The Companies (Auditing & Accounting) Bill, 2003

2. The Companies (Auditing & Accounting) Bill, 2003 Presentation to Clients of Capita Corporate Registrars Westbury Hotel, Dublin 18 November, 2003 Ian Drennan, Corporate Compliance Manager

3. Presentation Overview • Timeframe to Enactment • Supervisory Authority • Other Measures to Strenghen the Regulation of Auditors

4. Timeframe to Enactment • Bill a result of the RGA’s recommendations • Bill has passed all stages in the Seanad • Number of amendments taken in the Seanad • Currently at second stage in the Dáil • Due to go to Committee Stage on 27 November • Significant amendments expected at Committee Stage • Likely to have passed fourth and fifth Stages and to have been enacted by year end.

5. Supervisory Authority • Bill proposes to create an Oversight Body (IAASA) • Authority to be a public company limited by guarantee • Members: • Each of the recognised accountancy bodies • IBEC • ICTU • IAIM • ISE • Pensions Board • IFSRA • Revenue • DCE, and • Law Society

6. Supervisory Authority • The company’s objects will be • 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 financial statements of certain companies comply with the Companies Acts, and • to act as a specialist source of advice to the Minister on auditing and accounting matters

7. Supervisory Authority • The Authority’s functions will include, inter alia, • granting audit recognition • where deemed appropriate, attaching terms and conditions to recognition • approval of recognised bodies’ constitutions and bye laws, including their investigation and disciplinary procedures • conducting enquiries as to whether a prescribed body has complied with its approved investigation and disciplinary procedures • imposing sanctions on a body that fails to comply with its approved procedures

8. Supervisory Authority • Functions (continued): • undertaking investigations into possible breaches of bodies’ standards by their members • supervising how each body monitors its members • developing standards relating to the independence of auditors in co-operation with the bodies and other interested parties • developing auditing and accounting standards and practice notes in co-operation with the recognised bodies and others, and • reviewing whether the financial statements of certain companies comply with the Companies Acts.

9. Supervisory Authority Board of Directors: • Max 14 members + CEO • 3 persons nominated jointly by the recognised bodies • 2 nominated by the Minister • 1 nominee of: • IBEC ICTU • IAIM ISE • Pensions Board IFSRA • Revenue DCE • Law Society

10. Supervisory Authority Funding: • 40% of approved expenditure programme of the Authority will by provided by the exchequer • Authority may impose levies on the recognised bodies, subject to the Minister’s approval • Maximum amount levied on the bodies may not exceed 60% of the approved expenditure programme.

11. Supervisory Authority • Review of certain companies’ accounts for compliance with the Companies Acts: • Provisions apply to: • plcs (whether listed or not) and their subsidiaries • private cls with BST > €25,000,000 and T/O > €50,000,000 • private cls that is a parent undertaking if the parent and all of the subsidiary undertakings meet the aforementioned criteria • each subsidiary undertaking of the aforementioned private cls, and • certain other undertakings that satisfy the aforementioned criteria (e.g. unlimited companies and certain partnerships).

12. Supervisory Authority • The Authority may give notice to the directors of a relevant undertaking concerning its annual accounts where • a copy of the accounts has been laid before an AGM or filed with the Registrar, and • there is, or may be, a question as to whether those accounts comply with the Acts. • The notice to the directors must specify the matters in respect of which compliance is questioned. • The directors are required to give an explanation of the accounts or to prepare revised accounts within 30 days.

13. Supervisory Authority • If the Authority is not satisfied with the response received, it may apply to the High Court for a declaration of non-compliance. • If satisified that there is non-compliance, the Court may make a declaration requiring the restatement of the accounts and may make an order awarding the Authority’s costs. • For the purposes of this section, every director who was a director at the time the accounts were approved is considered to be party to that approval unless they can show that they took all reasonable steps to prevent approval.

14. Other Measures to Strenghen the Regulation of Auditors Statutory backing for accounting standards • Each company will be required to ensure that • its annual accounts include a statement as to whether they have been prepared in accordance with applicable accounting standards, and • any material departure therefrom and reasons therefore are noted in the accounts. • Failure to comply with this section will constitute an offence.

15. Other Measures to Strenghen the Regulation of Auditors Audit Committees • The board of a plc, whether listed or not, shall establish and adequately resource an audit committee. • The committee’s responsibilities will be • to review the accounts before they are presented to the board for approval • to determine whether the annual accounts give a true and fair view • to recommend to the board whether or not to approve the accounts • to determine, at least annually, whether the company has kept proper books of account

16. Other Measures to Strenghen the Regulation of Auditors • to review the compliance statements prior to approval and to determine whether the statements are fair and reasonable • to advise the board as to the recommendations to be made to shareholders concerning the appointment of the company’s auditor • monitoring the performance and quality of the auditor’s work and the auditor’s independence • obtaining from the auditor up to date information to enable the committee to monitor the company’s relationship with the auditor • recommending whether or not to award non-audit contracts to the auditor or its affilitates, and • satifsying itself that the arrangments made and the resources available for internal audit are suitable.

