Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697750682293.pdf (Ireland)
Annual Report 2016 Mission To contribute to Ireland having a strong regulatory environment in which to do business by supervising and promoting high quality financial reporting, auditing and effective regulation of the accounting profession in the public interest TABLE OF CONTENTS WHAT WE DO .............................................................................................................. 1 CHAIRPERSON’S STATEMENT ......................................................................................... 3 CHIEF EXECUTIVE’S REVIEW .......................................................................................... 5 CHAPTER 1: EXAMINATION OF ISSUERS’ FINANCIAL REPORTS ......................................... 7 1.
Introduction .................................................................................................................................. 7 2.

Financial reporting enforcement remit and work performed during 2016 ................................... 7 3.

Outcomes of 2016 examinations............................................................................................... 10 4.
Summary of financial reporting decisions published ................................................................. 12 5.

Thematic examinations ............................................................................................................. 15 International cooperation ........................................................................................................... 17 6.

7.
7.

Advocacy activities .................................................................................................................... 18 CHAPTER 2: REGULATORY OVERSIGHT AND SUPERVISION OF THE AUDIT AND ACCOUNTANCY PROFESSION ....................................................................................... 20 1.

Introduction ................................................................................................................................ 20 2.
Overview of supervisory activities ............................................................................................. 20 3.

Supervisory visits and review meetings .................................................................................... 21 4.

Approval of the PABs’ constitutional documents and attachment of conditions ....................... 25 5.
Complaints handling and statutory enquiries ............................................................................ 25 CHAPTER 3: AUDIT QUALITY UNIT ............................................................................... 27 1.

Introduction ................................................................................................................................ 27 2.
Audit Inspections Team ............................................................................................................. 27 3.
Audit standards for use in Ireland ............................................................................................. 30 CHAPTER 4: LIQUIDATOR REGISTRATION ..................................................................... 31 Introduction ................................................................................................................................ 31 1.

2.
2.

Responsibilities in respect of liquidator registration .................................................................. 31 3.

Progress during the year in relation to liquidator registration ................................................... 31 CHAPTER 5: ANNUAL AUDIT PROGRAMME AND ACTIVITY REPORT ................................. 32 1.

Introduction ................................................................................................................................ 32 2.
Functions performed by the RABs ............................................................................................ 32 3.

2017 Oversight Work Programme ............................................................................................ 35 4.

EU Audit Regulation Activity Report ......................................................................................... 36 2017 EU Audit Regulation Work Programme ........................................................................... 36 5.
6.

Results of quality assurance system ......................................................................................... 36 CHAPTER 6: GOVERNANCE AND STRUCTURE ................................................................ 38 1.

Legal structure........................................................................................................................... 38 2.
Organisational structure ............................................................................................................ 38 3.

Financial Overview .................................................................................................................... 39 4.

Governance ............................................................................................................................... 40 5.
Corporate Governance Statement ............................................................................................ 45 6.
Other public sector and other governance obligations ............................................................. 46 APPENDIX 1: BOARD MEMBERSHIP AT YEAR END AND CHANGES IN COMPOSITION SINCE LAST ANNUAL REPORT ............................................................................................... 48 APPENDIX 2: ISSUERS EXAMINED BY THE FINANCIAL REPORTING SUPERVISION UNIT DURING 2016 ............................................................................................................. 50 APPENDIX 3: TABLES OF DECISIONS PRESENTED BY IAASA DURING 2016 TO THE EUROPEAN ENFORCERS’ COORDINATION SESSIONS ..................................................... 52 GLOSSARY ................................................................................................................. 54 WHAT WE DO IAASA is responsible for the supervision of the accounting profession in Ireland, comprising of 36,277 members of Prescribed Accountancy Bodies (‘PABs’) in business and practice in the State.
IAASA is the competent authority for the oversight of statutory auditors in Ireland, including oversight of the manner in which the six Recognised Accountancy Bodies (‘RABs’) perform the functions assigned to them in law in respect of statutory auditors, namely approval and registration, continuing education, quality assurance systems and investigative and administrative disciplinary systems.
In addition, IAASA has direct responsibility for the inspection of audits of Public Interest Entities (‘PIEs’), comprising of entities with securities listed on a regulated market, credit institutions and insurance undertakings.

We directly regulate ten auditing and accounting firms, including all of the Big 4, in respect of this element of their work.
IAASA is responsible for examining the level of compliance of certain entities’ annual and half-yearly financial reporting with applicable financial reporting standards (in the main International Financial Reporting Standards (‘IFRS’) and Irish Generally Accepted Accounting Practice (‘GAAP’)).
This comprises 119 entities, made up of:  28 equity issuers, whose market capitalisation at 31 December 2016 was €127bn;  73 debt issuers, with balance sheet assets totalling €360bn; and  18 closed-ended fund issuers, with balance sheet assets totalling €131bn.

IAASA is responsible for the conduct of investigations on issues arising from its inspection of the audits of PIEs and referrals from overseas competent authorities.
IAASA also has the discretionary power to investigate whether a member of a PAB has complied with that body’s standards and to investigate whether a prescribed accountancy body has complied with its approved investigation and disciplinary process.

IAASA is responsible for adopting standards on auditing, ethics and internal quality control for all auditors.
IAASA carries out a range of other activities, including registration of certain types of liquidators, engaging with our peer European and international counterparts, and advising the Minister for Jobs, Enterprise & Innovation on key auditing and accounting matters.
Why do we do it IAASA’s mission is to contribute to Ireland having a strong regulatory environment in which to do business by supervising and promoting high quality financial reporting, auditing and effective regulation of the accounting profession in the public interest.

What guides us IAASA operates with powers and functions granted to it under the Companies Act 2014, and related Statutory Instruments.
We carry out our work in accordance with values set out by our Board  Public interest Independence  Integrity   Commitment  Fairness and consistency  Effectiveness and efficiency  Transparency and accountability 1 Who do we report to IAASA is governed by a Board of Directors made up of representatives of stakeholders and members nominated by the Minister for Jobs Enterprise and Innovation.

IAASA is answerable to the Oireachtas.


What is our budget IAASA’s total expenditure in 2016 was €2.6m, from a budget of €4.4m.

The most significant areas of underspend were in payroll and related costs due to ongoing difficulties in attracting additional suitable qualified staff.

2 CHAIRPERSON’S STATEMENT Introduction This is IAASA’s (‘the Authority’) eleventh Annual Report.
It is with pleasure that I submit it to the Minister for Jobs, Enterprise & Innovation (‘the Minister’), in accordance with section 928(1) of the Companies Act 2014 (‘the Act’).

The Chief Executive’s Review summarises the principal activities undertaken by the Authority during 2016 to fulfil its mission.

The remainder of this Report gives details of this work.

In my Statement, I would like to highlight some significant developments that occurred during the year 2016.
Audit reform Our audit oversight role is currently governed by SI 3121, which came into effect on 17 June 2016.

At year end the Department of Jobs, Enterprise & Innovation was well advanced in its work of replacing this with new primary legislation, the Companies (Statutory Audits) Bill.

This legislation will repeal SI 312 and amend the Companies Act 2014 in particular by adding a new Part 27 to the Act to cover auditor oversight.
This will substantially bolster the oversight regime conferred on IAASA as the competent authority.

While at year end draft Heads were not yet available, the intent of the legislation is to change the nature of IAASA’s interaction with the RABs who are allowed to authorise their members to perform statutory audits.

IAASA is already (under SI 312) responsible for the public oversight of statutory auditors and audit firms of PIEs, with certain other tasks directly assigned in law to the RABs.
The new model will result in significant change to the nature of the relationship between IAASA and the RABs as when the legislation comes into force it will confer on IAASA the power to delegate tasks to the RABs.

Delegation agreements between IAASA and the RABs will set out how the new model will operate in practice.

IAASA will liaise with the RABs during 2017 to ensure that the necessary administrative structures are in place in advance of that time.
Ultimately, working with the RABs, the intent is to further underscore the high quality and robust oversight regime under which the auditing profession operates.

Internationally, IAASA continues to work with fellow competent authorities and during 2016 discussions continued with the our US equivalent, the PCAOB, to put in place an agreement which will lead to joint inspections of the auditors of companies subject to US jurisdiction.
Significant progress has been made and it is hoped that the final hurdles to a signed agreement will be overcome in 2017.

Investigations The Bill is also intended to reform and streamline how the Authority undertakes its investigative responsibilities.
While it is intended that the RABs will retain their primary role in relation to the investigation of matters relating to non public interest entity auditors, the legislation assigns responsibility to IAASA to carry out investigations into potential breaches of the law uncovered as a result of quality assurance inspections or referred to IAASA by other competent authorities.
IAASA also retains responsibility for investigations into potential non-compliance with approved investigations and disciplinary procedures of the PABs and investigations into breaches of a PAB’s standards where it deems it appropriate.
The intent is that IAASA will have a single investigative process which will deal with any matter that falls to it to investigate, and that the necessary powers to carry out these investigations will be housed in legislation, allowing the Authority to establish its own procedures.

Public consultation on this process will take place when a draft set of procedures are available.
Staffing resources During 2016 IAASA received sanction to recruit significant additional staff, which when carried through will put it on a much firmer footing in terms of being able to carry out the many tasks assigned to it under legislation.

However the Authority continues to face challenges in recruiting additional appropriately skilled staff.
IAASA operates in a competitive marketplace where there is significant demand for the professional and technical skills it is seeking to 1 Statutory Instrument 312 of 2016 European Union (Statutory Audits) (Directive 2006/43/EC, as amended by Directive 2014/56/EU, And Regulation (EU) No 537/2014) Regulations 2016 3 obtain.
There are key roles which are to be filled in 2017, in particular the Team Lead on Audit Standards and the Team Lead on Conduct, as well as several vacancies across the Authority’s other areas of activity.

The Authority continues to be the subject of critical comment by the European Securities and Markets Authority in relation to the level of resources in its Financial Reporting Supervision Unit.

The Executive will continue to prioritise filling its approved staffing sanction.
Brexit Like many other entities, private and public, the work of IAASA will in all likelihood be impacted by the proposed departure of the UK from the European Union.

Partly these impacts will reflect the impact on the audit profession, with a number of the RABs being located in what will become a non-EU jurisdiction.

Equally, elements of the regulatory structure in this jurisdiction are intertwined with the UK.
As alluded to elsewhere in this Report, the Authority has a strong working relationship across a range of areas with our UK counterpart, the Financial Reporting Council, and the extent to which we can continue to work closely on a range of issues of mutual interest will need to be kept under review.

The Board have identified Brexit as a key challenge for IAASA in the short to medium term and will strive to ensure that the Authority is well placed to respond to that challenge.
Board composition The year was one of change in the Board, marked in particular by the tragic passing of Professor Brendan Walsh, my predecessor as Chairperson.

I would like to thank my colleague Conor O‘Mahony, who took on the role of Deputy Chairperson for the period up to my appointment just prior to the year end.

2016 also marked the departure of our Chief Executive, Helen Hall, who left to take up the role of Chief Executive of the Policing Authority, and the Board wishes her well in that position.
I would like to thank Michael Kavanagh who acted as interim Chief Executive until the appointment of Kevin Prendergast as Chief Executive in November, 2016.

Concluding remarks In my short time as Chairman it is already evident that the Authority benefits from a strong and dedicated Board, as well as a committed Executive and staff, and I would like to pay tribute to them for their work during 2016.
I would also like to thank on behalf of the Board the Minister for Jobs, Enterprise & Innovation and the staff of her Department for their ongoing support in striving to ensure that the Authority is adequately structured and resourced to carry out its obligations.

As IAASA moves forward into a new era under a revised legislative structure, it will be vital that all parties work together to create an efficient and robust regulatory environment for the profession.
Martin Sisk Chairperson 28 April 2017 4 CHIEF EXECUTIVE’S REVIEW Introduction The Purpose of this report is to provide an overview of the activities of IAASA during 2016, as well as to present the Authority’s annual financial statements.

The year was a significant one for the governance of the Authority with my appointment as Chief Executive and the appointment of our new Chairperson both occurring late in the year.
From an operational standpoint this year marked the first full year of operation for the Audit Quality Unit as well as the establishment of the Conduct and Legal Services Unit, which will oversee IAASA’s investigations and sanctioning remit, as well as having responsibility for the registration of certain classes of liquidators.

In order to be able to respond to these demands, IAASA has been granted sanction to expand its workforce, and steps to achieve that commenced in 2016.
This will continue to be a priority for the Authority.

Our Activities IAASA’s remit continues to expand, as further responsibilities are conferred by legislation.

The nature of our relationship with the audit profession underwent fundamental change during the year, with SI 312 replacing SI 220 of 2010.

SI 312 will in turn be replaced by primary legislation and at the year end work was well under way on what will ultimately be the Companies (Statutory Audits) Bill.
IAASA has worked closely with the Department of Jobs, Enterprise & Innovation in the development of this legislation, which will have a significant impact on how we carry out our oversight of the auditing profession.

Our Financial Reporting Supervision Unit completed 45 examinations during 2016.

Arising from our work in 23 instances issuers provided undertakings in respect of future financial periods.
As part of its review work programme, the Financial Reporting Supervision Unit undertook five thematic examinations into operating lease commitments, defined benefit pension scheme assumptions, the recognition of intangible assets, share based payments and the application of IFRS 13 Fair Value Measurement.

