SERIOUS defects and weaknesses in the statutory external audit contributed to the bogus non-resident account problem and must be addressed urgently, the sub-committee report says.
The report is sharply critical of the auditors of the AIB and ACC banks - PricewaterhouseCoopers and Ernst & Young - and of internal audit committees within some of the banks. Last night, the Institute of Chartered Accountants said the findings concerning the external audit were a matter of "grave concern". ICAI chief executive Mr Brian Walsh said the institute would investigate the criticisms of some of its members to establish whether they had a case to answer.
The Public Accounts Committee's sub-committee has called for the setting up of a review group to examine the functions, independence and reliability of external auditors. This group should be set up by the Department of Enterprise, Trade and Employment and should report back to the Oireachtas within six months.
Among the issues the group should consider are:
whether accountancy firms doing external audits should be involved in the provision of other services such as tax advice and consultancy;
how audit fees should be determined;
possible over-dependence of external auditors on a management that in practice appoints and remunerates them;
the role of the external auditor in ensuring compliance with statutory provisions (for example DIRT legislation);
whether the Central Bank should set the scope of management letters issued by external auditors to financial institutions;
whether audit standards pertaining to financial institutions need to be strengthened;
whether financial institutions should have joint auditors - one to be proposed and appointed by the Central Bank.
Finding that there was "no deal, agreement or amnesty" for the write-off of tax between AIB and the Revenue Commissioners in 1991, the sub-committee was highly critical of the bank's external auditors, PricewaterhouseCoopers.
The auditors should not have relied on the findings of the AIB internal audit committee on the bank's DIRT liability or on the memorandum of Dr Donal de Buitleir of March 12th, 1991, referring to a tax deal with the Revenue Commissioners. They should have sought "independent written confirmation" to support the assertion of a tax amnesty.
Ernst and Young, the ACC Bank external auditors and tax advisers, were criticised for dropping their own calculation of the bank's DIRT arrears. This was "without justification".
Ernst and Young "acted improperly" in not challenging the non-disclosure of its "enormous problem with arrears of DIRT" by ACCBank at the meeting with the Revenue Commissioners of February 18th at which they were present and were in possession of the information. In a statement issued last night Ernst & Young took "serious issue" with these findings. "In particular, the firm refutes any suggestion it acted improperly". KPMG, tax advisers to National Irish Bank, were criticised because the formula they worked out with NIB for its negotiations with the Revenue ignored any risk factor, other than the absence of documentation, and disregarded the findings of the bank's 1994 theme audit, which found the bank's compliance with DIRT regulations unsatisfactory.
While the introduction of the internal theme audit by National Australia Bank was "a valuable innovation", the sub-committee said its findings were largely ignored by senior management.