17. Other Measures to Strenghen the Regulation of Auditors Audit Committees • The board of directors of a large private cls and each relevant undertaking shall either • establish an audit committee that meets the foregoing requirements, or • state in their report that they have decided not to establish an audit committee and specify the reasons for that decision.

18. Other Measures to Strenghen the Regulation of Auditors • Audit committees will be required to consist of directors as the board sees fit, provided that • the committee has a minimum of two members, and • the members have not been employees within the last 5 years and are not the chairman of the board. • Failure to establish a committee, or the establishment of a committee that is not in accordance with the section, is an offence on the part of the company.

19. Other Measures to Strenghen the Regulation of Auditors Disclosure of accounting policies • Companies will be required by statute to disclose their accounting policies in determining • the items and amounts to be included in the balance sheet, and • the amounts in the profit and loss account. • Failure to comply with these requirements will constitute an offence on the part of the company.

20. Other Measures to Strenghen the Regulation of Auditors Disclosure of remuneration for audit, audit related and non-audit work • The following must be disclosed in companies’ accounts • remuneration for all audit work, audit related work and non-audit work that was carried out in the year in question by the auditor and by any of the auditor’s affiliates • remuneration for all audit work, audit related work and non-audit work that was carried out in the the preceding year by the auditor and by any of the auditor’s affiliates, and • where the remuneration is for non-audit work, the nature of that work.

21. Other Measures to Strenghen the Regulation of Auditors • Where the remuneration in respect of a year for non-audit work exceeds the aggregate in respect of audit work and audit related work, the audit committee shall state in its report • whether it is satisfied that the carrying out of non-audit work has not affected the auditor’s independence, and • if it has satisfied itself to that effect, the reasons for the decision to have non-audit work carried out by the auditor or affililiate. • Where the company does not have an audit committee, the directors must make the foregoing statement in their directors’ report.

22. Other Measures to Strenghen the Regulation of Auditors • Failure to comply will constitute an offence on the part of the company (in respect of disclosure of remuneration). • Failure on the part of the audit committee or directors to to make the required statements will constitute an offence on the part of the committee memebers/directors.

23. Other Measures to Strenghen the Regulation of Auditors Directors’ compliance statement • The directors of a company are required to prepare a compliance statement containing the following information • the company’s policies respecting compliance with its relevant obligations • its internal financial and other procedures for securing compliance, and • its arrangements for implementing and reviewing the effectiveness of the policies and procedures referred to above.

24. Other Measures to Strenghen the Regulation of Auditors • The compliance statement must be • in writing • approved by the board • reviewed at least every three years, and • included in the directors’ report (or in the notes where the company is not required to file a directors’ report with the Registrar).

25. Other Measures to Strenghen the Regulation of Auditors • The directors will also be required to include in the directors’ report (or in the notes) a statement • acknowledging that the directors are responsible for securing compliance with relevant obligations • confirming that the company has internal financial and other procedures in place designed to secure compliance and, if this is not the case, specifying the reasons, and • confirming that the directors have reviewed the effectiveness of the procedures during the financial year and, if this is not the case, specifying the reasons.

26. Other Measures to Strenghen the Regulation of Auditors • The statement must also specify whether the directors, based on the procedures referred to above and their review of those procedures, are of the opinion • that they have used all reasonable endeavours to secure the company’s compliance with its relevant obligations • that except for instances of immaterial non-compliance, the company has complied with its relevant obligations in that financial year, and • if they are not of that opinion, specify the reasons

27. Other Measures to Strenghen the Regulation of Auditors • The requirement to prepare a compliance statement will not apply to audit exempt companies. • Failure to prepare the foregoing compliance statements will constitute an offence on the part of the directors.

28. Other Measures to Strenghen the Regulation of Auditors • The company’s auditor shall undertake a review of the directors’ compliance statements to determine whether, in the auditor’s opinion each statement is fair and reasonable. • The auditor shall include in the audit report a report on, and the conclusions of, the review undertaken and, where the statement is not, in the auditor’s opinion, fair and reasonable, the auditor shall • make a report to that effect to the directors, and • include that report in the auditor’s report to the members. • Where, in the auditor’s opinion, the directors have failed to prepare a statement, the auditor shall report that opinion to the DCE.

29. End of Presentation Thank You