Closed end funds and debt issuers continue to reveal more issues than equity issuers, with an average of 3.1 issues per issuer as compared to 1.4 for equity issuers.
While there was some improvement in 2016 compared to previous years, some of these issuers continue to underestimate the need for proper financial reporting processes, and consequently under resource this process.

This may ultimately result in prolonged engagement between those issuers and IAASA in resolving matters so that, ultimately, financial statements comply with financial reporting standards and are not misleading users.
In addition, IAASA publishes, on a named basis, some of its financial reporting decisions each year.

Six such decisions taken in 2016 have been published by IAASA.

Our Regulatory & Monitoring Supervision Unit is responsible for the supervision of the nine PABs in Ireland, six of which are also RABs who may authorise their members to carry out statutory audits.

During the year we undertook supervisory visits to three RABs.
The focus of two of these visits was on investigation and disciplinary processes and one focused on auditor licensing.

Also during the year supervisory reports were issued to four RABs, three on their processes for the licensing of auditors and one in respect of auditor quality assurance.

In relation to auditor licensing, in general these reviews found that the processes were of a good standard.

However some areas for improvement were identified.
IAASA will continue to work with the RABs to ensure that these improvements are put in place.

Work is continuing on the reports in relation to investigation and disciplinary processes.

IAASA also carried out checks to confirm whether RABs were complying with the obligation to review each statutory auditor at least once every six years.

We were satisfied to note substantial compliance with this cycle.
5 In overseeing the PABs, IAASA also has the power to carry out enquiries to determine whether they have complied with their investigation and disciplinary procedures.

During the year two such enquiries were concluded with fines imposed and further procedures required.

IAASA also reviewed the report prepared by the regulatory arm of Chartered Accountants Ireland into the audits of the impairment provisions of certain financial institutions in financial statements dating back to the economic collapse.
IAASA considered this report carefully having regard to the many legislative and professional standards changes that have taken place since then, as well as IAASA’s enhanced role now in relation to direct inspections of the audits of these institutions.

The Authority will continue to supervise the ICAI in its ongoing regulatory responses to these and related issues.

IAASA’s Audit Quality Unit continued its planning activities in the first half of 2016 and its powers were commenced by SI 312.
Its Audit Inspections Team has responsibility for inspecting the quality of work performed by the auditors of PIEs, including those remaining financial institutions referred to above.

Staffing this Team remains a priority.

Following the receipt of its powers, the Team commenced one inspection.

This was still ongoing at the year end.

During 2016 IAASA was also conferred with the responsibility for the adoption of auditing and related ethical and internal quality control standards.
At the year end work was well advanced in putting Irish standards in place.

And also during 2016 significant progress was made on our liquidator registration obligations.
Integral to our work are our engagement and advocacy responsibilities, and IAASA engages on a regular basis with a range of bodies at EU and international level, including the European Securities and Markets Authority (‘ESMA’), the Commission for European Auditor Oversight Bodies (‘CEAOB’), and the International Forum for Independent Audit Regulators (‘IFIAR’).

As part of this engagement we are active members of a number of committees and working groups.

We also work closely with other audit regulators.


In particular, we liaise with the Financial Reporting Council in the UK across a range of our activities, including attending as an observer at the Corporate Reporting Council and Audit & Assurance Council.

The Corporate Reporting Council provides strategic input to the FRC as a whole with regard to accounting standards.

The Audit & Assurance Council considers and advises the FRC Board and the Codes and Standards Committee on audit and assurance matters.
We also published a range of reports covering our work as financial reporting enforcer, and on the accounting profession, all of which are available on our website, www.iaasa.ie.

And as part of our wider advocacy role we engaged regularly with our stakeholders during the year.

Concluding remarks Our 2016 Report provides a comprehensive review of the breadth of the work of IAASA during 2016.
Achieving this, and dealing with the changing legislative environment within which we operate, brought enormous challenges to the organisation during the year.

I would like to pay tribute to the hard work and dedication of my colleagues, who in my short time in office have already shown their professionalism, flexibility and willingness to take on those challenges.

I would also like to express my gratitude to my Chairperson and Deputy Chairperson and the Board for their ongoing support and guidance.
Kevin Prendergast Chief Executive 28 April 2017 6 CHAPTER 1: EXAMINATION OF ISSUERS’ FINANCIAL REPORTS Introduction 1.

This Chapter sets out the: (a) key activities undertaken in 2016 by IAASA in relation to its financial reporting enforcement function; (b) financial reporting decisions published in the year in consequence of financial statement examinations performed; and (c) ancillary functions relating to its financial reporting enforcement i.e.
: - - - cooperation with other EU national financial reporting enforcers; cooperation in the development of financial reporting standards; and providing financial reporting advice to the Minister.

IAASA’s legal framework for the examination of issuers’ financial reports is set out in the Transparency (Directive 2004/109/EC) Regulations 2007 (as amended) (‘Transparency Regulations’).

Further detailed information regarding IAASA’s functions in this respect can be accessed on the IAASA website.

2.
2.

Financial reporting enforcement remit and work performed during 2016 2.1.

Issuer constituency At 31 December 2016, IAASA’s known financial reporting examination constituency comprised 117 (2015: 129) issuers made up of 28 equity issuers, 18 closed-ended fund issuers and 71 debt issuers.
These numbers exclude issuers registered in Ireland and admitted to trading on a regulated market within the EU but outside Ireland where the Central Bank of Ireland has not been notified by the issuer that Ireland is that issuer’s home Member State.

This is a Europe-wide issue which the European Securities Markets Authority (‘ESMA’) is currently working to resolve.

Table 1.1 details the number of financial reports of these issuers which are under IAASA‘s remit.
Table 1.1 Financial reporting review constituency at 31 December 2016 Equity Equity (28 issuers) Closed-ended Funds (18 issuers) Debt CEF Debt (71 issuers) These 117 issuers publish approximately 234 periodic financial statements falling within IAASA’s financial statement review remit.

7 2.2.
Categories of examination2 Depending upon risk factors identified and other relevant considerations, examinations undertaken by IAASA can be categorised as being: (a) Unlimited scope examination of financial information – the evaluation of the entire content of the financial information in order to identify issues / areas that need further analysis and to assess whether the financial information is compliant with the relevant financial reporting framework; (b) Focused examination of financial information – the evaluation of pre-defined issues in the financial information and the assessment of whether the financial information is compliant with the relevant financial reporting framework in respect of those issues; (c) Follow-up examination of actions – ensuring that appropriate improvements are made to financial reports where the issuer has previously given an undertaking to IAASA to amend future Reports; (d) Thematic examination of financial information – the evaluation of financial reporting practices adopted by a range of issuers in respect of one or more financial reporting matters.
These examinations are desk-based and limited to examining publicly published information without issuer engagement; and (e) Topical surveys – these surveys, mandated by ESMA, comprise the examination of the financial reporting treatments applied by selected issuers based on parameters set by ESMA.

These surveys are also desk-based and limited to examining publicly published information without issuer engagement.
If, as a result of its findings from these surveys, IAASA subsequently engages with an issuer, that subsequent engagement is designated as a separate unlimited scope examination or focused examination as appropriate.

2.3.

Examinations undertaken in 2016 Examinations which were undertaken in the year are set out in Table 1.2.
Table 1.2 Examinations undertaken in 2016 30 21 30 25 20 15 10 5 0 7 5 10 5 2016 examinations 2015 examinations Equity CEF Debt 2 The definition and scope of unlimited scope examination, focused examination and follow-up examination are those adopted by ESMA in its Guidelines on enforcement of financial information 8 Examinations of annual financial reports Examinations of half-yearly financial reports Sub-total, by type of examination Thematic examinations: Operating lease commitments (July 2016) Survey of Issuers’ Defined Benefit Pension Scheme Assumptions (August 2016) Recognition of Intangible Assets and Scale of Acquisition Activity (September 2016) Share-Based Payments (October 2016) Survey on the application of IFRS 13 Fair Value Measurement (November 2016) IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities IAASA Survey of Directors’ Critical Accounting Judgements and Auditors’ Assessed Risks of Material Misstatement ESMA topical survey: ESMA 2015 European Common Enforcement Priorities (ECEP) questionnaire 2016 2015 Equity CEF Debt Total Total 28 5 33 37 8 45 26 4 30 6 4 10 5 - 5 28 28 28 28 28 - - 5 - - - - - - - - - - - - - - - - 28 28 28 28 28 - - - - - - 5 - 20 5 5 Financial reporting examinations undertaken in 2016, by type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4 1 4 5 19 1 4 7 Debt CEF Equity Unlimited scope examinations: 9 Focused examinations: 24 Follow-up examinations: 12 A list of issuers’ annual and half-yearly financial statements subject to unlimited scope, focused or follow-up examination during 2015 is set out in Appendix 4.
9 Consistent with earlier years and in line with ESMA selection criteria, the financial reports examined in 2016 were selected on the basis of: (a) Risk profiling – the application of risk profiling whereby issuers are ranked based on the combination of the potential for misstatement and the potential impact of misstatement on users; (b) Rotational selection – to ensure that all issuers, irrespective of their assessed risk profile, are selected for review over a period of time irrespective of their risk profile or the outcome of overviews; and (c) Overviews – the outcome of overviews of periodic financial reports.
Such overviews are undertaken to detect financial reporting treatments warranting closer examination.

IAASA completed 42 examinations (2015: 33) of individual financial statements during 2016 and corresponded with issuers in relation to 29 (2015: 24) of these examinations.

A further 3 (2015: 3) examinations were at an advanced stage at year end and IAASA was in ongoing correspondence with these three issuers.

A total of 149 (2015: 162) matters were raised with issuers’ directors during 2016.
The average number of matters raised with issuers in respect of unlimited scope examinations undertaken was 11 (2015: 7).

IAASA held face-to-face meetings and/or conference calls with 11 (2015: 10) issuers during the year as part of their financial statement examinations.

The financial statements of 28 issuers (i.e.

all 27 listed equity issuers and Allied Irish Banks plc, a debt issuer)3 were reviewed as part of the five thematic examinations undertaken in 2016.
Section 5 below provides further detail on these thematic examinations.

3.

Outcomes of 2016 examinations As a consequence of IAASA’s examinations, in 23 instances (2015: 17) issuers provided undertakings in respect of future periodic financial reports.

For unlimited scope examinations a total of 33 (2015: 61) voluntary undertakings were provided by issuers’ directors to amend future periods’ financial statements and 28 (2015: 9) in respect of focused examinations and follow-up examinations.
Equity issuers For examinations of equity issuers a total of 66 matters were raised (2015: 78) and 24 (2015: 28) undertakings were received.

The average number of undertakings per issuer was 1.4 (2015: 1.6).
The undertakings received from equity issuers (all of which apply IFRS as adopted by the EU) are analysed in the following table: 3 Allied Irish Bank plc is currently classified as a debt issuer 10 Table 1.3 Analysis of undertakings received from IFRS equity issuers in 2016 by topic 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 8 S A I , 1 S A I 7 S A I & 2 1 S A I S R F I , 2 S R F I & 1 1 S R F I , 3 3 1 S R F I S A I & 7 1 S A I , 6 3 S A I , 9 1 S A I & 9 3 S A I 4 3 7 S R F I Closed-ended funds and debt issuers For closed-ended funds and debt issuers’ examinations a total of 62 (2015: 51) matters were raised and 25 (2015:41) undertakings were received.
The average number of undertakings provided was 3.1 (2015: 4.1) per issuer, which compares with an average of 1.4 for equity issuers.

When outliers are excluded, the amount of non-compliance identified in the Reports of selected closed-ended fund and debt population is improving, however, the quality of selected issuers’ financial reports examined remains of a lower quality than for equity issuers.
Examinations of closed-ended funds and debt issuers frequently result in more engagement time being spent by IAASA and result in more undertakings being provided.

In addition to the IFRS undertakings noted above a further 3 undertakings was received from one issuer applying FRS 104 Interim Financial Reporting.
IAASA’s perception of the quality of financial reporting by issuers (a) Equity issuers IAASA has previously noted that the overall standard of financial reporting by equity issuers is very good and this remains the case.

IAASA continues to enjoy a high level of cooperation from management during its engagement with equity issuers.
Notwithstanding this overall positive perception, IAASA takes this opportunity to remind issuers that there is room for improvement in the quality and transparency of financial reporting and, in particular, through the incorporation of issuer-specific disclosures in financial reports.
Alternative performance measures remains an area where issuers are reminded to further consider thereby providing a link between the “front end” analysis and management commentary and the statutory IFRS-based financial statements.

IAASA remains alert to the fact that each phase of the economic cycle together with new and amended financial reporting pronouncements present challenges for preparers, audit committees and accounting enforcers.
Issuers are encouraged by IAASA to remain vigilant to developments arising from: (i) the application of new and amended financial reporting pronouncements and, in particular, the requirements to disclose the impact of the future adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases; (ii) matters raised in IAASA’s Observations documents and periodic publications; 11 (iii) ESMA’s European common enforcement priorities for 2016 financial statements; and (iv) ESMA’s Guidelines on Alternative Performance Measures (30 June 2015).
(b) Closed-ended fund and debt issuers IAASA has previously commented adversely on the wide variation in quality of the financial reporting of selected closed-ended fund and debt issuers.

