undertake for clients, Sir David suggested shareholders and institutional investors should be more active in nominating audit committee members.

Sir David, who is the former heard of the UK Accounting Standards Board, was speaking at a reception to announce the forthcoming Institute of Chartered Accountants in Ireland's (ICAI) annual practice conference, which will be held in Dublin on April 11th and 12th.

Stating that his board's target was to develop a single set of high quality global financial reporting standards, Sir David suggested the power to appoint the auditor was a key and largely ignored corporate governance issue in the post-Enron environment. Proper appointment procedures, which would ensure their independence, would remove some of the pressure on auditors, he suggested.

While they are in theory appointed by shareholders, in reality they are appointed by directors and often by the executive directors on whose work they must express an opinion, he explained.

"They are the people who pay them ... if they fight with the board and won't give in, they will complete that audit but when it goes out to tender they won't be reappointed," he suggested.

Corporate governance underlies the whole area of auditor independence, according to Sir David.

The work of the International Accounting Standards Board involved tough decisions and unpopular stands, he warned.

He suggested that assets and liabilities of companies which had been moved off balance sheet may have to move back on and unrecognised expenses may have to be recognised in the income statement under the new rules.

The board hoped to have "gone a long way down the road" to having its rules agreed by 2005, he said. On accounting firms providing both auditing and consultancy services to clients, he said the market would "sort it out". There must be big question marks over the provision of some services, where they affect the ability to do an effective audit, such as assisting with the internal audit, he said.