ODCE - audit committees

Informations

• Publié par: Megar
• Nombre de lectures: 28
• Langue: English

Extrait

Ms Maria Leavy
Office of the Director of Corporate Enforcement
16 Parnell Square
Dublin 1


30 May 2006

AUDIT COMMITTEES - CONSULTATION PAPER C/2006/1


Dear Minister

ACCA would like to comment on Consultation Paper C/2006/1, ‘Draft ODCE Guidance on Audit
Committees’. We are limiting our comments to the draft text. We have not addressed some of
the other issues relating to audit committees such as the fact that certain sections of the
Companies Acts have not been commenced, and therefore certain aspects of the work that the
audit committee is required to undertake cannot be carried out. We are also not commenting
on the legislation itself which we feel is overly prescriptive and inflexible and already out of line
with international best practice.

1. Guidance or interpretation
1.1 Overall the format of the guidance seems quite straightforward. It sets out to interpret
the provisions of S42 in plain language. However, the draft guidance limits itself in the main to
‘what to do’ rather than ‘how to do’. Some ‘how to’ guidance is included but where it is included
it is incomplete and not particularly useful for the user. ACCA would be of the opinion that the
‘how to do’ portion of the guidance, which is missing, is more important and useful to a user.

1.2 Reference is made in the draft guidance to other documents including ‘Shaping the Irish
Audit Committee Agenda’ prepared by KPMG. There are also a number of other guides to audit
committees not referred to in the draft guidance but which are freely available. The KPMG and
the other guidance documents include much more detailed direction for users including
example questionnaires and work programmes.

ACCA Ireland
9 Leeson Park Dublin 6
tel: [phone] fax: [phone] http://ireland.accaglobal.com

The Association of Chartered Certified Accountants

1.3 The draft ODCE guidance should be either a simple interpretation of the law or a detailed
guidance document. Because it contains some guidance, there is a danger of audit committees
considering this to be a comprehensive document and therefore not fully discharging their
responsibilities.

2. General comments on the text
2.1 Overall responsibility for the running of a company rests with its board of directors. The
draft guidance limits itself to addressing the duties and powers of audit committees, a sub-
committee of the main board. The draft should also address the split of responsibilities between
the main board and the audit committee and identify the responsibilities in respect of a
company’s financial, audit and other reporting arrangements, retained by the main board.

2.2 The legislation itself seems comprehensive enough in terms of what the responsibilities
of the committee are intended to be. We would be concerned that in making such extensive
delegation of responsibilities, does this measure increase the legal responsibility/liability of audit
committee members and absolve to any extent the main board of its own responsibility/liability
in respect of the accounts and audit process?

2.3 Overall we think the guidance is sketchy and not particularly enlightening for readers.
There is little coverage of independence issues and their relevance to companies of different
sizes. In paragraph 3.8 we do not think it is satisfactory for statutory guidance to simply refer
readers to the Smith report for further information – the guidance should endorse those
provisions or incorporate their essence in the guidance.

2.4 Whether the responsibilities are dealt with in legislation or in the new guidance, the
committee’s responsibilities should be consistent with the requirements of Article 39 of the
threvised 8 directive.

2.5 Many companies are subject to other audit committee obligations. A table of similarities
and differences with the other major statutory and listing requirements would be useful.

3. Comment on the text itself
3.1 At the foot of page 9 the draft says that the requirement to establish a committee is not
‘in practice’ applicable to companies which have entered into insolvency procedures. It suggests
that this is because directors have ceded control of the company. But control passes to the
appointed insolvency practitioner. We suggest there needs to be a fuller explanation of why the
rule does not apply to these companies.

2
3.2 In the second paragraph at the top of page 11, the draft says that the committee will be
helped in coming to its opinion about the truth and fairness of the company’s accounts by the
accompanying audit report. The audit report will not be available until after the accounts
themselves been finalised and this is too late in the process to consider truth and fairness.

3.3 On page 13, there is guidance to help the committee monitor the ‘quality’ of the
auditor’s work. Though that duty is part of S42, we feel that the draft should be realistic about
the extent to which the committee is in a position to pass judgment on the quality of an
auditor’s work – it is one thing to evaluate independence but surely another for a committee to
evaluate audit quality. We would suggest that the guidance should try to be more specific and
realistic about what the committee is to be expected to do regarding audit quality. As it stands,
we think that the guidance in the draft text unhelpful.

3.4 There is no guidance relating to the decision by large private companies not to appoint
audit committees or to appoint them with a la carte functions. It seems inadequate for statutory
guidance to just stop there. At the very least there should be some pointers for why companies
of this type may feel that they need not appoint audit committees, and what functions they may
not need to attribute to them where they are established.

3.5 We suggest that the reference to the need for ‘a varying degree of financial literacy’
among committee members is putting it mildly. If only one member has any real competence in
accounting and auditing, the risk is that the committee will be unbalanced.

3.6 The whistle blowing provision is welcome.

3.7 The section on audit independence does not address the audit independence
requirements already imposed on auditors through the ethical rules issued by APB and lists a
very limited number of issues that should be addressed. Given that a comprehensive guidance
document is available in this area reference should be made to it.

4. Other matters
4.1 There is an inherent difficulty in commencing a section of an Act which contains within
it, references to other sections that have not yet been commenced, or indeed are in the process
thof being rewritten. In addition, some of the requirements set out in the 8 Company Law
Directive are not included in the Companies (Auditing and Accounting) Act 2003. We believe
that it is inappropriate to commence the section while these difficulties exist.

3
4.2 We believe that once the legal issues identified above are resolved, there should be a
clear six month gap between the issuance of guidance and the commencement of the section
and we agree that it should be accounting periods beginning at that date. The requirements of
the section are onerous and existing board members may have insufficient skills or be unwilling
to accept an appointment to an audit committee. We believe that six months is of sufficient
length to allow a company identify suitable individuals and put in place appropriate procedures.

5. Conclusion
5.1 ACCA believes that the guidance should be a pure interpretation of the law in the context
of the overall reasonability’s of a board of directors. The draft guidance should then endorse
third party guidance such as the guidance identified in the text, ‘Shaping the Irish Audit
Committee Agenda’ or incorporate the guidance in the same level of detail in the draft guidance
document itself.

5.2 ACCA believes that the Section should not be commenced until the difficulties identified
in 4.1 above are resolved, and thereafter a period of six mounts should be given to allow
companies put in place the necessary procedures.

Should you wish to discuss further, any of the issues raised in this submission, please feel free
to contact Aidan Clifford at 01 4988907 or [e-mail].


Yours sincerely,


___________
Roger Acton
Head – ACCA Ireland, Central & Eastern Europe


4