Certain issuers have demonstrated a noted improvement in the quality of their financial reporting.

However, there remain a number of issuers where the quality of financial reporting continues to be below expectations.
This below par performance is evidenced by a disproportionately large number of undertakings provided and some significant instances of non-compliance being identified.

The complexity of some issuers and their risks has not been reflected in their financial reporting processes.

In some instances, this results in prolonged engagement with IAASA and results in significant time resources being required by the issuer to correct the financial reporting.
Issuers are once again reminded that IAASA publishes certain of its financial reporting decisions on a named basis.

4.

Summary of financial reporting decisions published In accordance with its Policy Paper on Publication of IAASA’s Financial Reporting Findings (updated 21 June 2016), IAASA has published 6 (2015: 11) financial reporting decisions in respect of 5 (2015: 11) issuers where the decision was reached in 2016.
Further decisions reached in 2016 will be published in 2017 once the text of those decisions has been notified to the impacted issuers.
It should be noted that the published financial reporting decisions (summarised below) include decisions where: (a) the issuer voluntarily provided undertakings to enhance its financial reporting treatment and/or disclosures in future financial statements to address matters identified in the course of IAASA’s examinations; and (b) IAASA concurred with the financial reporting treatment applied by the issuer and, consequently, no corrective action was required.
The following Table summaries those 11 decisions.

The complete text of the published financial reporting decisions may be accessed on the Authority’s website.
Issuer Morgan Stanley Asia Products Limited (debt issuer) Financial report Annual financial statements for the year ended 31 December 2014 Financial reporting requirements IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IFRS 7 Financial Instruments: Disclosures IAS 24 Related Party Disclosures IFRS 8 Operating Segments 12 Summary of financial reporting decision The provided IAASA with a number of undertakings to ensure compliance, in full, with certain financial reporting standards and the Regulations).
In particular, the issuer agreed to amend the presentation and to provide additional disclosures in future financial statements in relation to the: (a) presentation of gains and losses on financial instruments in the Statement of Comprehensive Income (Profit & Loss Account) (IAS 1); Issuer Financial report Financial reporting requirements Regulation 5(4)(c)(ii) – Management Reports Aryzta AG (equity issuer) Half-yearly financial report for the six months ended 31 January 2016 Cairn Homes plc (equity issuer) Permanent TSB Group Holdings plc (equity issuer) Annual financial statements for the year ended 31 December 2015 Annual financial statements for the year ended 31 December 2014 IAS 28 Investments in Associates and Joint Ventures IFRS 11 Joint Arrangements IFRS 10 Consolidated Financial Statements IFRS 7 Financial Instruments: Disclosures IAS 12 Income Taxes IAS 1 Presentation of Financial Statements 13 Summary of financial reporting decision (b) classification of amounts in the Statement of Cash Flows (IAS 7); (c) credit risk disclosures (IFRS 7); (d) market price risk disclosures (IFRS 7); (e) disclosures related to offsetting of financial assets and financial liabilities: master netting arrangements or similar agreements (IFRS 7); (f) related parties transactions (IAS 24); (g) operating segment disclosures (IFRS 8); and (h) Management Report – fair review and principal risks and uncertainties (Regulation 5(4) (c) (ii)).
This financial reporting decision concerns the treatment by the issuer of its investment in Picard Groupe (‘Picard’) as an associate under IAS 28.

Following an examination of certain extracts of the Securities Transfer Agreement, IAASA concluded that the issuer’s investment in Picard should be treated and disclosed as a Joint Venture under IFRS 11.

This financial reporting decision concerns the omission by the issuer of certain market risk disclosures required by IFRS 7.
This decision concerns the recognition, measurement and disclosure of deferred tax assets (‘DTAs’) by the issuer amounting to €420m or approximately 18% of total equity and which was forecast to be recovered over 26 years.
IAASA’s decisions were: (a) there was insufficient clarity in the accounting standard (IAS 12) to enable IAASA to require the issuer to apply alternative recognition and measurement criteria in respect of DTAs; and Issuer Financial report Financial reporting requirements Summary of financial reporting decision (b) additional DTA disclosures were necessary in the issuer’s financial report to enable users to gain a better understanding of the judgements and key assumptions underpinning the recovery of DTAs over an extended time period.
The decision is concerned with the restatement of comparative amounts and the interaction between IAS 8.42(a) and IAS 34.

This decision addresses whether the disclosure requirements of IAS 8.42 and IAS 8.49 to correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery applies to both: (a) the first interim financial statements; and (b) the first annual financial statements after the error was discovered.
IAASA concluded that the issuer had not complied, in full, with disclosure requirements of FRS 102 and Regulation 5(4) (c) (ii).
The issuer provided IAASA with undertakings to provide additional disclosures in future financial statements regarding: (a) Revenue [FRS 102.23.30 – Revenue]; (b) Secured and unsecured notes and subordinated debt [FRS 102.11.42(a) – Basic Financial Instruments]; (c) The accounting policy for aircraft and equipment purchase commitments and non-refundable deposits [FRS 102.8.5 – Notes to the Financial Statements]; (d) Assets pledged as security [FRS 102.17.32(a) – Property, Plant and Equipment]; Permanent TSB Group Holdings plc (equity issuer) Annual financial statements for the year ended 31 December 2014 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 34 Interim Financial Reporting AerCap Global Aviation Trust (debt issuer) Annual financial statements for the year ended 31 December 2015 FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland The Regulations 14 Issuer Financial report Financial reporting requirements Summary of financial reporting decision (e) Management Report – fair review of the business [Regulation 5(4)(c)(ii) and Rule 6.1 of the Transparency Rules of the Central Bank of Ireland1]; and (f) Analysis of expenses [FRS 102.5.11 – Statement of Comprehensive Income and Income Statement].
5.

Thematic examinations IAASA undertook five thematic examinations during 2016 (2015: two).

In each instance, the survey was based on the 2015/16 annual financial reports published by all 27 equity issuers then falling within IAASA’s financial reporting review remit together with Allied Irish Banks plc, a debt issuer 5.1.
Operating lease commitments – a survey of operating lease commitments by Irish equity issuers (July 2016) IAASA carried out a desk top survey on the commitments under operating leases as disclosed in issuers’ 2015 annual financial statements.

The current international accounting standard IAS 17 Leases requires issuers to disclose their operating lease commitments over the following periods: (a) not later than one year; (b) later than one year and not later than five years; and (c) later than five years.
Under the existing rules, lessees account for lease transactions as either “operating” leases or as “finance” leases.

Under IAS 17 “operating” lease commitments do not appear as liabilities on issuers’ statements of financial position.

However, for “finance” leases, the related assets and lease obligations are required to be recognised on the statement of financial position.

The new leases Standard, IFRS 16 Leases, was published in January 2016 with an IASB effective date of 1 January 2019.
IFRS 16 replaces IAS 17 and related interpretations.

IFRS 16 eliminates the distinction between ‘operating’ leases and ‘finance’ leases in IAS 17.

In summary, under IFRS 16 all leases, subject to certain de minimus exceptions, will be treated in a manner similar to the existing requirements under IAS 17 for ‘finance’ leases.
IFRS 16 introduces a single lessee accounting model where the lessee is required to recognise in its statement of financial position: (a) assets and liabilities for all leases with a term of more than twelve months, unless the underlying asset is of low value; and (b) the right of use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
The desk top survey identified that the 28 selected issuers had a total of €6.6bn (2014: €5.8bn) of “operating” lease commitments which may be indicative of the scale of how much of the current “operating” lease commitments would require to be capitalised once issuers adopt the requirements of IFRS 16.

15 5.2.
15 5.2.

Survey of issuers’ defined benefit pension scheme assumptions (August 2016) IAASA performed a desk top survey on the principal assumptions used by issuers in measuring the assets and liabilities of their defined benefit pension schemes.

International financial reporting standards require entities to recognise a liability equal to the present value of the obligation to pay pensions that have accrued based on employees’ service to date.
Given the specialised nature of defined benefit pension arrangements, issuers engage actuaries to assist them in making actuarial assumptions and other estimates when accounting for these pension plans in accordance with international accounting standards.

IAS 19 Employee Benefits requires an entity to deduct the fair value of any plan assets from the carrying amount of the obligation in order to determine the net defined benefit liability or asset.
This survey focussed on the four assumptions that issuers most frequently address in pension accounting.

The assumptions are: (a) discount rate; (b) rate of increase in salary; (c) rate of increase of pensions in payment; and (d) inflation.

IAASA’s desk top survey identified that the total present value of the defined benefit obligation for all issuers included in this survey was €23.7bn while the fair value of the plan assets amounted to €20.7bn.
This gives a total net pension liability for all issuers included in this survey of €3.0bn (2014/15: €4.7bn).

5.3.

Recognition of intangible assets and scale of acquisition activity – a survey (September 2016) IAASA performed a desk top survey on: (a) the nature of intangible assets recognised by Irish equity issuers in their statement of financial position (balance sheet); and (b) the scale of acquisition activity undertaken by those issuers as recognised in their 2015 financial reports.
IFRS define an intangible asset as identifiable non-monetary asset without physical substance, for example, computer software, licenses, etc.

An intangible asset is identifiable if it is either separable, that is, it could be sold separately from the business, or it arises from contractual or other legal rights regardless of whether it is separable.

IAASA’s desk top survey identified eighteen different types of intangible assets recognised by issuers amounting to €5.7bn (2014/15: €4.2bn).
The survey also indicated that the total amortisation charge in the year against intangible assets amounted to €635m (2014/15: €528m).

5.4.

Share-based payments – a survey (October 2016) IAASA, Ireland’s accounting enforcer, has undertaken a desk top survey of issuers’ equity settled share-based payment disclosures.

This publication presents the results of that desk top survey.
IFRSs define an equity settled share-based payment transaction as a transaction in which the entity: (a) receives goods and services as consideration for its own equity instruments (including shares or share options), or 16 (b) receives goods or services but has no obligation to settle the transaction with the supplier.

IAASA’s desk top survey identified 24 issuers which recognised share-based charges/credits in their most recent financial statements.
The total net share-based payment charge recognised by those 24 issuers included in the survey amounted to €183m (2014/15: €121m).

The survey also indicated that the total share option reserve recognised by issuers in their most recent financial reports amounted to €437m (2014/15: €374m).

5.5.
5.5.

Survey on the application of IFRS 13 Fair Value Measurement by Irish companies (November 2016) IAASA undertook a desk-top survey of the fair value judgements made by issuers’ directors in measuring the amounts to be recognised on the Statement of Financial Position (balance sheet) in respect of: (a) intangible assets acquired; and (b) financial assets acquired and financial liabilities assumed.
The amount of intangible assets (excluding goodwill) acquired by issuers during fiscal 2015 was amounted to €1,363m.

IAASA identified that there is room for improvement in issuers’ key fair value judgements and disclosures.

Full details of the findings can be found on the IAASA website.

International cooperation 6.

6.1.

Cooperation with other EU national financial reporting enforcers through EECS IAASA cooperates with other EU national financial reporting enforcers through the ESMA sponsored EECS.
The objective of EECS is to coordinate the enforcement activities in the EU/EEA countries in order to increase convergence amongst European national accounting enforcers and contribute to fostering investor confidence.

IAASA also attends the quarterly meetings of ESMA’s Corporate Reporting Standing Group to which the EECS reports.

IAASA’s Head of Financial Reporting Supervision is a member of the EECS Agenda Group.
Accordingly, IAASA has a direct input into the selection of emerging cases and decisions as tabled by EU national financial reporting enforcers for discussion at EECS plenary meetings.
As part of the regular activities of EECS, in 2016 IAASA: a) supplied information for ESMA publications and conducted surveys on the application of IFRS across the EU from an Irish perspective; b) attended all 9 (2014: 8/8) EECS plenary meetings held in 2016 and actively participated in the consideration of issues brought to EECS by other members; c) submitted 10 (2015: 16) decisions to the EECS database.
The subject matter of these decisions is set out in Appendix 6; d) presented 4 (2015: 3) decisions to the plenary meetings for discussion.

The subject matter of these decisions is set out in Appendix 6; e) submitted and presented 4 (2015: 4) emerging cases to the plenary meetings for discussion.
The subject matter of these emerging cases is set out in Appendix 6; and f) presented the following IAASA publications at the EECS plenary meetings: Policy Paper on Publication of IAASA’s Financial Reporting Enforcement Findings (17 July 2015); 17 Observations on selected financial reporting issues issuers' financial years ending on or after 31 December 2016 (October 2016); and Survey on the application of IFRS 13 Fair Value Measurement by Irish companies (November 2016).

6.2.
6.2.

Sub-group of EECS on Accounting of Financial Institutions IAASA has a representative on the EECS sub-group addressing Accounting of Financial Institutions.

That sub-group discusses accounting issues related to accounting by financial institutions including implementation of IFRS 9 and the application by banks of the revised impairment model.

6.3.
6.3.

EECS Deferred Tax Asset Working Group IAS 12 IAASA has a representative on the EECS IAS 12 Deferred Tax Asset working group addressing accounting for deferred tax assets for losses carried forward.

That sub-group will build on the information arising from recent EECS decisions and discussions with IFRS IC.

