Financial Reporting Supervision Function of IAASA

1
(No Transcript)
2

• Financial Reporting Supervision Function of IAASA
• Michael Kavanagh
• Head of Financial Reporting Supervision

3
Presentation Overview

• Brief history and overview of the 2003 Act
• IAASA Board
• Objects and functions of IAASA
• Financial Reporting Supervision function
• Review Constituency
• Funding and the Reserve Fund
• Other activities of Financial Reporting
  Supervision unit

4
Irish Auditing and Accounting Supervisory
Authority (IAASA)

• Financial Reporting Supervision Function is part
  of IAASA so who are IAASA and what are its
  functions ?

5
A Brief History

• RGA (2000) - Terms of reference included an
  examination of
• whether self regulation of the accountancy
  profession was working effectively and
  consistently
• auditor independence and
• role of the auditor in ensuring companies
  compliance with law and regulations
• RGA recommended, inter alia,
• establishment of an Oversight body
• Financial reporting review function and
• requirement for Directors Compliance Statements.

6
The 2003 Act

• Recommendations of the RGA accepted by Government
  in December 2000.
• RGAs recommendations given the force of law by
  the Companies (Auditing and Accounting) Act,
  2003.
• The 2003 Act deals principally with
• the establishment of IAASA and
• Other Measures to Strengthen the Regulation of
  Auditors, including
• statutory backing for accounting standards
• audit committees
• disclosure of accounting policies
• disclosure of auditors remuneration (analysed by
  audit, audit related and non-audit) and
• Directors Compliance Statements.

7
IAASA Board

• Company ltd. by guarantee - Board comprises 15
  directors, nominated thus
• 2 (including the Chairperson) nominated by the
  Minister
• 3 nominated jointly by the prescribed accountancy
  bodies
• 9 nominated by the following bodies (1 each)
• IBEC ICTU
• IAIM ISE
• Pensions Board IFSRA
• Revenue DCE
• Law Society
• Chief Executive
• A maximum of 5 of the 15 directors may be members
  of prescribed accountancy bodies.

8
Commencement

• Those sections of the Act necessary to permit the
  establishment of the Authority were commenced on
  20 December 2005 (S.I. No. 791 of 2005).
• Requisite Ministerial designation occurred on 3
  January, from which date the Supervisory
  Authority came into formal existence.
• Many of the Authoritys statutory functions and
  powers were commenced on 3 February 2006 (S.I.
  No. 56 of 2006)

9
Statutory Remit (S8)

• To supervise how the prescribed accountancy
  bodies regulate and monitor their members
• To promote adherence to high professional
  standards in the auditing accountancy
  profession
• To monitor whether the accounts of certain
  classes of companies and other undertakings
  comply with the Companies Acts and, where
  applicable, Article 4 of the IAS Regulation
  reference to IFRS inserted by S.I. No. 116 of
  2005 and
• To act as a specialist source of advice to the
  Minister on auditing and accounting matters.

10
Functions

• The Authoritys principal functions will include
• Promoting adherence to the highest standards in
  the profession
• Reviewing the financial statements of certain
  companies and other undertakings
• Considering applications for recognition for
  audit purposes
• Supervising the manner in which the accountancy
  bodies monitor (including work quality) and
  regulate (including investigation and
  disciplinary functions) their members
• Where deemed appropriate, conducting
  investgations into bodies and/or members.
• Co-operating in the development of auditing and
  ethical standards.

11
Brief outline of IAASA function re Supervision
of Accountancy Bodies
12
Prescribed Bodies

• Bodies recognised under the 1990 Act for audit
  purposes (i.e. ACCA, ICAEW, ICAI, ICAS, ICPAI,
  IIPA) and
• Bodies prescribed by the Minister (AIA, CIMA and
  CIPFA).
• The effect of Prescription is to
• bring prescriptees within the Authoritys
  supervisory remit and
• require prescriptees to contribute towards the
  Authoritys funding

13
Supervision of Accountancy Bodies

• The Authoritys statutory remit, insofar as it
  directly relates to the prescribed bodies, can be
  broadly divided into the following categories
• Approval
• Supervision and
• Investigation/enforcement.

14
Approval

• The Authoritys approval functions include
• Approval of bodies constitutions, bye-laws,
  regulations and standards, together with any
  subsequent amendments thereto.
• Granting of recognition of accountancy bodies for
  audit purposes.
• The attachment of conditions to recognition.
• Pre-approval of bodies regulatory and monitoring
  plans.

15
Supervision

• The Authoritys supervisory functions include
• supervision of the operation of each prescribed
  bodys complaints, investigation, disciplinary
  and appeal procedures
• supervision of how each recognised accountancy
  body monitors its members
• the performance of section 25 reviews of members
  (reviews for the purposes of determining whether
  the body in question is, or has been, regulating
  its members in the manner approved and
• ex-post review of bodies reports on their
  regulatory and monitoring activities and
  requiring explanations for variances between
  planned and actual activity.

