The Department of Enterprise Trade & Employment recently published draft Regulations to implement the 8th EU Directive on Company Law dealing with the auditing of statutory accounts. The Directive was due to be incorporated into Irish law by 29 June 2008. When brought into force, the Regulations will constitute the most important legislative change for auditors in recent years.
The essential objective of the Regulations is to strengthen the quality of audits and audited accounts and underpin the independence and integrity of the auditing profession.
While the draft Regulations are detailed and cover many different areas, they provide in particular for the following:
- the approval of statutory auditors and audit firms by recognised accountancy bodies;
the approval of EU and third country auditors;
- a regime of supervision under which Irish Accounting and Auditing Standards Authority (IAASA) will have the power to oversee auditors;
- compliance with principles of professional ethics and competence. Recognised accountancy bodies will have to monitor auditors and audit firms to ensure compliance with these principles subject to ultimate oversight by IAASA;
- external quality assurance and continuing learning obligations for auditors;
- rules designed to underpin the principle of auditor independence;
- auditors of publicly listed companies will have to produce annual transparency reports and publish these reports on their website. The transparency report must provide certain details including the following:
- details as to the structure and ownership of the audit firm;
- financial information including information concerning remuneration of principals or partners;
- a list of the publicly-listed clients of the audit firm;
- the firm’s policies on independence and continuing education;
- a requirement for listed companies to have an audit committee comprising of at least 2 independent non-executive directors at least one of whom must have competence in accounting or auditing; and
- the rotation of key audit partners and a prohibition on the key audit partner taking up management positions with audited companies within 2 years of his resignation.
In addition to existing law, the Regulations provide that in the case of resignation or removal of an auditor there will be a requirement on the company and the auditor involved to notify IAASA. The Regulations also provide that auditors an only be removed on proper grounds and cannot be removed for differences of opinion on accounting treatments or audit procedures.
Given that the Regulations are in draft form only, they may be amended prior to finalisation. If this takes place, we will provide updates in future bulletins.