The objective is to assess further steps to foster supervisory convergence in the application and enforcement of deferred tax losses carried forward.
The initial meeting of the working group took place in October 2016 and the work of the group is ongoing at this time.

6.4.

CRSC Task Force on IFRS 13 Fair Value Measurement IAASA has a representative on the Task Force on IFRS 13 Fair Value Measurement.

The work of the Task Force includes the analysis of the application of IFRS 13 by a selection of European issuers through a desk-top questionnaire.
Output of the task force will include the provision of a list of key disclosure and measurement issues to highlight to the IASB.

The initial meeting of the working group took place in November 2016 and the work of the Task Force is ongoing at this time.

6.5.

Cooperating in the development of financial reporting standards IAASA continues to act as an observer at the Corporate Reporting Council (formerly: the Accounting Council) meetings of the FRC.
The FRC prepares the financial reporting standards known as UK or Irish GAAP and these are used by the majority of Irish entities.

One of the principal reasons for IAASA having observer status at the Corporate Reporting Council in the first instance is to enable IAASA to discharge its statutory remit to cooperate with interested parties in the development of financial reporting standards.
It is IAASA’s view that observer status facilitates the identification at an early stage of issues that might be of particular interest or relevance in an Irish context.

7.

Advocacy activities 7.1.
Publications during the year IAASA issued nine publications during 2016 which may be accessed through the following links: Survey on the application of IFRS 13 Fair Value Measurement by Irish companies (November 2016); Share-based payments – a survey (October 2016); Observations on selected financial reporting issues - years ending on or after 31 December 2016 (October 2016); Recognition of intangible assets and scale of acquisition activity – a survey (September 2016); Survey of issuers’ defined benefit pension scheme assumptions (August 2016); Operating lease commitments – a survey of operating lease commitments by Irish equity issuers (July 2016); 18 Information Note: Consideration of the Impact of Brexit for issuers' half yearly financial reports (July 2016); Financial reporting decisions (March 2016); Financial reporting decisions (January 2016); and Snapshot of IAASA’s financial reporting enforcement activities in 2015 (January 2016).
7.2.

Stakeholder engagement, presentations and publications In 2016, IAASA continued to engage with its stakeholders.

These included the Central Bank, the Department, ICAI, ESMA, FRC, IFRS-IC and other accounting enforcers.
During the year the Head of Financial Reporting Supervision contributed an article (2015: 2 articles) to professional publications: Article title IAASA 2016 Observations Publication Accountancy Ireland (published by the Institute of Chartered Accountants in Ireland) Issue December 2016 FRSU gave a presentation titled IAASA Observations on Annual Reports to Chartered Accountants Ireland Leinster Society at the Irish Stock Exchange premises in September 2016 as part of that Society’s evening event “Creating a Winning Annual Report “.
19 CHAPTER 2: REGULATORY OVERSIGHT AND SUPERVISION OF THE AUDIT AND ACCOUNTANCY PROFESSION Introduction 1.

This Chapter outlines IAASA’s activities during the year to oversee the regulatory functions of the RABs applied to statutory auditors and to examine and promote improvements in the quality of the PABs regulatory activities.
The Act and SI 312 provide that IAASA’s principal functions relating to the PABs include:  oversight of the RABs’ performance of the regulatory functions assigned to them in respect of statutory auditors;  approval of the PABs’ constitutional documents and other related rules, regulations and standards applying to their members; and  supervision of the PABs’ investigation and disciplinary processes.

2.

Overview of supervisory activities 2.1.


PABs A PAB is an accountancy body that comes within IAASA’s supervisory remit.
There are currently nine PABs:  ACCA Association of Chartered Certified Accountants;  AIA Association of International Accountants;  CIMA Chartered Institute of Management Accountants;  CIPFA Chartered Institute of Public Finance and Accountancy;  CPA Institute of Certified Public Accountants in Ireland;     ICAEW Institute of Chartered Accountants in England and Wales; ICAI Institute of Chartered Accountants in Ireland; ICAS Institute of Chartered Accountants of Scotland; and IIPA Institute of Incorporated Public Accountants.
Details of the PABs’ membership, student numbers, public practice profiles and their regulatory activities during the year are set out in a separate publication Profile of the Profession 2016, available on the IAASA website.

2.2.

RABs Six of the nine PABs are also RABs i.e.

ACCA, CPA, ICAEW, ICAI, ICAS and IIPA.

RABs are responsible for authorising their members/member firms to practice as auditors.
In addition to approvals and registration, SI 312 assigns responsibility for the following tasks in respect of statutory auditors and audit firms to the RABs:  continuing education;  quality assurance reviews of statutory auditors and audit firms in relation to audits of entities that are not PIEs; and  investigations and discipline (other than those investigations which must be undertaken directly by IAASA - Chapter 3 refers).
20 SI 312 also provides that IAASA is responsible for the oversight of the RABs’ performance of these tasks.

Details of the RABs’ auditor members and further information on their regulatory activities, as assigned by SI 312, are provided in the Annual Audit Programme and Activity (‘AAPA’) Report, which is contained in Chapter 5 of this Report.

2.3.
Supervisory activities IAASA’s supervisory activities in relation to auditor oversight and the nine PABs fall broadly into the following categories:  supervisory visits and review meetings;  approval of the PABs’ constitutional documents and attachment of conditions to the RABs’ recognitions;   complaints handling and Section 933 enquiries; the PABs’ annual return process, the results of which are summarised in the Profile of the Profession 2016, available on the IAASA website and the AAPA Report contained in Chapter 5 of this report.
IAASA’s activities in the area of general supervision of the accountancy and auditing profession also encompass:   responding to queries from members of the public; cooperation with IAASA’s EU counterparts, as well as with other national authorities; and  acting as advisor to the Minister, in particular regarding the entry into force of SI 312 and the Regulation (EU) No 537/2014 (‘the EU Audit Regulation’).

3.

Supervisory visits and review meetings 3.1.


Overview of supervisory visits IAASA issued supervisory visit reports to four RABs during the year.

The primary focus of three of these reports was the RABs’ processes for the licensing of auditors and one report dealt mainly with a RAB’s quality assurance system for auditors.

Arising from these visits, a number of common issues were identified across the RABs, as detailed in Section 3.2 below.
In addition, two on-site supervisory visits relating to the PABs’ investigation and disciplinary processes were conducted during the year and a summary of the initial findings arising from these visits is set out in Section 3.3 below.

Following supervisory visits, IAASA works with the PABs concerned to address the issues identified through improvements to their overall systems and processes.
At year end, IAASA continued to actively consider a number of matters and to monitor the relevant PABs’ actions to implement recommendations made in previous supervisory visit reports.

Two of the supervisory visits commenced in 2016 were undertaken jointly with the FRC.

While IAASA and the FRC are subject to separate legislative frameworks, both regulators have responsibility for the oversight of the regulatory activities of ACCA, ICAEW, ICAI and ICAS in respect of statutory auditors.
Joint supervisory visits allow a pooling of regulatory resources, enhanced consistency of approach and an efficiency for the relevant RABs in dealing with one review.

21 3.2.
21 3.2.

Licensing of Auditors – common findings and recommendations Given the level of reliance placed by various stakeholders on the work performed by auditors, it is essential that the RABs have robust and efficient licensing systems in place to ensure that they approve only those members with adequate skills and experience and who are of good repute to provide statutory audit services.
In general, the auditor licensing processes of the reviewed RABs were found to be of a good standard and carried out in accordance with the respective RABs’ approved regulations and procedures.

However, a number of common areas where there is scope for improvement were identified and a summary is set out below.

While the findings arise from visits to three of the six RABs, these recommendations should be considered by all six RABs to ensure that any potential areas for improvement are identified.
The RABs’ actions will be monitored as part of IAASA’s ongoing supervisory activities, such as review meetings and future supervisory visits.

3.2.1.

Assessment of audit experience It was observed that applicants for audit approval were permitted to submit information in a way that did not always contain sufficient detail to adequately assess the applicant’s audit experience.

IAASA’s principal recommendations in this respect are listed below.
 Applicants should be required to provide adequate information regarding their audit experience, including the number and nature of their audit clients, their role in those audits, the audit competencies they possess, their level of proficiency in each and the length of their audit experience.

 Audit experience should normally be certified by the auditor who supervised that particular training, as he/she is in the best position to verify the information provided by the applicant.
However, if this is not possible, the applicant should be required to document the reason(s) for certification by a different auditor.

 If an applicant is unable to complete some or all of the experience record to an appropriate standard, the experience that is not adequately recorded should not count towards the total experience claimed.

3.2.2.
3.2.2.

Assessment of applications Each RAB must undertake an adequate assessment of an applicant’s training and experience, fit and proper status, professional indemnity insurance (‘PII’), continuity of practice and other criteria as appropriate, including the structure and ownership of firms.

While comprehensive checks on audit applications were normally carried out in practice, they were not always evidenced by the RAB.
IAASA has made a number of recommendations in this respect, including:   the use of a written checklist, which should also contain a conclusion on whether to grant approval and be subject to review on at least a sample basis by senior licensing staff or the relevant regulatory committee; and the necessity to verify compliance with all criteria for approval in advance of awarding audit authorisation rather than on a subsequent quality assurance visit.

3.2.3.
3.2.3.

Higher risk applications Whilst it was observed that the RABs’ licensing staff appear to be familiar with the relevant processes, it was not always apparent that they adequately considered the risks associated with the licensing of auditors, particularly for those applicants where an element of judgement was required.

In this context, IAASA has recommended that:  each RAB should identify higher risk categories of applicants (e.g.
those with limited recent audit experience; recently qualified sole practitioners; individuals 22 whose practical experience includes experience gained prior to admission; and individuals subject to disciplinary proceedings);  for each category of higher risk applicant, consider what additional verifications may be appropriate when assessing such applications as well as the impact such risks may have on their eligibility for appointment as an auditor;  where an application would not appear to comply with the requirements for approval, it is referred to the relevant committee for consideration; and  where discretion is permitted to staff, the scope of that delegation should be specified, and the reasons for staff waiving any requirements should be documented, subject to senior management review, and the relevant committee should be advised of such cases.
3.2.4.

Conditions on approval IAASA also made recommendations in relation to the attachment of terms or conditions to an auditor’s approval, where he/she has been assessed as high risk, as detailed below.

 The RAB should consider the imposition of conditions such as the submission of hot file reviews, an early quality assurance visit or completion of audit relevant CPD.
 The applicant should be notified of the terms and condition(s) upon the award of audit authorisation and they should be subject to appropriate monitoring and follow-up on a timely basis.

 Approval by senior management/committee should be required before terms or conditions are lifted.

3.2.5.
3.2.5.

Improvements to RABs’ forms and processes A number of instances were identified where the RABs’ forms could be enhanced to enable ease of review and verification of applicants’ eligibility, as well as ensuring consistency between applications and providing evidence of the judgements made by RAB staff.
For example, IAASA recommended the inclusion of a dedicated section regarding fitness and probity in all application forms, including questions regarding the applicant’s disciplinary and regulatory history, financial position and tax compliance.

In addition, it was recommended that in some instances the RABs’ auditor licensing process could be further enhanced by increased communication between licensing staff and other regulatory units (e.g.

conduct team or quality assurance team).


IAASA also recommended that the RABs ensure their process documentation details the actions to be taken in circumstances where incorrect or misleading information is included on an individual’s application form and the impact this may have on the individual’s application.

3.2.6.
3.2.6.

Members of other RABs Where a firm applies to a RAB to appoint an individual who is a member of another RAB as an auditor within the firm, the RAB is required to undertake appropriate checks to ensure that it is in order to authorise that individual as an auditor.

In this context, each RAB should have a policy outlining the extent to which it places reliance on other RABs and how it satisfies itself as to the appropriateness of this reliance.
At a minimum, a RAB should request the relevant accountancy body to provide confirmation that the applicant is currently authorised to audit (or not precluded from auditing) and a member in good standing of that body.

This should be re-confirmed on at least an annual basis, as well as CPD compliance, to ensure it remains in order for the RAB to authorise that individual as an auditor.

23 3.3.
23 3.3.

Investigation and disciplinary processes – initial findings As noted in Section 3.1 above, on-site supervisory visits relating to the investigation and disciplinary processes of two PABs were conducted during the year.

Drafting of the final reports in respect of these visits was ongoing at year end and since then one further visit to another PAB has been conducted.
Some common areas identified during the reviews, where it is intended to provide recommendations to the PABs are:  avoiding unnecessary delays in the complaints process;  improvements to management information and disciplinary statistics, including the use of key performance indicators;  documentation of policies, including the level of oversight required and consideration of previous complaints; and  communication with other regulatory units within the PAB, including those responsible for licensing and quality assurance.
3.4.

Desktop review – quality assurance cycle Since May 2010, the RABs are required under law to conduct a quality assurance review of each statutory auditor that does not have any PIE audit clients at least once every six years.

As six years has passed since this requirement became effective, a desktop review of the RABs’ compliance with the quality assurance inspection cycle was undertaken during the year.
The review was completed by means of a written questionnaire, the results of which are summarised in Table 2.1.

