Central Bank demands better auditing standards

Senior Central Bank executives have held private meetings with some of the top accountancy firms in the State to demand an improvement in auditing standards of financial institutions, the Irish Examiner has learned.

Central Bank demands better auditing standards

It is understood these discussions have taken place over the past few months. The Central Bank declined to comment.

Auditing firms have come into the firing line in the wake of the financial sector meltdown. Before it was put into liquidation last February, the Irish Bank Resolution Corporation initiated legal proceedings against EY (formerly Ernst & Young) over its auditing of Anglo Irish Bank before it was nationalised.

Earlier this month, the chairman of the insurance firm, RSA Group, announced the company was considering legal action against Deloitte following huge losses incurred at RSA Ireland.

The Irish Examiner reported on Jan 10 that the problem of under-reserving large loss claims at RSA Ireland went back as far as 2008. The company had been deliberately concealing the true extent of the profit and loss account through inappropriate collaboration between senior executives at the Irish operation.

The Irish Central Bank queried one of these large loss claims last August. This was referred to RSA Ireland’s internal audit division, which eventually unveiled a £200m (€242.7m) black hole in the Irish accounts.

The Central Bank has no regulatory jurisdiction over accountancy firms, which is the remit of the Chartered Accountants Regulatory Board (CARB).

According to a spokesman for CARB, it is currently monitoring the situation with regard to RSA and is liaising with the Financial Reporting Council (FRC) in Britain, the Irish Auditing & Accounting Supervisory Authority (IAASA) and the Central Bank of Ireland.

Aidan Lambe from the Institute of Chartered Accountants in Ireland, said the focus of audits was too narrow in the years leading up to the crisis, but that has now changed with the scope of audits becoming more far reaching, including more dialogue with regulators during audits.

Meanwhile, the Central Bank’s first report on the outlook for 2014 has warned more work needs to be done to improve fiscal consolidation, making banks more sound and growing employment by improving competitiveness. In its commentary on the state of the economy and prospects for 2014, the Central Bank said Ireland needs to stick to the stringent cost-cutting seen during the bailout programme.

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