16
Investigation/Enforcement

• To conduct enquiries under section 23 into
  whether a prescribed body has complied with its
  approved investigation and disciplinary
  procedures.
• Where not satisfied that a prescribed body has
  complied with its approved investigation and
  disciplinary procedures, the Authority may impose
  sanctions on that body.
• To undertake investigations under section 24 into
  possible breaches (by a member) of the standards
  of a prescribed body.
• Where a member is found to have committed a
  breach of a bodys standards , the Authority may
  impose any sanction available to the body on the
  member.

17
Powers Sanctions

• Section 23
• The Authority may, for the purpose of determining
  whether a prescribed body has complied with its
  approved investigation and disciplinary
  procedures, enquire into
• A decision not to undertake an investigation
• The conduct of an investigation
• Any other decision by a body in relation to a
  possible breach by a member.
• For the purpose of such an enquiry, the Authority
  may
• Inspect, and take copies of, all relevant
  documents in the possession or control of a body
  and
• Require a body to explain why it reached a
  decision referred to above and/or to explain how
  it conducted its investigation.

18
Objectives

• In discharging its remit, the Authority will seek
  to achieve the following objectives
• To enhance confidence in the regulatory and
  monitoring processes governing members of the
  auditing and accountancy profession
• To protect and promote the public interest
  through effective, independent oversight and
• To ensure the constitutions, bye-laws,
  regulations and standards of the prescribed
  bodies conform to a common high standard
  consistent with international best practice.

19
Financial Reporting Supervision Function
20
Principal functions of Financial Reporting Review
Unit

• To monitor whether the accounts of certain
  classes of companies and other undertakings
  comply with the Companies Acts and IAS Regulation
• Developing policy regarding the imposition of
  levies on the Authoritys financial statement
  review constituency
• Assisting the Board to discharge its functions as
  an advisor to the Minister on accounting related
  matters
• Identifying, and maintaining under review, the
  composition of the Authoritys financial
  statement review constituency
• Liaising with other countries financial
  reporting monitoring bodies
• Co-operating in the development of accounting
  standards and practice notes

21
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,
• 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.

22
Authoritys Review Constituency

• The Authoritys 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.

23
Relevant Exemptions / S15 Levy

• Act provides potential exemptions for
• certain entities already subject to, what in the
  Ministers opinion, is an appropriate level of
  supervision/regulation and
• S110 TCA 97 entities (securitisation vehicles).
• Authority has commissioned research to establish
  the scale of the constituency.

24
Proposed Approach toFinancial Statement
Supervision

• Act suggests a 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.
• Emphasis will be on instances of material
  non-compliance.

25
Enforcement

• In circumstances where there is, or may be, an
  issue regarding a set of financial statements
  compliance with the Companies Acts or 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.

26
Enforcement

• 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.

27
Enforcement

• In the event that, at the end of the specified
  period, the directors have neither, in the
  Authoritys 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.

28
Enforcement

• 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 Authoritys, and reporting entitys,
  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)).

29
Enforcement

• In the event of an application being made to the
  High Court, the Authority is required to furnish
  the CRO 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 CRO with
• a copy of the Court Order or
• notice that the application has failed or has
  been withdrawn.

30
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, thatthe 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.

31
Funding

• The Act provides that
• the exchequer will provide 40 of the Authoritys
  funding and
• the remaining 60 will be provided by the
  profession (by way of a levy on the prescribed
  bodies).
• Bodies and IAASA have agreed a model for
  apportioning every bodies contribution.

32
Budget Funding - 2006

• Total budget 2006 2.297m, provided thus
• Exchequer 919,000
• ICAI 757,000
• ACCA 233,000
• ICPAI 170,000
• CIMA 96,000
• IIPA 54,000
• ICAEW 21,000
• AIA 18,000
• CIPFA 15,000
• ICAS 14,000

33
Funding

• Two Aspects to funding
• - Day to day operation of IAASA
• - Reserve Fund

34
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 bodys standards etc. by a member.

35
Relevant Exemptions / S15 Levy

• Authority developing policy options on S15 levy.
• Considerations include
• risk
• impact
• cost/benefit considerations and
• legal advice received by the Authority.
• Complexities include
• private companies turnover and total assets
  figures not captured by CRO. Therefore, a large
  scale manual exercise is required
• S17 guarantees
• filers of ultimate group financial statements
• identity of S110 companies.
• Public consultation will be undertaken by the
  Authority.

36
Other functions

• Assisting the Board to discharge its functions as
  an advisor to the Minister on accounting related
  matters ASB observer status, Liason with IASB,
  advice on various matters as have arisen
• Liaising with other countries financial
  reporting monitoring bodies member of EECS
• Identifying, and maintaining under review, the
  composition of the Authoritys financial
  statement review constituency
• Co-operating in the development of accounting
  standards and practice notes

37
Further Information

• Further information on the Authority and its
  activities may be obtained from
• IAASA
• 2nd Floor, Willow House
• Millennium Park
• Naas
• Co. Kildare
• Tel [phone] Fax 353 (0)45
  983601
• Email info_at_iaasa.ie Web www.iaasa.ie