Table 2.1 Quality assurance cycle at May 2016 ICAEW 3,236 Total ACCA CPA 483 5,207 339 ICAI 868 ICAS 193 IIPA 88 Statutory auditors at May 2016 Of which: Subject to at least one quality assurance visit since May 2010 Registered since May 2010 i.e.
not required to be visited by May 2016 Visits outstanding (4,795) (446) (317) (3,012) (765) (185) (70) (371) (22) (21) (221) (81) (8) (18) 41 15 1 3 22 - - The RABs reported substantial compliance with the quality assurance cycle, with the majority of statutory auditors subject to at least one quality assurance visit within the previous six years.

This is a welcome outcome and reflects the efforts of the RABs’ quality assurance teams.
For a number of RABs, the target was a demanding one, requiring the application of extra resources in the last two years to achieve the cycle.

In total, there were 41 statutory auditors across four of the RABs which should have been visited by 19 May 2016 where a quality assurance review had not been conducted.

By the end of September 2016, 10 of these had been removed from the Statutory Auditor Register and 17 had been subject to a quality assurance visit.
Of the 14 remaining statutory auditors, 12 (10 in ICAI, one in ACCA and one in CPA) had their visits postponed due to long term illness while two ICAI auditors were in the process of surrendering their audit registration.

This matter has been discussed with the relevant RABs and, in particular, the necessity for the timely scheduling of visits to allow for any delays and minimise the risk of a visit not being completed within the maximum six year period.
Also:  the RABs have been requested to ensure that, where a quality assurance visit has been postponed beyond the six year cycle due to long term illness, the member has 24 taken appropriate steps to provide that their audit clients’ needs are being properly met.
It is IAASA’s expectation that such arrangements would most likely involve the performance of those audits by an alternative statutory auditor; and  where relevant, the RABs have been advised that a member’s stated intention to surrender audit registration does not negate the requirements for a quality assurance visit at least once every six years.

3.5.

Periodic review meetings IAASA met with representatives of each PAB at least once during the year, with a total of 17 review meetings held in 2016.
The purpose of such meetings is, amongst other things, to:  review progress with outstanding actions and obtain updates on all outstanding regulatory matters, such as amendments to the PABs’ constitutional documents;  discuss progress on the implementation of IAASA’s recommendations for improvements where IAASA has identified potential weaknesses in the manner in which the PABs regulate and monitor their members;   identify and discuss forthcoming developments, including strategic initiatives entered into by the PABs and changes to their education processes; consider the impact of any recent changes to relevant Irish legislation for the PABs and their members; and  discuss regulatory matters of mutual interest, such as the potential consequences of Brexit and the professional indemnity insurance requirements for liquidators (Chapter 4 refers).
In addition, bilateral meetings were held with the PABs as and when required.

4.

Approval of the PABs’ constitutional documents and attachment of conditions IAASA approved 32 constitutional documents during the year, which related to the ACCA, CIMA, CPA, ICAEW, ICAI and the ICAS.

The review of a further eight constitutional documents was ongoing at 31 December 2016.

Section 931 of the Act provides that IAASA may attach such terms or conditions as it considers necessary to the recognition of a RAB.
No new conditions were imposed during the year and the Authority continued to monitor the RABs’ compliance with the extant conditions.

5.

Complaints handling and statutory enquiries 5.1.

Overview During the year, IAASA responded to 12 complaints received from members of the public and provided them with assistance and information about IAASA’s and the PABs’ respective roles in the processing of complaints.
The principal issues raised by complainants related to dissatisfaction with aspects of the PABs’ investigation and disciplinary procedures and alleged non-compliance with the PABs’ bye-laws.
Although IAASA has no statutory role in facilitating the resolution of individual complaints made to the PABs or in operating a system of final appeal against decisions taken by the PABs in relation to complaints, it does have a statutory role to oversee the PABs’ compliance with their approved investigation and disciplinary procedures.
Therefore, where potential issues in relation to a PAB’s handling of a complaint come to its attention, IAASA considers such matters in the context of its ongoing supervision of that PAB and, if concerns arise, it may take a range of supervisory action as it considers appropriate in the circumstances.
In addition, section 905(2)(d) and (e) of the Act provides that IAASA may conduct enquiries into whether a PAB has complied with its approved investigation and disciplinary procedures 25 and, where appropriate, impose sanctions.

The decision as to whether to initiate such an enquiry is at the sole discretion of the Board of the Authority.

An overview of the section 933 process is available on the IAASA website and Table 2.2 provides a summary of the section 933 enquiry activity during the year.
Table 2.2: Summary of section 933 enquiry activity S.933 enquiries ongoing at 1 January 2016 Enquiries completed during the year S.933 enquiries ongoing at 31 December 2016 Preliminary Enquiry Stage 1 Full Enquiry Stage 2 (1) - (1) 1 Total 3 (2) 1 One full enquiry was completed during the year following High Court confirmation of its findings.

It was determined that the ICAI had failed to comply with its approved investigation and disciplinary procedures.
The sanctions applied included a fine of €15,000 and a requirement for the ICAI to undertake a fresh investigation.

In addition, one preliminary enquiry was concluded during 2016, following the agreement of terms of settlement between the Authority and the ICAI.

It was determined that the ICAI had failed to comply with its approved investigation and disciplinary procedures.
The sanctions agreed included a fine of €15,000 and a requirement for the ICAI to refer certain decisions of its Complaints Committee to an independent reviewer.

Further details regarding the outcome of these enquiries are available on the IAASA website.

5.2.
5.2.

Supervision of PABs’ responses to matters of public interest As detailed in the 2015 Annual Report, IAASA considered the Chartered Accountants Regulatory Board’s (‘CARB’) Report on the reviews of the audits of the provisions for impairments by certain Financial Institutions for the financial years ended between 30 September 2008 and 31 March 2009.

CARB was the then regularoy arm of the ICAI.


The reviews were carried out at IAASA’s instigation and in the context of ICAI’s responsibility to regulate and monitor its members and member firms.

IAASA also advised ICAI that the work should be overseen by an independent expert, possessing relevant experience and preferably sourced from outside the jurisdiction.
IAASA notes the many changes in the framework governing the preparation of financial statements and their audit in the period since these audits took place.

Some of these have arisen as a direct response to the financial crisis and include changes to the accounting standards, auditing standards, audit methodology in the firms concerned and audit reform legislation.
In particular, since June 2016, responsibility for the inspection and sanctioning arising from the investigation of PIE audits including those of banks transferred from the ICAI to IAASA as is further discussed in Chapter 3 and which is an important enhancement of the oversight of the audit profession.
Additionally, arising from the banking crisis, there are a number of outstanding disciplinary matters in relation to members of the PABs, and the Authority will continue to supervise the ICAI’s regulatory responses to those and related issues.

26 CHAPTER 3: AUDIT QUALITY UNIT Introduction 1.

This Chapter details IAASA’s activities during the year in relation to the Audit Quality Unit (‘AQU’), which comprises an Audit Inspections Team (‘AIT’) and Audit Standards Team (‘AST’).
Both functions are new functions, which commenced on 17 June 2016, following the implementation of the EU Audit Reform legislation in Ireland.

2.

Audit Inspections Team 2.1.

Introduction On 17 June 2016, SI 312 was enacted and on that date IAASA assumed responsibility for inspecting the quality of audit work performed by the auditors of PIEs4.

Within IAASA, the AIT is responsible for this function.

The responsibility for the quality assurance of auditors of PIEs had previously rested with the RABs.
2.2.

Staffing IAASA has obtained sanction for a Head of Unit, nine Audit Inspectors and one Administrative Executive.

At 31 December 2016, IAASA employed a Head of Unit, two Audit Inspectors and one Administrative Executive.

2.3.

Audit reform legislation During the year, IAASA liaised extensively with the Department in relation to the transposition of the EU Audit Reform legislation during the process of drafting SI 312.
SI 312 in conjunction with the EU Audit Regulation sets out a number of changes that affect both the performance and oversight of PIE audits.

The new measures included additional requirements for group auditors, updates on independence requirements, audit rotation, provision of non-audit services as well as a broadening of the functions, roles and responsibilities of the PIEs’ audit committees.
The EU Audit Regulation also placed additional requirements on IAASA for monitoring and reporting on the audit market as well annual publication of a PIE auditor listing to enhance competition and transparency in the market.

2.4.

Audit inspections methodology Under Regulation 107 of SI 312, IAASA is responsible for the quality assurance of the statutory audit of PIEs.

The AIT’s overall objective is to inspect PIE auditors’ work and to promote improvements in the quality of auditing of PIEs.
At 31 December 2016, there were ten audit firms confirmed as engaged in the audit of approximately 1,200 PIEs in Ireland.

During the year, IAASA commenced one audit inspection, which was in progress at year-end.

Prior to the commencement of SI 312, in addition to liaising in relation to the transposition, the AIT focussed on preparation for commencement in audit inspection activities.
This involved researching the audit inspection regimes of other countries and developing processes, procedures and inspection working papers for use in Ireland.

Additionally, the team identified, sourced and implemented an appropriate IT system for recording the results of audit inspections.
Each PIE audit firm is required to be inspected, at a minimum, once every three years, save where an audit firm audits only PIEs who are either ‘small’ or ‘medium-sized undertakings’ (as defined in points (17) and (18) of Article 2 of Directive 2006/43/EC), in which case, the audit firm must be inspected every six years.
A quality assurance inspection includes an assessment of the internal quality control system of the audit firm and testing the effectiveness of that internal quality control system, through compliance testing and review of individual audits of PIEs.

IAASA has implemented the Common Audit Inspection Methodology (‘CAIM’) for assessing the internal quality control systems of PIE audit firms.
CAIM was developed within the European Audit Inspection Group, a pan-European platform for cooperation among audit regulators, to develop and promote a common audit inspection methodology across member 4 A PIE is generally defined as a listed entity, credit institution or insurance undertaking 27 states.

An overview of the methodology can be found here.

IAASA has also developed a suite of working papers for the assessment of individual audits of PIEs.
A report will be issued to the audit firms in respect of each individual audit inspected which will contain details of the findings of that inspection and recommendations for improvement.

Additionally, following each inspection, an overall firm inspection report will be issued which will detail the findings of the inspection of the internal quality control system and recommendations for improvement, as well as a summary of the individual audits inspected.
The diagram below outlines the stages of the IAASA inspection process from pre-inspection to completion.
Pre-inspection process PIE Auditors annual return submitted to IAASA •Information for years ended 31 December, to be returned by 31 January •Includes information on PIE audits and whole firm information IAASA risk assessment process •IAASA analyses information returned considering various risk factors •Risk factors include; industry; results of previous reviews; market cap; tenure of auditor IAASA visit schedule finalised •Visit schedule finalised with indicative number of files to be reviewed •Visit schedule includes any joint inspections planned Whole firm inspection process Visit timeline agreed •Different aspects of whole firm procedures can be inspected at different times if logistically necessary •May seek to perform in first quarter of calendar year IAASA issues information request •IAASA will issue a request for information to firm On site visit •On site inspection in accordance with the Common Audit Inspection Methodology •Regular meetings during visit to discuss queries arising Inspection completion •Following completion of on-site visit, a queries list will be issued.
This will reflect open queries or queries where IAASA requires a formal written response.

This will be a detailed document.
•Firms will have 2 weeks to respond 28 Audit Inspection process Audit selection completed On site inspection Inspection completion Inspection completion •Audits selected for review based on risk • 2 weeks notice will be given •No changes may be made to the file following notification •For logistical reasons, IAASA likely to return to firm several times through the year following completion of the audits selected •Each audit review expected to take between 1 and 3 weeks •Inspection will involve a detailed review of a number of sections of the audit •Regular meetings throughout visit between inspector and audit team •Following completion of on-site visit, a queries list will be issued, as per whole firm inspection.
•Firms will have 2 weeks to respond •A closing meeting will be scheduled within 2 weeks of responses.
•It is intended to rate each audit inspected, but this may not happen initially Overall inspection report •Overall inspection report compiled summarising results of whole firm inspection and all files inspected in the year •This will be issued to firm prior to finalisation •It is intended that this report will be published, but this may not happen initially 2.5. International Cooperation IAASA continued to liaise with various international authorities as part of its current remit in this area.
This included involvement in various fora together with bilateral engagement with other authorities in order to progress Memoranda of Understanding.

Those engagements included liaising with the:  UK Financial Reporting Council including its Audit and Assurance Council;  Committee of European Auditing Oversight Bodies (‘CEAOB‘);  International Forum of Independent Audit Regulators (‘IFIAR‘);  US Public Company Accounting Oversight Board (‘PCAOB‘); and  Swiss Federal Audit Oversight Authority.
During the year, following enactment of the EU Audit Regulation, the European Group of Audit Oversight Bodies transitioned to the CEAOB.

IAASA was a member of a sub-group set up to prepare for the transfer of responsibilities.

This sub-group drafted the charter and work plan for the CEAOB and its sub-groups.
IAASA is now a member of each of the permanent sub-groups of the CEAOB, which are made up of the following:  Sub-group on International Equivalence and Adequacy whose remit is to contribute to the technical assessment of the equivalence of the systems of public oversight, quality assurance, investigation and penalties of third countries.

The objective of the 29 sub-group is to promote investor protection globally to the benefit of cross-border investment and high-quality audits.
  Inspections sub-group.

