Comment: Recently there has been publicity about the Companies (Auditing & Accounting) Bill, 2003, writes David Devlin.

Despite the title, the Bill is not just about audit reform - there is a lot of corporate regulation in it as well. In many ways, it's Ireland's version of the US Sarbanes-Oxley Act.

In Brussels last week, Commissioner Fritz Bolkestein launched two important new EU policies - one on corporate governance and company law and the other on audit reform. Both are part of the drive to create a single EU capital market. It is interesting to see how well our Companies Bill fits with the new EU plans.

Firstly, the European Federation of Accountants (FEE) is calling for urgent progression of the European Commission's plans for corporate regulation and oversight of the audit profession in Europe. The year 2003 should be one of audit reform in Europe and FEE wants to spearhead that reform on behalf of its 41 member bodies in 29 European countries, representing some 500,000 accountants.

Independent oversight of the audit profession, conducted in the public interest, is the most visible reform needed, and, for that reason alone, the first priority. It is time for Europe as a whole to come together and develop an effective system.

The Companies Bill proposes to establish the Irish Auditing & Accounting Supervisory Authority (IAASA) to carry out the oversight function in Ireland. It may be necessary to strengthen its power to co-operate with oversight bodies elsewhere, notably in Europe. This would help to guarantee that any cross-border scandal could be investigated in a co-ordinated way.

We should remember that on its own, reform of auditing will not prevent scandals. Other elements in the financial supporting supply chain also need improvement. FEE, therefore, supports the Commission in believing that EU-wide consistency needs to be achieved on such elements of financial reporting as confirming the collective responsibility of directors for financial reporting and the function of audit committees in providing high-quality financial information for investors.

The Companies Bill also addresses corporate governance in Ireland. There are several unusual features in the proposals. Firstly, Ireland will be out of step in requiring every company incorporated as a plc to have its own audit committee, even if it is a wholly-owned subsidiary of another parent company. The EU plan is not to legislate on this matter, beyond requiring listing companies only to include in their annual reports a statement on key elements of their corporate governance. This is a far lighter EU approach to the regulation of corporate governance than is proposed here.

The proposals on audit committees in the Companies Bill should be reviewed to see if they should be required only for listed and other public interest companies and explore the scope for relying on a corporate governance code to address any concerns.

Another feature of the Companies Bill is the Directors' Compliance Statement. Briefly, this will require company directors to report on the company's compliance with the Companies Acts, tax law and any other enactments that provide a legal framework within which the company operates and may materially affect the company's financial statements.

From an EU point of view, the Commission's proposals to modernise company law and enhance corporate governance in the European Union make no mention of any similar proposal. Again, the EU proposals provide an appropriate point at which to reconsider this aspect of the Companies Bill.

The Companies Bill provides that IAASA will review whether the accounts of Irish companies comply with the Companies Acts, including prescribed accounting standards. It is to have much wider remit than is common in the US or Europe, where such arrangements apply only to listed companies.

IAASA needs experts to undertake this demanding work in a manner that commands widespread public support. It is essential that the decisions on technical accounting questions are consistent with those taken elsewhere. Therefore, the Bill should give IAASA the power to co-operate with enforcement bodies elsewhere.

The final, but vital, element of audit reform in Europe is to agree with the US on oversight of the profession. As things stand, individual audit firms in Europe acting for European companies registered with the SEC must, under the Sarbanes-Oxley Act, register with the US PCAOB and agree to be subject to its direct oversight and sanctions. This would be a costly, burdensome and unnecessary exercise.

If oversight arrangements in Ireland and Europe are robust, there is no reason to subject Irish or European auditors to double oversight; it is simply not efficient. Co-operation and mutual respect, not conflict and unilateral action, should be the aim.

Overall reform of corporate regulation and audit in Europe is an urgent priority for 2003. The proposals in the Companies Bill are in many ways radical and go further than the Sarbanes-Oxley Act or the new EU proposals.

There is now a good opportunity to take a second look at Ireland's proposals to see if they meet our requirements for a modern, efficient and well-enforced regime of company law and regulation in line with the best global standards.

Ireland should not impose excessive costs or responsibilities which go further than necessary by reference to international norms.

That said, reform is necessary and all of us have a responsibility to play a part in restoring confidence in capital markets. There will be costs in introducing new auditing and accounting standards and in oversight and enforcement arrangements. However, the cost to business of not making necessary and balanced reforms would be far greater in terms of loss of confidence in business and auditors.

David Devlin is president of FEE - the European Federation of Accountants.