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 defaults10% involve improper books of account7% relate to director/company transactions3% deal with not having a resident directorRest cover AGM, EGM, liquidator defaults

Indictable Offence Reports/Source

• Big Four Firm 31• Big Four Firm 25• Big Four Firm 9• Big Four Firm 1• Other Firm (> five reports) 11• Accountancy Bodies 2• Other Firms 31

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.