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IAASA – What Does It Mean For Audit Committees? Presentation at the Audit Committee Institute Breakfast Seminar Conrad PowerPoint Presentation
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IAASA – What Does It Mean For Audit Committees? Presentation at the Audit Committee Institute Breakfast Seminar Conrad Hotel, Dublin 25 May, 2005 Ian Drennan Chief Executive (Designate). Presentation Overview. The 2003 Act – overview Objects of the Authority

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IAASA – What Does It Mean For Audit Committees?

Presentation at the

Audit Committee Institute Breakfast Seminar

Conrad Hotel, Dublin

25 May, 2005

Ian Drennan

Chief Executive (Designate)

presentation overview
Presentation Overview
  • The 2003 Act – overview
  • Objects of the Authority
  • Audit Committees and the 2003 Act
  • Compliance with the Companies Acts and the IAS Regulation
  • Review Constituency
  • Objectives of Financial Statement Supervision
  • Proposed Approach
  • Enforcement
  • The Reserve Fund
  • Timetable
the 2003 act
The 2003 Act
  • RGA’s recommendations given the force of law by the Companies (Auditing and Accounting) Act, 2003.
  • The Act deals principally with:
    • 1. Provisions for the establishment of the Authority; and
    • 2. ‘Other Measures to Strengthen the Regulation of Auditors’, including:
      • a requirement to include a statement in individual and consolidated financial statements as to whether those financial statements have been prepared in accordance with applicable accounting standards;
      • a requirement to disclose details of any material departure(s) from applicable accounting standards, together with the reasons for, and effect(s) of, any such departure(s);
      • a requirement for disclosure of accounting policies in the notes to financial statements;

Non-compliance with any of the foregoing provisions will constitute a criminal offence.

supervisory authority objects
Supervisory Authority - Objects
  • The Authority’s principal objects are:
    • ‘To supervise how the prescribed accountancy bodies regulate and monitor their members;
    • To promote adherence to high professional standards in the auditing and accountancy profession;
    • To monitor whether the accounts of certain companies and other undertakings comply with the Companies Acts [and, where applicable, Article 4 of the IAS Regulation]; and
    • To act as a specialist source of advice to the Minister on auditing and accounting matters.’
audit committees and the 2003 act
Audit Committees and the 2003 Act
  • Section 42 will, on commencement, require the boards of all plcs not otherwise exempt to constitute an Audit Committee;
  • The section goes on to prescribe specific statutory functions for such committees. These include:
    • reviewing the individual and, where applicable, group financial statements in advance of presentation to the board for approval;
    • determining whether the financial statements comply with those provisions of the Act relating to compliance with, and disclosure in respect of, ‘applicable accounting standards’;
    • determining whether, in the committee’s opinion, the financial statements give a true & fair view of the entity’s/group’s state of affairs and of its financial performance in the period in question.
  • As a consequence, the Authority’s financial statement review remit will be of direct and ongoing relevance to Audit Committees.
compliance with the companies acts and the ias regulation
Compliance with the Companies Acts and the IAS Regulation
  • In monitoring whether financial statements have been prepared in accordance with company law and, where applicable, the IAS Regulation, relevant considerations will include, inter alia:
    • prescribed formats;
    • statutory disclosure requirements;
    • adherence to ‘applicable accounting standards’ and, in cases of departure from same, disclosure of requisite detail;
    • any matters to which members’ attention has been drawn in auditors’ reports;
    • where applicable, the requirements of IAS/IFRS, as adopted by the EU.
applicable accounting standards
Applicable Accounting Standards
  • Pursuant to the provisions of section 41 of the 2003 Act, ‘applicable accounting standards’ will, on commencement, comprise those:
    • statements of accounting standards; and
    • written interpretations thereof,

that:

    • are issued by any body, or bodies, prescribed for that purpose by regulation; and
    • are, in accordance with their terms, relevant to the reporting entity’s circumstances and financial statements.
  • Standard setting bodies will be determined by the Minister for Trade & Commerce and will be prescribed by way of secondary legislation.
authority s review constituency
Authority’s Review Constituency
  • The Authority’s review constituency comprises:
    • all plcs (whether listed or not);
    • all subsidiary undertakings of plcs;
    • all private companies limited by shares that, in both in the relevant financial year and the immediately preceding financial year, satisfy the following criteria:
      • balance sheet total exceeds €25m; and
      • turnover exceeds €50m.
    • all private companies limited by shares which, when aggregated with their subsidiary undertakings, exceed the aforementioned thresholds;
    • all subsidiary undertakings of the preceding class of private companies; and
    • certain other undertakings, and where applicable their subsidiary undertakings, that satisfy the aforementioned criteria, including unlimited companies and partnerships whose members having unlimited liability are themselves limited companies.
objectives of financial statement supervision
Objectives ofFinancial Statement Supervision
  • Objectives of financial statement supervision:
    • to enhance public confidence in relevant entities’ financial reporting;
    • to promote, and contribute to the protection of, the public interest;
    • to contribute to the enhancement of Ireland’s reputation as a low risk economy in which to invest and conduct business;
    • to contribute to the promotion of best practice in co-operation with interested parties;
    • to ensure that those having legitimate complaints regarding those aspects of financial reporting coming within the Authority’s remit have access to redress;
    • to ensure that instances of non-compliance are addressed in an appropriate and proportionate manner.
proposed approach to financial statement supervision
Proposed Approach toFinancial Statement Supervision
  • Procedures governing financial statement review will be transparent, published and made widely available;
  • Proactive rather than reactive approach to monitoring;
  • Risk based selection methodologies will be employed which may, for example, give rise to:
    • entity/group specific reviews; and/or
    • issue/sectoral specific reviews.
  • A commitology approach will be adopted by the Authority;
  • Emphasis will be on instances of material non-compliance.
enforcement
Enforcement
  • Issues, other than those resulting in a restatement of financial statements or notification to the Registrar, will be dealt with on a confidential basis;
  • Where appropriate, the Authority is likely to seek to resolve issues arising through dialogue with affected parties – audit committees likely to have a key role in such contacts;
  • However, where, in the Authority’s view, a more formal approach is warranted, section 26 of the Act provides a formal enforcement mechanism.
enforcement13
Enforcement
  • In circumstances where there is, or may be, a question regarding a set of financial statements’ compliance with the Companies Acts or, where applicable, Article 4 of the IAS Regulation, and those financial statements have been:
    • disseminated to members in advance of the AGM; or
    • laid before the AGM; or
    • delivered to the Registrar

the Authority may give notice to the directors of the entity concerned.

  • The aforementioned notice must specify:
    • the matters in respect of which it appears to the Authority that a question of non-compliance arises; and
    • a period of not less than 30 days in which the directors are required to furnish the Authority with an explanation of the financial statements or prepare revised financial statements.
enforcement14
Enforcement
  • In the event that, at the end of the specified period, the directors have neither, in the Authority’s opinion, given a satisfactory explanation nor revised the financial statements, the Authority may apply to the High Court for a declaration of non-compliance and associated orders.
  • If, having considered the matter, the High Court is satisfied that an instance of non-compliance exists, the Court may make a declaration to that effect and may, inter alia; order the following:
    • the revision of the financial statements and/or directors’ report;
    • the re-audit of the financial statements;
    • that the directors take specified steps to bring the Court order to the notice of persons likely to rely on the financial statements;
    • that the Authority’s, and reporting entity’s, costs be awarded against the directors (in that context, every person who was a director at the time the financial statements were approved is considered to have been a party to that approval unless s/he can show that they took all reasonable steps to prevent approval (section 26(9)).
enforcement15
Enforcement
  • In the event of an application being made to the High Court, the Authority is required to furnish the Registrar with:
    • notice of the application; and
    • a general statement of the matters at issue.
  • On the conclusion of proceedings, the Authority is required to furnish the Registrar with:
    • a copy of the Court Order; or
    • notice that the application has failed or has been withdrawn.
consistent enforcement of ifrs in the eu
Consistent Enforcementof IFRS in the EU
  • The IAS Regulation provides, inter alia, that a proper and rigorous enforcement regime is key to underpinning investors’ confidence in financial markets and, in that context, that‘…the [EU] Commission intends to liaise with member States, notably through the Committee of European Securities Regulators (CESR), to develop a common approach to enforcement.’
  • To that end, CESR has established an enforcement co-ordination forum, at which the Authority is represented;
  • Through that forum, a database of member States’ enforcement decisions regarding IFRS will be established.
  • While not having the strict status of precedents, these decisions will serve to inform other enforcers’ deliberative and decision making processes.
the reserve fund
The ‘Reserve Fund’
  • Section 15 of the Act requires the Authority to establish and maintain a Reserve Fund.
  • The purposes of the Fund is twofold, namely to discharge the costs associated with:
    • enforcement in instances of non-compliance of financial statements with the Companies Acts and, where applicable, Article 4 of the IAS Regulation; and
    • investigations into possible breaches of an accountancy body’s standards etc. by a member.
  • For the purposes of resourcing the Fund, in addition to the funding provided by the exchequer and accountancy bodies respectively, the Act allows the Authority to levy those entities, or subsets thereof, coming within its financial statement review remit.
the reserve fund18
The ‘Reserve Fund’
  • However, prior to the imposition of a levy on the affected entities, the Authority is required to:
    • consult with any persons who are interested in the matter;
    • establish criteria for apportioning the levy among those classes of undertakings affected; and
    • obtain the Minister’s consent for the proposed apportionment model.
  • In addition to the foregoing, the Minister may also specify a maximum amount that may be set aside in the Fund.
  • The Interim Board is of the view that, after a period of three years, the Fund balance should be of the order of €500k.
timetable
Timetable
  • Ministerial approval process completed in the past week;
  • Recruitment campaign imminent;
  • Commencement of statutory functions anticipated in the autumn, following the appointment of key staff.
further information
Further Information
  • Further information on the Authority and its activities may be obtained from:

IAASA

3013 Lake Drive

Citywest Business Campus

Dublin 24

+353 (0)1 469 3702

info@iaasa.ie

www.iaasa.ie