Financial Reporting Supervision Function of IAASA

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

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Presentation Overview

• Brief history and overview of the 2003 Act
• Background to IAASA - Objects and functions
• Financial Reporting Supervision function

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Irish Auditing and Accounting Supervisory
Authority (IAASA)

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

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A Brief History

• Review Group on Auditing (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 recommendations included
• establishment of an Oversight body
• Financial reporting review function and
• requirement for Directors Compliance Statements.

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The 2003 Act

• 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.

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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.

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IAASA- key staff

• Chief Executive Ian Drennan
• Head of Financial Reporting Supervision Michael
  Kavanagh
• Head of Regulatory Monitoring Supervision
  Helen Hall
• Secretary Head of Legal Services Jane Meehan
• Finance Administration manager Fergal Ó
  Briain
• Project manager Bridget Ryan

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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.
• - All commenced at this stage except no.3

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Functions

• The Authoritys principal functions include
• Promoting adherence to the highest standards in
  the profession
• Reviewing the financial statements of certain
  companies and other undertakings
• Co-operating in the development of accounting
  standards and practice notes
• 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.

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Brief outline of IAASA function re Supervision
of Accountancy Bodies
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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

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Supervision of Accountancy Bodies

• The Authoritys statutory remit, in relation to
  the prescribed bodies, can be divided into the
  following categories
• Approval
• Supervision and
• Investigation/enforcement.
• more information on the Authoritys function re
  Supervision of Accountancy Bodies at www.iaasa.ie

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Financial Reporting Supervision Function
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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
• Assisting the Board to discharge its functions as
  an advisor to the Minister on accounting related
  matters
• Co-operating in the development of accounting
  standards and practice notes
• Liaising with other countries financial
  reporting monitoring bodies
• Developing policy regarding the imposition of
  levies on the Authoritys financial statement
  supervision constituency
• Identifying, and maintaining under review, the
  composition of the Authoritys financial
  statement review constituency

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Compliance with the Companies Acts and the IAS
Regulation

• Compliance with Companies Acts includes -
• prescribed formats
• statutory disclosure requirements
• adherence to applicable accounting standards
  primarily IASB and ASB standards

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Authoritys Review Constituency

• 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.

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Relevant Exemptions

• Act provides potential exemptions for
• certain entities already subject to, what in the
  Ministers opinion, is an appropriate level of
  supervision/regulation
• - might, for example, include Part XIII
  companies and UCITS
• S110 TCA 97 entities (securitisation vehicles).

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Proposed Approach toFinancial Statement
Supervision

• Act suggests a proactive rather than reactive
  approach to monitoring
• Risk analysis methodology has been developed
• Criteria for selection will include
• Risk of material misstatement in the financial
  statements
• Potential impact on users of financial statements
• Supplemented with random selection of FS for
  review
• Complaint from public may also trigger a review
• Emphasis will be on instances of material
  non-compliance.

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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.

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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.

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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.

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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 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)).

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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.

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Advisor to the Minister on accounting related
matters

• Has so far included a number of policy issues
  regarding accounting standards

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Liaising with other Financial Reporting
Monitoring Bodies

• Active participant in EECS (European Enforcement
  Co-ordination Sessions) sub committee of CESR
• EECS Forum for discussing and co-ordinating
  enforcement decisions in EU/EEA
• A database of IFRS enforcement decisions in the
  EU/EEA has been established authoritative
  precedents
• CESR/EECS liasing with IASB and SEC on various
  matters of mutual interest

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Levy of financial reporting supervision
constituency

• Two Aspects to funding
• Day to day operation of IAASA
• - 40 Exchequer
• - 60 Prescribed accountancy bodies
• Reserve Fund
• - 20 Exchequer
• - 30 Prescribed accountancy bodies
• - 50 Review constituency

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Exchequer Prescribed Bodies contribution - 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

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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.

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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 in identifying review constituency
  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.
• Research commissioned to establish the scale of
  the constituency.

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Other current activities of the Financial
Reporting Supervision Unit

• As well as aforementioned
• Public consultation on levy proposed
• Member of EECS working party on enforcement
  methodologies
• Representation at ASB meetings

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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
• www.iaasa.eu