The Minister for Jobs, Enterprise & Innovation, Mary Mitchell O’Connor TD, has signed legislation giving effect to the new EU regulatory framework on statutory audit. The aim of the legislation is to significantly enhance the level of investor protection provided by the audit function through improvements to the requirements for integrity, independence, objectivity, transparency and reliability of statutory auditors and audit firms. Where auditors fail to meet the required standards, the new regime provides for the imposition of considerable sanctions by IAASA including fines of up to €100,000 for an auditor or €500,000 for an audit firm and prohibitions on working as an auditor or audit firm for up to 3 years.
The legislation widens the remit of the Irish Auditing and Accountancy Supervisory Authority (‘IAASA’). IAASA will now be directly responsible for the inspection of the audits of Public Interest Entities (‘PIEs’), such as banks, insurance companies and entities listed on regulated stock exchanges. This function was previously carried out by the recognised accountancy bodies. While these bodies will continue to perform certain tasks in relation to their audit members, IAASA is now ultimately responsible for:
· the approval of statutory auditors and audit firms;
· the disciplinary systems in relation to all statutory auditors and audit firms;
· quality assurance; and
· continuing professional education requirements for auditors.
In addition, IAASA will now be responsible for the adoption of standards on auditing, professional ethics and the internal quality control of audit firms.
These changes will have major implications for IAASA, and require organisational change. On foot of an approved sanction for additional resources, IAASA has already recruited a number of additional staff to help meet the challenges posed by the new framework. This recruitment process is ongoing. However, further additional resources may be needed to fully address the requirements arising from these legislative changes. IAASA is working with the Department of Jobs, Enterprise & Innovation with a view to ensuring that the organisation is fully resourced to meet its significantly expanded remit.
The new measures also include notable changes to the regulatory regime for auditors, particularly for the audits of PIEs. These changes include:
· requirements that PIEs change auditor at least every 10 years;
· restrictions on the provision of certain non-audit services to PIEs; and
· the broadening of the function, roles and responsibilities of the PIEs’ audit committees.
Commenting on the legislation, IAASA Chief Executive Michael Kavanagh said:
‘This is the most significant change for the auditing profession in a generation. It heralds a new era in the relationship between the regulator, the auditor and the audited entity. These new arrangements should help deliver the application of the highest standards of quality and transparency to all audits. IAASA is committed to working with all stakeholders to ensure these important new reforms are effectively and robustly implemented’
The full press release and associated editors’ note can be accessed here.