The purpose of the sub-group is to further enhance the cooperation and consistency among CEAOB members on the subject of inspection activity and to have effective communications with the audit firms and other third parties, with the aim of supporting the objective of the CEAOB to improve audit quality and confidence in audits.

International auditing standards sub-group.


The purpose of the sub-group is to further enhance cooperation and consistency in audit oversight in the European Union regarding the adoption and use of standards on professional ethics, internal quality control of audit firms and auditing and to contribute to technical examination of international auditing standards, including the processes for their elaboration, with a view to their adoption.

 Sub-group on enforcement.


The purpose of the sub-group is to facilitate the exchange of information, expertise and best practices in the area of investigations and sanctions in order to promote convergence on enforcement matters.

 Market Monitoring sub-group whose purpose is to facilitate the monitoring of the quality and competition of the market for providing statutory audit services to PIEs, relating to assisting the Commission in preparing joint reports.
The sub-group contributes to the convergence and coordination of the monitoring carried out by national authorities.

IAASA currently holds the chair of the Market Monitoring sub-group.

2.6.

Registration of third country auditors and audit entities The EU Commission has put in place a framework whereby auditors and audit entities from non-EEA countries (‘third countries’) can continue to issue valid audit opinions in the EU provided that certain requirements are met.
In Ireland, such auditors must make an application to register with IAASA following which a detailed assessment is undertaken to ensure that such auditors meet the relevant criteria (‘full registration’).

In addition, auditors from certain third countries, as designated by the European Commission, are exempt from this requirement for a transitional period on condition that they provide specific limited information to IAASA (‘transitional registration’).
During the year, IAASA renewed the full registration of 11 (2015: 11) third country audit firms.

IAASA is also responsible for updating the Register of Third Country Auditors (which is available on the Companies Registration Office (‘CRO’) website, www.cro.ie) for approved applications and notifying any changes to the CRO.

The register of transitional third country auditors is available on the IAASA website.

3.
3.

Audit standards for use in Ireland SI 312 has conferred upon IAASA responsibility for the adoption of standards on auditing, professional ethics and internal quality control for audits of financial periods beginning on or after 17 June 2016.

For audits of financial periods beginning before 17 June 2016, auditors in Ireland were required to apply the FRC Ethical Standards 1 - 5 and International Standards on Auditing (UK and Ireland), which were mandated by their respective RABs.
During 2016, IAASA engaged with various stakeholders and announced its intention to temporarily adopt an amended version of the FRC Ethical Standard and International Standards on Auditing (UK) 2016 and to carry out a public consultation in relation to the longer term options for adopting standards for use in the Irish market.

As at 31 December 2016, IAASA was continuing negotiations on the license of the FRC standards.
Additionally, the public consultation was issued and responses received were under review.

30 CHAPTER 4: LIQUIDATOR REGISTRATION Introduction 1.

This Chapter details IAASA’s activities during the year in relation to its responsibility in respect of liquidators.

2.

Responsibilities in respect of liquidator registration Sections 633 and 634 of the Act confer a number of responsibilities upon IAASA in relation to liquidators.
IAASA has a responsibility in three main areas as follows:    category 5 in relation to the authorisation of persons with practical experience of windings up & knowledge of the law; category 3 liquidators which applies to members of other professional bodies recognised by IAASA; and in relation to professional indemnity Insurance (‘PII’) cover, IAASA has responsibility for prescribing the amount and terms of an indemnity for all liquidators.

3.
3.

Progress during the year in relation to liquidator registration 3.1.

Consultation outcome published IAASA ran two consultation processes in relation to liquidators and the results in respect of both consultations were published in 2016.

The first consultation was in relation to the amount and terms of the PII.
These results were published and Statutory Instrument 127 of 2016 Companies Act 2014 (Professional Indemnity Insurance) (Liquidators) Regulations 2016 was drafted and introduced in the aftermath.

The second consultation was in relation to the liquidator applications.

IAASA has published a consultation paper regarding receiving applications from and granting authorisation to persons with adequate relevant experience of the winding up of companies and knowledge of relevant law.
Following this second consultation IAASA has developed an applications process for category 5 applications.

3.2.

Category 5 Applications – Procedure Finalised IAASA has finalised its liquidator application procedures following a consultation.

However, IAASA is awaiting a legislative amendment before it has the power to prescribe the application form and fee.

Without this power, applications cannot be finalised or any decisions made on authorising liquidators.
There is no timeline as yet for the making of this legislation although the Department has advised IAASA that the passing of the legislation is a priority.

IAASA is working internally to be in a position to launch the category 5 applications once the necessary legislative amendments are finalised.

3.3.
3.3.

Professional Indemnity– Continued Review Under Section 634(1) of the Act, IAASA has responsibility for prescribing the amount and terms of an indemnity (professional indemnity cover) for all liquidators, without which a person cannot act as liquidator.

There is an ongoing obligation to review the amount and terms prescribed.

In that regard IAASA will continue to keep this matter under review.

3.4.

Category 3 – Under review There have been no applications to IAASA to date under category 3.
IAASA is reviewing this category internally and is in a position to receive applications under this category if required.

IAASA’s responsibility in relation to liquidators is an ongoing matter and in that regard IAASA strives to ensure all relevant information and updates are available on its website.

31 CHAPTER 5: ANNUAL AUDIT PROGRAMME AND ACTIVITY REPORT Introduction 1.

SI 312 designates IAASA as the competent authority with overall responsibility for the oversight of statutory auditors in Ireland.
This Chapter sets out the information prescribed in Regulation 34 of SI 312, which requires IAASA to prepare an Annual Audit Programme and Activity Report (‘AAPA’) containing:  an activity report on the functions in respect of statutory auditors performed by the RABs during the year (Section 2);  IAASA’s work programme for the next year regarding its oversight functions (Section 3);  an activity report regarding IAASA’s functions under the EU Audit Regulation (Section 4);  IAASA’s work programme for the next year regarding its functions under the EU Audit Regulation (Section 5); and  the overall results of the quality assurance system for the year (section 6).
2.

Functions performed by the RABs 2.1.

Overview As detailed in Chapter 2, SI 312 assigns the performance of certain functions in respect of statutory auditors to the RABs subject to oversight by IAASA, namely:  Approvals and registration;  Continuing education;  Quality assurance reviews of statutory auditors and audit firms in relation to audits of entities that are not PIEs; and  Investigations and discipline.
The RABs’ activities in these areas during the year are summarised in sections 2.2 to 2.5 below.

Further information is provided in a separate publication Profile of the Profession 2016, which also details their non-audit activities and is available on the IAASA website.

In addition, details of IAASA’s oversight activities in respect of the RABs’ statutory auditor functions are set out in Chapter 2 and form part of this AAPA report.
IAASA has relied on the RABs to provide the information set out in Tables 5.1 to 5.4 below.

In analysing this data it is important to bear in mind that, in addition to differences in the structure and operations of the six RABs, there may be differences in their interpretation of the data requested.

Consequently, care is needed in interpreting the information presented below and direct comparison may not be meaningful in some cases.

2.2.
2.2.

Approval and registration of statutory auditors Given the importance of the statutory audit of a financial report, the significant responsibility entrusted to the auditor and the expertise required to undertake the role, is vital that only those individuals with adequate skills and experience and who are of good repute are authorised to provide audit services in the State.
To that end, under law, the RABs are authorised to approve their members/member firms as statutory auditors/statutory audit firms in accordance with the criteria for approval set out in SI 312.

In addition, each RAB sets out additional requirements in relation to that approval and requires members and firms to comply with those requirements on an ongoing basis.
32 As detailed in Table 5.1, at 31 December 2016 there were 5,031 statutory audit firms approved to provide audit services in the State, a decline from 5,272 at the end of 2015.

During 2016, the RABs accepted 170 applications for new audit firm registrations, while 388 audit firms did not renew their registration and 19 firms had their registration withdrawn or suspended as a result of regulatory action.

There were 1,381 registered statutory audit firms with offices in Ireland at 31 December 2016.
Reflecting the fact a number of auditors may work in the same audit firm, at 31 December 2016 there were 9,915 individuals authorised to act as auditors in Ireland.

Further details of the audit firms with offices in Ireland are provided in the Profile of the Profession 2016, available on the IAASA website.
Table 5.1: Movement in Statutory Audit Firms during 2016 ICAI Total ACCA CPA ICAEW ICAS IIPA Statutory audit firms registered at 1 January 2016 During the year: ADD: New applications for audit registration accepted LESS: Audit registrations withdrawn/not renewed following a request from the statutory audit firm Audit registrations withdrawn/suspended as a result of disciplinary or other regulatory action Other Statutory audit firms registered at 31 December 2016 Registered statutory audit firms with offices in Ireland at 31 December 2016 Total number of statutory auditors registered at 31 December 2016 5,272 480 362 3,256 894 199 81 170 18 22 81 40 6 3 (388) (31) (43) (213) (83) (16) (2) (19) (6) (1) (3) (7) (4) - - - - - - 5,031 461 340 3,121 844 189 (2) (4) 76 1,381 312 340 4 649 - 76 10,591 602 427 7,439 1,481 555 87 2.3.
Continuing education To ensure that statutory auditors maintain their competence at a sufficient level, SI 312 obliges the RABs to attach a condition to the approval of all statutory auditors requiring them to complete sufficient continuing education to maintain their theoretical knowledge and skills at an appropriate level, particularly in relation to auditing.
The RABs adopt a number of approaches to ensure that auditors complete sufficient audit relevant Continuing Professional Development (‘CPD’), including:  completion of a CPD annual compliance declaration;  desk-reviews of auditors’ CPD records, on a random and/or risk assessment basis; and  reviews of auditors’ CPD records as part of quality assurance reviews.
Where the CPD completed is found to be insufficient, the RABs require the auditor to take remedial action and, in more serious cases, they may take disciplinary or regulatory action against the auditor.

Table 5.2 provides a summary of the CPD reviews of auditors undertaken during 2016 by the RABs.
33 Table 5.2: Monitoring of CPD undertaken by statutory auditors Risk-based desktop reviews Random desktop reviews Reviews of CPD records as part of quality assurance visits Other CPD-related monitoring activities Total Number of CPD records found to be unsatisfactory Number of statutory auditors where regulatory/disciplinary action was instigated due to non-compliance with CPD requirements Total ACCA CPA 33 2 211 93 55 5 ICAEW 46 - ICAI 75 - ICAS 2 - IIPA - 86 1,495 43 109 1,158 94 69 22 408 - - 408 - - - 2,207 103 144 1,612 169 71 108 17 4 2 - - - - - 11 2 2 2 2 - 2.4.
Quality assurance systems Once a member of a RAB has been approved as an auditor, it is important that the quality of the members’ auditing services is monitored and, where deficiencies are identified, that adequate remedial action is undertaken on a timely basis.

To that end, SI 312 confers a statutory responsibility on the RABs to operate a system of quality assurance of statutory audits (with the exception of the audits of PIEs which are directly inspected by IAASA as set out in Chapter 3).
Table 5.3 summarises the RABs’ quality assurance activities during the year.

A total of 936 on-site quality assurance reviews to audit firms were completed, following which conditions, restrictions and/or penalties were imposed on 268 firms in order to address deficiencies arising.

The conditions imposed ranged from a requirement to submit additional documentation to suspension or withdrawal of audit registration.
Additional information on the RABs’ quality assurance systems, including the grades awarded and regulatory actions taken, is set out in the Profile of the Profession 2016, available on the IAASA website.
Table 5.3: Quality Assurance On-Site Reviews ICAEW Total ACCA CPA ICAI ICAS IIPA Quality assurance on-site reviews open at 1 January 2016 ADD: Quality assurance on-site reviews commenced during 2016 LESS: Quality assurance on-site reviews concluded during 2016 Quality assurance on-site reviews open at 31 December 2016 Number of quality assurance on-site reviews where one or more conditions/restrictions/penalties were imposed 189 882 29 69 25 73 105 23 - 7 542 138 38 22 (936) (93) (86) (550) (154) (33) (20) 135 5 12 97 7 5 9 208 18 26 46 96 17 5 2.5.
Investigative and administrative disciplinary systems Where an auditor’s conduct may have fallen short of the standards required, it is important that robust, timely and proportionate action is taken.

To that end, SI 312 requires the RABs to institute arrangements to ensure that they have effective systems of investigations and penalties.

