PWC Audit Seminar CityWest Hotel 9 October 2002

Issues on the Audit Front Initial Experiences of the ODCE Paul Appleby Director of Corporate Enforcement

Outline of Presentation Brief History Lesson Goals of ODCE Initial Experience of Caseload Issues on the Audit Concluding Comment

Brief History Lesson McCracken Tribunal Report (1997) Working Group Report on Company Law Compliance and Enforcement (1998) DIRT Inquiry Report (1999) Review Group on Auditing (2000) Company Law Enforcement Act (2001) Standing Company Law Review Group

Goal 1 – Encourage Compliance Publish accessible company law information Promote compliance Contribute to company law developments

Goal 2 – Investigate Complaints Implement mandatory reporting of breaches Develop information sources Evaluate complaints/reports of malpractice Support formal company investigations

Goal 3 – Prosecuting Offences Selecting the right enforcement option Implement administrative penalties Undertake summary prosecutions Initiate and defend related proceedings

Goal 4 – Supervise Insolvency Implement the insolvency powers Evaluate liquidator reports Review the impact of the new provisions Participate in Court proceedings

Goal 5 - Provide Quality Services Provide suitable and secure accommodation Develop staff potential Provide ICT Support Develop the website Manage our budget and administration Develop customer services

Headline Progress To Date Most staff recruited/integrated Move to permanent premises imminent Website successfully launched Four Consultation Papers/Decision Notices Most powers now conferred

Indictable Offence Reports/Type Total of 110 up to third week of September 75% relate to filing defaults 10% involve improper books of account 7% relate to director/company transactions 3% deal with not having a resident director Rest cover AGM, EGM, liquidator defaults

Indictable Offence Reports/Source Big Four Firm31 Big Four Firm25 Big Four Firm 9 Big Four Firm 1 Other Firm (> five reports)11 Accountancy Bodies 2 Other Firms31

Total Cases Overall, some 300 cases have been received About 65% came to attention via public, etc. Approx. 55% of cases have been dealt with, closed or referred to the CRO Balance of about 135 cases under review Liquidator Reports will swell/re-balance these figures

Issues on the Audit (1) Need to ensure that auditors comply – Apparent Reporting Discrepancies Voluntary Disclosure by Companies – No Auditor Report Delays in filing H4s in the CRO (up to two years) Enforcement Action will be considered

Issues on the Audit (2) Contradictory Audit Opinions “Basis of Opinion …the evidence available to us was limited because the company’s turnover comprises cash sales over which there was no system of control on which we could rely for the purposes of our audit. There were no other satisfactory audit procedures that we could adopt to confirm cash sales were properly recorded. Opinion …In our opinion proper books of account have been kept by the company…”

Issues on the Audit (3) Inadequate Audit Reports Cases where the failure to ascertain the company’s title to substantial investments attracted a qualified audit opinion one year and no qualification the next Case of insolvent company with no opinion expressed on its “going concern” prospects, notwithstanding a substantial continuing deficit

Issues on the Audit (4) Insolvency - Liquidator’s Report v Auditor’s Report 297/297A, 1963: fraudulent trading situations 40, 1983: failure to hold EGM to consider capital 194/202, 1990: failure to keep proper books ‘going concern’ opinion v date on which the company was unable to trade out of its difficulties

Issues on the Audit (5) Non-Resident Auditors Irish companies being audited by auditors based in the Isle of Man, Channel Islands, Cyprus, Malta, Israel, Gibraltar, etc. Many fail to deal with queries

Issues on the Audit (6) Inadequacy of H4 Form and its Completion No statement of period to which the statement relates; Nature of the difficulty not disclosed; Failure usually indicated as historical only, despite option to indicate failure as current

Issues on the Audit (7) Possible Legislative Change Dealing with Non-Resident Auditors 194(2), 1990 – is the exemption too wide? 194(3A), 1990 – is the scope for demanding explanations too limited?

Issues on the Audit (8) Anxious to obtain as much cooperation as possible from Auditors Enforcement action will be undertaken in exceptional cases where necessary Greater engagement with accountancy bodies planned by ODCE

Concluding Comment (1) General obligations on Auditors Independence/professional integrity Report to members on the accounts, etc. Notice to the Registrar of resignation and associated circumstances Notice to the Registrar of failure to keep proper books of account Report to ODCE of suspected breaches of the Companies Acts

Concluding Comment (2) Future Outlook is Challenging Restoration of Confidence in the Profession IAASA New Fraud Offences Act IFSRA IAS etc., etc.