Audit of Quoted & Banks
Public Interest Entities
The 2018 Companies Act made new provision for the appointment of auditors by public interest entities. A public interest entity is one governed by law of an EU state whose shares are admitted to trading on a public stock exchange in the EU, credit institutions and insurance undertakings.
They are defined as
- companies which have transferable securities admitted to trading on a regulated market of any EU Member State,
- credit institutions,
- insurance undertakings, or
- undertakings that are otherwise designated, by or under any other enactment, as be entities referred to in the the Audit Directive;
Appointment
Procedures apply to the appointment of an auditor of a public interest entity. The audit committee must justify and contain at least two choices for the audit engagement, with a preference for one in its recommendation to directors. Where the company does not require an audit committee then directors must propose a statutory auditor or audit firm to the shareholders with comments.
The selection procedures do not apply if they have been carried out within the last nine years and the same auditor was appointed. The appointment of an auditor in breach of the terms is invalid. Records must be kept regarding the selection procedures for at least six years. The Statutory auditor must inform IAASA within one month of appointment.
The directors report must include the date of appointment of the public interest entity statutory auditor. Information the statutory auditor firm has access to in the course of an audit is protected by rules of confidentiality and professional secrecy of the relevant accountancy body. This also applies to a key audit partner of a firm approved in another state and registered in the State.
Removal
There are additional requirements to public interest entities in relation to the removal of the statutory auditor. Shareholders representing 5% or more of the voting rights for the share capital or the authority may apply to court for the removal of the statutory auditor or auditor firm. The grounds are
- the performance of the auditors and
- the best interests of the entity concerned.
Limit to Involvement
There is a five-year limit for the involvement of the key audit partner in the statutory audit of a public interest entity. There are moratorium periods for persons involved in the statutory audit in relation to taking up positions in audited businesses or public interest entities. There are specific positions in the entity for which the moratorium applies for the specified time limits.
There is provision for application for further extension of audit engagements to be made to the Authority by public interest entity on exceptional basis. An extension shall not exceed two years.
The statutory auditor/ audit firm of a public interest entity must report uncertainties regarding the date of an audit engagement to the Authority in a format required. There are procedures for decision-making by the Authority on the matter.
Audit Committee
Generally, public interest entities must have an audit committee. An audit committee is not required in cases where the public interest entity is a subsidiary or in the case of certain investment undertakings, issuers of asset-backed securities, certain credit institutions and certain captive insurance companies.
The audit committee functions are specified. The directors of each public interest entity are obliged to establish an . One member is to have competence in accounting and auditing. The majority must be independent of the audit entity including the chair.
A proposal by the directors regarding the appointment of statutory auditor or firm is to be based on a recommendation made to them by the audit committee. The auditor / audit firm is to report to the committee on key matters from the statutory audit. In particular cases under the Prospectus Directive, the functions of the committee can be performed by the Board of Directors.
Duties of Audit Committee
The audit committee must
- inform the directors of the outcome of the statutory audit
- monitor the financial reporting process
- issue recommendations to the directors
- monitor the effectiveness of the internal quality control and risk management systems
- monitor the statutory audit of the annual and consolidated financial accounts
- monitor the independence of the statutory auditor and the provisions of nonaudit services
- recommend the statutory auditor to be appointed
There is to be additional report by the statutory auditor or firm carrying out the statutory audits of an public interest entity which is to be submitted to the audit committee . It is to give greater detail on the audit stop it is to be disclosed to the directors of the company concerned. Where there is no requirement for an audit committee is to be furnished to the directors.
Certain reports by statutory auditors are all firms must be submitted to the Central Bank or to the relevant authority under the relevant legislation.
Without limiting the reporting requirements in relation to public interest entities, the statutory audit does not include an assurance about the future viability of a an audited entity and how the directors conduct the entity.
IAASA & Public Interest Companies
There are special provisions in relation to sanctions in respect of a statutory auditor or audit firm of a public interest entity which commits a breach, where appeal procedures have been completed. The recognised accountancy body will give IAASA the details of the case, copies of relevant documents associated with it and particulars of the penalty proposed.
IAASA may seek further information by notice in writing to be complied with within 30 days. Where IAASA is satisfied that a breach has occurred it may impose a sanction on the statutory auditor or audit firm of the public interest entity. IAASA give particulars of the sanction imposed to the recognised accountancy body.
Where IAASA is not satisfied that a breach has occurred it will notify this fact in writing, and the reasons for it, to the recognised accountancy body.
The person concerned may appeal against the decision within three months.
IASSA Sanctions
IAASA may impose sanctions in certain circumstances including
- requiring cessation of conduct that gave rise to the breach,
- remediate the conduct,
- a reprimand or severe reprimand,
- a declaration that the statutory auditor’s report does not meet the necessary requirements,
- a direction prohibiting the person from carrying out statutory audits or signing statutory auditors’ reports,
- a direction to the firm/officer/member/partner prohibiting performance of functions as an audit firm or in audit firms for public interest entities,
- a direction to the person to pay a specified amount to IAASA,
- an order excluding details of the person being entered in the public register in respect of one or more recognised accountancy bodies.
It can direct the recognised accountancy body to take the necessary action resulting from the sanction imposed. It has regard to the gravity and duration of the breach, the degree of responsibility of the person concerned, the financial strength of that entity or profits gained , losses avoided level of cooperation with the IAASA or accountancy body and previous breaches.
IAASA Sanction Issues
Details of sanctions may be published once the High Court has confirmed or amended the decision. If there is an appeal its status will be published. Publication may be on an anonymous basis where the stability of facility of financial markets may be affected, there is an ongoing criminal investigation or it would otherwise cause disproportionate damage.
IAASA monetary sanctions should not cause the person to be adjudicated bankrupt or cease business. One sanction only should be applied for the same conduct.
Where the only breach is also an offence against law the person should not be punished twice under the criminal law and the sanction system.
There is provision for an appeal to the High Court. The court may consider evidence and arguments not considered. It may make any order give a direction confirming modifying or annulling the decision appealed.
Contractual clauses restricting the choice of auditors by companies are invalid. Public interest companies must report on the circumstances of such clauses to IAASA.