There were 164 new cases concerning statutory auditors opened by the RABs in 2016 and a total of 166 cases were concluded, as detailed in Table 5.4.
However, it is important to note that not all of these cases related to audit work but also concerned matters 34 such as alleged breaches of the RABs’ Codes of Ethics, the provision of other professional services such as taxation or insolvency work, failure to cooperate with a RAB and breaches of company law.
Further information regarding the RABs’ complaints processes, including an analysis of the nature of complaints received and the sanctions imposed, is set out in the Profile of the Profession 2016, available on the IAASA website.
Table 5.4: Movement in complaints relating to statutory auditors during 2016 Total ACCA CPA ICAE W ICAI ICAS IIPA Complaints outstanding at 1 January 2016 During the year: ADD: New cases arising during the year LESS: Cases closed during the year by: Adverse finding made and sanctions or other penalties imposed Adverse finding was made, but no sanctions or other penalties imposed Adverse finding was not made Concluded by conciliation Other, including cases closed due to resignation of member Cases closed Complaints outstanding at 31 December 2016 228 48 14 77 86 162 34 13 64 34 (69) (14) (4) (36) (13) (15) (10) - (2) (2) - 6 - - (77) (18) (9) (26) (19) (3) (3) (2) (3) (1) - - - - - - (166) (46) (13) (64) (34) 224 36 14 77 86 - - (3) 3 3 11 (2) (1) (2) - (1) (6) 8 3.
2017 Oversight Work Programme 3.1.
Statutory auditors (RABs) The principal tasks planned for 2017 in respect of IAASA’s oversight of the RABs’ performance of the functions assigned to them in SI 312 are:  on-site supervisory reviews of three RABs to be completed, which will be focused on key regulatory tasks, and final supervisory review reports to be issued to three RABs;   review and approval of the RABs’ constitutional documents on request as they relate to auditor approval, quality assurance, CPD and/or investigation and disciplinary processes; conduct periodic review meetings with each RAB, including to ensure progress of action points arising and monitor their progress on the implementation of IAASA’s recommendations;  oversight of regulatory aspects of the RABs’ key initiatives as arising;   review of the RABs’ regulatory plans and other publications; collation of the RABs’ annual returns and publication of Profile of the Profession 2016; and 35  continuing liaison with the FRC regarding the RABs within the remit of both competent authorities.
IAASA will also engage with the RABs in respect of the proposed revised regulatory model expected with the commencement of the Statutory Audits Bill 2017.

3.2.

Third country auditors IAASA will process third country auditor applications as they arise.

4.

EU Audit Regulation Activity Report 4.1.


Overview The EU Audit Regulation requires that the competent authority in each member state, such as IAASA, shall conduct the following tasks:  Quality assurance inspections of audits of PIEs;  Investigations into PIE audits arising out of quality assurance inspections by the competent authority or referrals from other authorities; and  Imposing sanctions on auditors pursuant to investigations of PIE audits.

4.2.
4.2.

Audit Inspections of PIE audits IAASA’s activities in this regard are set out in section 2 of Chapter 3.

4.3.

Investigations and sanctions arising from PIE audits IAASA did not investigate or impose any sanctions arising from PIE audits in 2016.

5.

2017 EU Audit Regulation Work Programme 5.1.


Quality assurance system The principal tasks planned for 2017 in respect of IAASA’s quality assurance system are:  Review and further refine risk assessment processes to identify the more significant risks in both audit firms and audited entities.
 Conduct annual programmes of inspections of audits utilising a range of approaches including focused, thematic and follow-up inspections to identify instances of material non-compliance  Review and, as necessary, further refine audit inspection methodologies and procedures in line with emerging trends, changes in standards and developments in technology  Engage with audit firms to secure improvements in quality of auditing and take formal enforcement measures where warranted  Participate at the Committee of European Audit Oversight Bodies (‘CEAOB’) and International Forum of Independent Audit Regulators (‘IFIAR’) 5.2.
Investigations and sanctions arising from PIE audits ] In 2017, IAASA may investigate and impose sanctions arising from PIE audits, as appropriate.

6.

Results of quality assurance system 6.1.

IAASA’s quality assurance system As at 31 December 2016, IAASA had commenced, but not completed, a quality assurance review on a PIE audit firm.

6.2.
6.2.

RABs’ quality assurance systems In addition to the information set out in Section 2.4 of Chapter 3 above, details of the RABs’ quality assurance activities during the year in respect of non-PIE audits and their outcome are provided in the Profile of the Profession 2016, available on the IAASA website.

The RABs are 36 also required by SI 312 to publish the overall results of their quality assurance reviews on an annual basis.
This information is normally made available on the RABs’ respective websites, links to which may be found on the IAASA website.

37 CHAPTER 6: GOVERNANCE AND STRUCTURE 1.
Legal structure IAASA is a company limited by guarantee with the following 13 members of the company:  Association of Chartered Certified Accountants*  Association of International Accountants*  Chartered Institute of Management Accountants*  Chartered Institute of Public Finance & Accountancy*  Central Bank of Ireland  Director of Corporate Enforcement       Institute of Certified Public Accountants in Ireland* Institute of Chartered Accountants in England & Wales* Institute of Chartered Accountants in Ireland* Institute of Chartered Accountants of Scotland* Institute of Incorporated Public Accountants* Irish Stock Exchange  Revenue Commissioners * Denotes a PAB 2.
Organisational structure 2.1.
Overview By year-end, IAASA had 20 staff, structured into five units as follows:  Financial Reporting Supervision, which was concerned principally with certain entities’ financial reporting examination and enforcement;  Regulatory & Monitoring Supervision, which was concerned principally with supervision of the PABs’ regulation of their members;  Audit Quality Unit, which was established during the year and concerned principally with quality assurance of audits of PIEs;  Conduct & Legal Services, which, in addition to providing in-house legal advice, coordinates the Authority’s statutory investigations and procedures; and  Finance & Administration, which provides corporate services support to IAASA, together with providing a Secretariat to the Board and to certain of its Committees.
2.2.

Approved staff complement The numbers, grades, and terms and conditions of IAASA’s staff are determined by IAASA with the approval of the Minister, given with the consent of the Minister for Public Expenditure & Reform.

Accordingly, any amendments to IAASA’s approved staff complement require both Ministers’ prior approval.

In addition to this approval, the filling of any vacancy is subject to specific sanction by the Department.
Vacancies persisted during 2016 despite public advertisements by open competition and the engagement of a professional recruitment partner.

38 Details of the approved, sanctioned and actual staff complements are set out in Table 6.1.
Table 6.1 Approved, sanctioned and actual staff complements as at year end Actual 1 5 2 7 4 1 20 Grade Chief Executive Heads of Function Team Leaders/Inspectors Project/Policy Managers Project/Administrative Executives Clerical Support Staff Total Approved 1 5 15 9 12 1 43 The approved complement represents the numbers and grade which IAASA considers required to adequately discharge its current mandate.
The Authority has been authorised by the Department to advertise 30 of these posts and IAASA was actively seeking to recruit at year-end.

The balance await confirmation from the Department before they can be advertised.

2.3.

Organisational chart IAASA’s organisational structure as at 31 December 2016, reflecting the actual staff complement at that date, was as set out in the organisation chart below.
Chief Executive PA to CEO Head of Audit Inspections Head of Financial Reporting Supervision Head of Regulatory & Monitoring Supervision Head of Conduct & Legal Services Secretary and Head of Finance & Admin Audit Inspectors x 2 Project Managers x 3 Project Managers x 4 Legal Services Manager Finance Executive Administrative Executive Adminstrative Executive 3.
Financial Overview IAASA is funded through a combination of Exchequer grant, statutory levy on the PABs, statutory levy on the PIEs, and to a lesser extent, by fees charged for registration services.

All funding sources are governed by the provisions of the Act.

As a company limited by guarantee, IAASA produces financial statements in accordance with the Companies Acts, which are in turn audited by the Comptroller & Auditor General and lodged with the CRO.
39 Total expenditure in 2016 amounted to €2.6m, from a budget of €4.4m.

The principal variations from budget comprised:   significant underspend in payroll costs due to ongoing difficulties in attracting suitably qualified staff; and consequential underspend in audit inspection activities due to delays in implementing review programmes.

4.

Governance 4.1.
4.

Governance 4.1.

Board of directors Pursuant to the Act, IAASA is governed by a Board of nine directors, eight of whom are non- executive and appointed by the Minister having been nominated by those entities set out in Table 6.2.

(The equivalent provision of the Companies (Auditing & Accounting) Act 2003 (‘the 2003 Act’) provided for 15 directors.

Directors appointed under the 2003 Act remain as Board members until the expiration of their respective warrants.)
The remaining director is the Chief Executive, who is appointed by the Board.

The Act specifies that the Authority operates independently of Government and the Minister is statutorily precluded from giving directions to the Authority in the discharge of its functions.

The non-executive directors are nominated by the nominating bodies prescribed under the Act.
Whilst this fact could be perceived as affecting their independence of judgement, they are independent as they neither represent the interests of their nominating bodies nor consult with their nominating bodies or their members on matters related to IAASA.
Table 6.2 Board of directors – nominating bodies Nominating body Minister PABs (jointly by agreement) Central Bank of Ireland Director of Corporate Enforcement Irish Stock Exchange Revenue Commissioners Total Nominees 2 2 1 1 1 1 8 As required by the Act, a maximum of three of these eight directors may be members of a PAB.

4.2.

Key changes In Board membership during the year 2016 was a year of particularly demanding challenges for IAASA.
In addition to the very significant changes arising in several areas of our role, as outlined in the preceding Chapters, the Authority had to cope with serious disruptions to its governance structures caused by the untimely death in May of Professor Brendan Walsh¸ the then Chairperson, and the resignation of Ms Helen Hall, the then Chief Executive, in January.
Thankfully both positions were filled by the end of the year with the appointment of Mr Martin Sisk as Chairperson in December while Mr Kevin Prendergast was appointed Chief Executive in November.
The Authority is very grateful to Mr Conor O’Mahony who carried out the role of Deputy Chairperson pending the appointment of a new Chairperson and to Mr Michael Kavanagh who took on the role of Chief Executive in the interim period as well as to all the other dedicated staff and Board members who ensured that the important work of the Authority continued to be carried out efficiently and effectively throughout the year.

4.3.
4.3.

Directors’ biographies Set out below are brief biographies of those persons who were members of the Board as at the date of issue of this Report, i.e.

30 April 2017.

The Board composition at year end and changes in directors since the last Annual Report are tabulated in Appendix 1.

40 Martin Sisk, Chairperson, has over 31 years regulatory and business related experience.
A qualified Solicitor, he started his career in the Revenue Commissioners, served as Registrar of Friendly Societies 1985 – 2003, Deputy Registrar of Credit Unions 2003 -2006, Deputy Head of Consumer Protection Codes 2007 – 2008 and as Head of the Anti- Money Laundering, Terrorist Finance and Financial Sanctions Unit of the Central Bank 2008 – 2010.

He retired from the Central Bank in July 2010.


Martin was elected to the Board of Malahide & District Credit Union in December 2010 and continues to be a Director.

He was elected to the Board of the Irish League of Credit Unions in February 2011 and was subsequently elected as Vice President 2011 – 2013 and President 2013 – 2015.

He continues to be a Director.


Martin was appointed a Director of VHI Healthcare in March 2012 for a three year term (2012 – 2015 ) and was subsequently appointed as Chairman in September 2012 for the remainder of his term.

Martin was appointed as the Independent Non – Executive Director of the Interim Board of the Office of Government Procurement in May 2015.

Martin was appointed to the Board of the Health Information and Quality Authority in July 2015.
Kevin Prendergast, Chief Executive, joined IAASA in November 2016 from his role as Head of Enforcement with the Office of the Director of Corporate Enforcement, having been employed there since 2005.

Prior to that he worked in the Large Cases Division of the Revenue Commissioners and also has several years experience in the private sector including a number of years working in an audit firm.

Kevin is a Fellow of Chartered Accountants Ireland.
Deirdre Behan is a Principal Officer in the Revenue Commissioners.

She currently leads a compliance District in Revenue’s Dublin Region.

Previously she was responsible for corporation tax policy, legislation and interpretation in Revenue’s Business Taxes Division, and managed the Financial Services (Banking) District in the Large Cases Division.

Her career experience includes a secondment to the Department of Finance where she worked on policy development for the International Financial Services Centre.
Deirdre holds an M.Sc.

in Taxation and is an Associate of the Irish Tax Institute.

Mary Burke is Head of the Prudential Policy and Governance Division of the Central Bank of Ireland.
The Division is responsible for the development of policy for the prudential regulation of banking and insurance undertakings as well as corporate governance, auditing and accounting policy across financial services sectors and leads the Central Bank of Ireland’s engagement in European regulation and policymaking in these areas.

She has worked with the Central Bank since 1984 moving into financial services supervision in 1997.
Previous roles within the Central Bank have included Head of Banking Supervision and Head of Securities and Exchanges Supervision.

Mary is a Fellow of the ACCA.

Marie Daly is Head of Legal and Regulatory Affairs and the in-house legal advisor with IBEC.

She qualified as a solicitor in 1987, working initially in Dublin Corporation’s Law Department before joining the then Federation of Irish Employers in 1991 as an employment solicitor.
She is also a member of the Company Law Review Group (‘CLRG’) and the High Level Group on Business Regulation.

David Devlin was a partner in PwC in Dublin until 30 September 2012.

He continued with the PwC global network for a further year, latterly as Leader, Public Policy and Regulatory Affairs for PwC’s network firms in Europe.

David was a member of the EC European Corporate Governance Forum from 2005 to 2011.
He is a past President of FEE, the European Federation of Accountants, having served two terms from 2002 to 2006.

He was for two terms a member of International Federation of Accountants’ (‘IFAC’) International Ethics Standards Board for Accountants, which is responsible for the profession’s global Ethics Code.
Previously he has been a member of the Supervisory Board of the European Financial Reporting Advisory Group, established to advise the EC, and of the Urgent Issues Task Force of the United Kingdom Accounting Standards Board (now Accounting Council of the FRC).

