The Revenue Commissioners want a new State agency to act as a watchdog for the accountancy profession, saying self-regulation of the sector is not satisfactory.
This follows the failure of auditors to the State's financial institutions to uncover the wide-scale use of bogus non-resident bank accounts in the 1980s and 1990s, highlighted by a Dail inquiry.
Its views are contained in a submission to the Review Group on Auditors, seen by The Irish Times. The group was established by the Tanaiste in the wake of the DIRT inquiry to advise on the regulation of the profession.
The Revenue says the issues raised by the ail Public Accounts Committee DIRT Inquiry have heightened its concerns about the level of supervision. At the moment the main professional accountancy bodies are responsible for regulating their members.
The Revenue suggests the watchdog role could be undertaken by the Office of the Director of Corporate Enforcement, the new agency being set up by Ms Harney to oversee the enforcement of company law.
The main concern is that when auditors are faced with difficult decisions they may be inclined to err on the side of their clients rather than the public interest, according to the submission. The Revenue also wants a strengthening of the requirements on auditors to report tax fraud.
The PAC report found that serious defects in the auditing process had contributed to the continuance of bogus non-resident accounts in the 1980s and 1990s. The inquiry established that some of the State's biggest accountancy firms failed to signal potentially large DIRT liabilities which could have affected the solvency of some banks.
In its submission, the Revenue also argues for measures that would ensure greater independence by auditors when dealing with client accounts. These include imposing a cap on the fees an auditor can earn from any one company. It also recommends that auditors be appointed for a maximum of five years. "Such changes should be considered to improve the independence of the auditor or at the very least to increase the transparency of the relationship between the auditor and their clients," according to the Revenue.
In its submission to the group, the State's largest accountancy body, the Institute of Chartered Accountants in Ireland, called for a continuation of self-regulation but was in favour of a regulatory board to oversee the existing regulatory regime.
This body could be affiliated to the UK independent oversight board, which is funded by the profession, according to the ICAI. However the Revenue believes that, while the self-regulatory structure should be left in place, an entirely separate State agency should take a strong role in overseeing this regulation and ensuring compliance to the highest standards.
The audit review group, which is chaired by Senator Joe O'Toole, is due to report to Ms Harney in June. It has already received 30 submissions and more are expected.
The Revenue places "significant reliance" on the work of the auditing profession and says it has a major interest in ensuring the Republic has an effective and truly independent audit profession.
The submission pays tribute to the generally high professional and ethical standards throughout the sector and acknowledges that the main problem facing the sector is to restore public confidence in its work.
The Revenue believes any State regulation should bolster the current self-regulatory process which is in operation. "Self-regulation should continue to be the means for internally auditing the profession, but some external audit is also required in the form of State supervision. This would ensure that standards and guidelines are adequate and are being applied on the ground."
The events revealed by the DIRT inquiry are being investigated by the ICAI. It has said that where professional misconduct is proven, those firms will face severe financial penalties.