ICAI Conference

ICAI Conference

‘Regulation – Achieving the Balance’

25 November 2005

Auditor Reporting – Views from the ODCE

Paul Appleby

Director of Corporate Enforcement

Outline of Presentation

• Auditor’s Reporting Obligation to ODCE

• Facts and Figures

• ODCE Experience

• Conclusion

Auditors’ Reporting Obligation

• “Where, in the course of, and by virtue of, their carrying out an audit of the accounts of the company, information comes into the possession of the auditors of a company that leads them to form the opinion that there are reasonable grounds for believing that the company or an officer or an agent of it has committed an indictable offence under the Companies Acts, the auditors shall, forthwith after having formed it, notify that opinion to the Director and provide the Director with details of the grounds on which they have formed that opinion.” (Enacted as Section 194(5), 1990)

Auditors’ Reporting Obligation

• In place since late November 2001

• Because of subsequent demands for interpretation, Guidance developed by APB, CCAB-I and ODCE and issued in 2002 following public consultations: – APB Bulletin 2002/1

– ODCE Decision Notice D/2002/2

Auditors’ Reporting Obligation

• Exemption from reporting annual return filing defaults effective from 1 September 2005

• ODCE issued Information Notice I/2005/2 to inform practitioners and others of commencement

Auditors’ Reporting Obligation“(Reporting auditors shall), if requested by the Director:

• furnish (him) with such further information in their possession or control relating to the matter as (he) may require, including further information relating to the details of the grounds on which they formed the opinion referred to in that subsection,

• give (him) such access to books and documents in their possession or control relating to the matter as (he) may require, and

• give (him) such access to facilities for the taking of copies of or extracts from those books and documents as (he) may require.” (Enacted as new Section 194(5A), 1990 – not yet commenced)

Auditors’ Reporting Obligation

• “Nothing in this section compels the disclosure by any person of any information that the person would be entitled to refuse to produce on the grounds of legal professional privilege or authorises the inspection or copying of any document containing such information that is in the person’s possession.” (Enacted as new section 194(5B), 1990 – not yet commenced).

Auditors’ Reporting Obligation

• ODCE has prepared draft material on these new provisions

• Advance copy with APB and CCAB-I• When views received, decision will be made on

form of consultations/publication • Early publication envisaged

Facts and Figures

Auditor Reports

2002: 3852003: 1,4882004: 1,5682005 (est.) : 2,000

0200400600800

100012001400160018002000

2002200320042005

Facts and Figures

Auditor Reports (excluding annual return defaults)

H1, 2002: n.a.

H1, 2003: 149

H1, 2004: 184

H1, 2005: 2110

50

100

150

200

250

H1, 2002H1, 2003H1, 2004H1, 2005

Facts and Figures

• About 20 company law offences reported to date

• Four offences featured in 98% of reported defaults between 2002 and 2004– annual return defaults (78%) – mainly a CRO issue– excessive directors’ loans (13%)– non-holding of EGMs (4%)– failure to keep proper books (3%)

Facts and Figures

• Excessive directors’ loans– about 700 cases notified to date– Court proceedings launched in four to date– over 300 dealt with administratively– others under consideration at present

• No EGMs – all dealt with administratively so far

Facts and Figures

• Failing to keep proper books– about 36 cases initiated – 7 convictions in 2002; 29 in 2003; 38 in 2004– range of companies/directors convicted– auditors’ evidence usually persuasive– remainder closed or under consideration

Facts and Figures

Acting as Auditors while not permitted

• unqualified persons (29 convictions)– those with little or no accounting qualifications– those who may be accountants but are not auditors

• disqualified persons (6 convictions)– auditors who had acted as directors of the company

Facts and Figures• A selection of other Enforcement Results

– disqualifications (11)– restrictions (2)– orders for compliance (15)– individuals convicted of acting as directors while

disqualified, restricted or undischarged bankrupts (9)– convictions for giving false information to CRO (12)– conviction for fraudulent trading (1)

ODCE Experience

• Proper Books of Account– reluctance by auditors to file H4s on occasion– decision to file no H4 doesn’t excuse a report to ODCE – auditor/ODCE views differ at times on effect of

‘necessary steps have been taken to rectify’ situation– ODCE sometimes urges review of non-filing of a H4,

e.g., successive qualified opinions but no H4

ODCE Experience

• Directors’ Transactions– knowledge or reasonable belief the standard of proof– auditors should now be alerting directors to legal risks– over 250 new reports this year to date – reducing incidence of inadvertence by directors likely– we hope that reports will plateau/decline shortly– loans are not the way to remunerate directors

ODCE Experience

• In 2004, some 300 auditors made 1,585 reports

• The top 20 reporters made 53% of the reports

• Variations evident in top 20 reporting auditors for:– all reports – all reports (other than annual return defaults) – reports on excessive directors’ transactions

ODCE Experience

• ODCE/Auditor Contact Issues– lack of clarity in some auditor reports– oral v. written communications– lot of information sought in ODCE standard letters –

necessary for reasons of investigation– differences of interpretation on effect of provisions– problems arise occasionally (e.g., failure to respond

meaningfully to the ODCE)

Conclusion

• Previous facts/comments are illustrative of:– the opinion nature of the reporting obligation– the differing approaches adopted in reporting to ODCE

• Intrigued by low number of reported offence types• In general, the ODCE receives good co-operation

from auditors in discharge of their reporting duties• Possible merit in ODCE/CCAB-I Contact Group

Thank You for Your Attention

Further Information is available from

www. odce. ie