David has been honoured with a Lifetime 41 Achievement Award by the ICAI and with honorary life membership by both the ACCA in the UK and the CPA.
He is a director of Our Lady’s Children’s Hospital Crumlin; a member of the Board of Management of CBC Monkstown; and chair of the European Corporate Governance Institute in Brussels.

Etain Doyle is an accountant and accredited executive coach with a varied portfolio including running a peer learning circle and coaching SME CEOs.

Apart from Board membership of IAASA, she is a member of the Ireland Committee of the ACCA and Chairperson of the Audit Committee of the NCCA.
She also serves as Director for the Association for Coaching Ireland and as Director for some not-for-profit organisations.

Aileen O’Donoghue is Director of Strategy, Policy and Communications at the ISE.

In addition, she is Chairperson of the IFSC Ireland Executive Committee.

Prior to joining the ISE, Aileen was Director of Financial Services Ireland, the representative body for the Irish financial sector in IBEC.
She has participated on a number of national and international bodies including the National Economic and Social Forum, the Expert Group on Future Skills Needs, the National Training Advisory Council and Skillnets.

Aileen is the holder of an MBA from University College Dublin.

Conor O’Mahony is currently a Principal Officer in the ODCE, where he has responsibility for matters relating to insolvent companies.
He previously headed up the Small and Medium Enterprise Policy Unit in the Department and before that worked in the Department of Finance and the Revenue Commissioners.

Conor was a member of the Review Group on Auditing that led to the establishment of IAASA.

4.4.

Board procedures The Board holds regular meetings and its procedures further provide for the convening of unscheduled meetings should the need arise.
Board members receive regular and timely information in a form and of a quality appropriate to enable them to discharge their duties.

The Board has put in place a formal Schedule of Matters reserved specifically to it for decision, which covers key areas of policy and IAASA’s statutory functions and powers.

Certain matters are delegated to Board Committees, as outlined in section 4.6, and the Board has also put in place a system of formal delegations of authority to the Chief Executive.
Service on a statutory Board such as IAASA requires integrity, independence, objectivity and good faith on the part of Board members.

Whilst it is recognised that members of the Board have responsibilities to their nominating organisations, their overriding responsibility as directors of IAASA is to act in accordance with the relevant legislation and to act in, and protect and promote, the best interests of IAASA.
In this regard, all Board members bring independent judgement to bear on issues dealt with by the Board.

The Board has a formal policy in place for dealing with conflicts of interest that may arise, including disclosure obligations and requirements that directors absent themselves from any discussions or decisions in respect of any such conflicts.

4.5.

Board meetings During the year, the Board held 12 meetings.
The membership of the Board during the year, together with details of the number of meetings attended by each director, is set out in the Table 6.3.
Director Ms. Deirdre Behan Ms. Mary Burke Ms. Marie Daly Mr. David Devlin Table 6.3 Directors’ attendance at Board meetings Meetings attended/Meetings eligible to attend 11/12 10/12 11/12 6/6 42 Director Ms. Etain Doyle Ms. Helen Hall (Chief Executive to 14 Jan) Mr. Michael Kavanagh (Interim Chief Executive) Ms. Aileen O’Donoghue Mr. Conor O’Mahony Mr. Kevin Prendergast (Chief Executive from 14 Nov) Mr. Michael Quinlan Mr. Martin Sisk (Chairperson) Prof. Brendan Walsh RIP (Chairperson) Meetings attended/Meetings eligible to attend 12/12 1/1 6/6 10/12 10/10 1/1 11/12 0/0 3/3 4.6.
Board Committees The Board has established a number of Committees to assist it in discharging its functions and responsibilities.

All Committees have written terms of reference and report regularly to the Board.

Details of Committees’ mandates and memberships are set out in Table 6.4.
Board Committees – mandates and membership Table 6.4 Committee Mandate Section 933 committees Section 934 committee Audit In accordance with section 933 of the Act from time to time IAASA establishes PECs and Enquiry Committees for the purpose of determining whether a PAB has complied with its approved investigation and disciplinary procedures.

Membership at 31 December 2015 Board members are nominated to PECs/ Enquiry Committees as and when the need arises.
In accordance with section 934 of the Act from time to time IAASA establishes Preliminary Investigation Committees (‘PICs’) and Investigation Committees for the purpose of determining whether there has been a possible breach of standards by a PAB member.

Board members are nominated to PICs/ Investigation Committees as and when the need arises.
Monitoring the integrity of IAASA’s financial statements, the effectiveness of IAASA’s internal control and risk management systems and monitoring and reviewing the effectiveness of the internal and external audit processes.
 Mr Conor O’Mahony (Chairperson)  Mr David Devlin  Ms Deirdre Behan Whilst section 933 and 934 committees report to the Board on a regular basis, such reporting is concerned mainly with the progress of enquiries or investigations and other important issues relevant to the overall governance of IAASA (e.g.

matters pertaining to litigation risk etc.).


The Board does not receive reports regarding the subject matter of enquiries or investigations as committees operate independently of the Board and executive in discharging their mandates.

The audit committee comprises three non-executive directors and its terms of reference are set out in the Charter of the Audit Committee (‘the Charter’), available of the Authority’s 43 website.
The Charter sets out specific roles and responsibilities for the audit committee, and Table 6.5 sets out how these roles were discharged in 2016.

Following the untimely death of the former Chairperson, Professor Brendan Walsh, in May 2016, the Chairperson of the Audit Committee was selected as Deputy Chairperson of the Board pending the nomination of a Chairperson by the Minister.
This process was to have been expedited, but in the event, the Chairperson was not appointed by the Minister until December 2016.

The Audit Committee did not meet during this period, and consequently met on only two occasions during the year.

Certain internal audit reviews which would otherwise have been undertaken in 2016 will be carried out in 2017.
Charter Requirement Actions taken during 2016 Table 6.5 Audit committee activities Internal controls and risk management systems (section 6.1)  The committee reviewed the System of Internal Financial Control (‘SIFC’) in conjunction with the internal auditor.

Financial reporting (section 6.2)  The committee reviewed the 2015 Financial Statements and recommended their approval by the directors.
 The committee reviewed the 2015 Annual Report to the Minister, and considered the Report understandable, consistent and unbiased.

Whistle-blowing (section 6.3)  Detailed ‘whistle-blowing’ procedures remained in place throughout the period.

 The Board approved Internal and External Protected Disclosure procedures in December 2016, which replaced the previous whistle-blowing procedures.
Compliance with laws, regulations and the Code of Practice for the Governance of State Bodies (‘the Code’) (section 6.4)  As alluded to above, IAASA’s internal auditor completed a detailed audit of the SIFC, including testing of IAASA’s compliance with the Code.

The committee satisfied itself that no material instances of non-compliance arose during the year under review.
Internal audit (section 6.5)  The committee appointed CrowleysDFK as internal auditors for the period 2016 – 2018, on foot of a competition coordinated by the Office of Government Procurement.

External audit (section 6.6)  As mandated by the Act, the C&AG remained and remains IAASA’s external auditor.

 The C&AG carried out its audit of the 2015 Financial Statements and cleared said Statements for approval by the directors.
Reporting responsibilities (section 6.7)  A report from the Chairperson of the Audit Committee to the Board was given at each Board meeting in 2015.

Other matters (section 6.8)  The committee reviewed an internal audit report on human resource management.

44 In addition, the external auditor and internal auditor have access to the audit committee Secretary whenever required, who is also the Authority’s Head of Finance & Administration.
The audit committee reviewed the 2015 Financial Statements and found no issues of significance arising therefrom.

On the expiration of the term of office of Mr Seán Hawkshaw as a director of IAASA, Ms Deirdre Behan was appointed as a member of the audit committee with effect from 1 January 2016.

5.

Corporate Governance Statement 5.1.


Introduction The Board is committed to operating and maintaining the highest standards of corporate governance and to ensuring compliance with IAASA’s various legal and other obligations.

As a body established under statute, IAASA is subject to the provisions of the Code of Practice for the Governance of State Bodies as issued by the Department of Finance.

The Code sets out the principles of corporate governance applicable to State bodies.
In 2011 the Board voluntarily adopted the UK Corporate Governance Code and the Irish Corporate Governance Annex to the UK Code as promulgated by the ISE.

The Board has considered this compliance in the context of the revised and updated Code issued by the Department of Public Expenditure & Reform in September 2016.

The Board is of the view that the revised 2016 Code is expansive and detailed.
It has been designed by the Department of Public Expenditure & Reform to be the appropriate standard for all State bodies, and draws from the relevant parts of the UK Code.

In this context, the Board no longer considers it appropriate to adopt the full UK Code, and does not assert compliance with the UK Code in respect of 2016.

Nevertheless, UK Code updates have been reviewed by the Authority and its best practices incorporated.
The directors acknowledge their responsibility for preparing the Annual Report and the Financial Statements respectively, and consider that these documents, taken as a whole, are fair, balanced and understandable, and provide the information necessary for stakeholders to assess IAASA’s performance, business model and strategy.

Except where otherwise stated, the directors believe that IAASA has complied with the provisions of the Code.

5.2.
Statement of compliance IAASA has taken the following steps to ensure its ongoing compliance with the Code:  adopted a Schedule of Matters Reserved to the Board and adopted formal and documented delegations of authority to Board Committees and to the Chief Executive, which are reviewed from time to time;  documented the Chief Executive’s and Chairperson’s respective roles;  put in place measures whereby directors have access to the advice and services of the Secretary and to independent legal advice where considered necessary;  put in place mechanisms by which the Board is regularly apprised of significant matters pertaining to IAASA’s supervisory and enforcement remits and to its finances;  put in place measures to ensure that the Board receives regular, high quality information on which to base its decision making;  implemented measures to ensure that new directors are provided with a specialised directors’ orientation briefing upon appointment to the Board including a detailed outline of their fiduciary duties under law; 45  adopted Codes of Conduct for both directors and employees;  appointed an audit committee comprising of non-executive directors;  appointed an external provider of internal audit services;  developed and approved Charters for both the audit committee and internal auditors which reflect both best practice and the Irish Code’s requirements;  developed a risk management policy containing policies and procedures designed to identify and quantify key business risks and to assist IAASA in the management of those risks;  carried out a robust assessment of the principal risks facing the company;  put in place a system of documented internal controls and related procedures, which addresses IAASA’s obligations under public sector procurement requirements;  adopted protected disclosure procedures, i.e.
whereby employees of IAASA or members of the public can, in strict confidence, raise any concerns that they might have regarding possible irregularities in financial reporting or other matters directly with the Secretary to the Board or Chief Executive respectively;  introduced formal procedures for addressing any instances in which Board members have a concern that cannot be resolved, registering of such concerns and bringing of such concerns to the Board’s attention;  adopted requirements regarding the disclosure of interests by directors;  ensured that appropriate directors’ and officers’ insurance is in place;  resolved that the topic of risk management should become a standing agenda item at Board meetings, conferred responsibility for monitoring risk management on the audit committee and appointed a Chief Risk Officer at a senior level;  adopted a policy whereby IAASA shall comply with all Department of Finance circulars regarding travel and subsistence;  conducted Board meetings in the absence of the Chief Executive; and  adopted a Customer Charter to provide information on the standards of service that stakeholders can expect from IAASA.
IAASA’s directors and senior management are also subject to the provisions of Ethics in Public Office legislation, which requires, amongst other things, the annual disclosure of any interests that could materially influence them in relation to the performance of their official functions.

6.

Other public sector and other governance obligations 6.1.
Legal and governance obligations as a body established under statute The Board is principally assisted in ensuring IAASA’s compliance with its legal and governance obligations by the Secretary & Head of Finance & Administration and the Head of Conduct & Legal Services, who is also the Chief risk Officer.

Where applicable, other members of IAASA’s staff contribute as required to IAASA’s ongoing compliance with its obligations.

6.2.
6.2.

Legal requirements under the Companies Acts During the year, in compliance with IAASA’s obligations as a company, the directors: 46  held IAASA’s tenth Annual General Meeting on 12 July 2016; and  filed the company’s Annual Return with the Registrar of Companies on 14 July 2016.

IAASA has taken the steps necessary to ensure that, in compliance with section 281 of the Act, adequate accounting records are maintained.
Similarly, the Secretary is charged with maintaining IAASA’s statutory Registers and ensuring that all filings are made to the Registrar of Companies within prescribed timeframes.

6.3.
Principal legal requirements under other legislation IAASA has also taken the necessary steps to ensure its compliance with a range of other legal requirements, including:  health and safety legislation;  employment and related legislation;  tax law, including those provisions relating to the necessity for certain service providers to IAASA to hold valid Tax Clearance Certificates in advance of payments being made;  Ethics in Public Office law; and  the European Communities (Late Payments in Commercial Transactions) Regulations, 2012.
Certain other requirements typically applicable to statutory bodies such as the Freedom of Information Acts, Disability Acts and the Official Languages Act do not apply to IAASA by virtue of it not having been designated for such purposes at this time.
47 APPENDIX 1: BOARD MEMBERSHIP AT YEAR END AND CHANGES IN COMPOSITION SINCE LAST ANNUAL REPORT Board member Occupation Nominating body Date appointed Composition of Board at 31 December 2016 Martin Sisk (Chairperson) Deirdre Behan Mary Burke* Marie Daly Solicitor & former regulator Minister 21 December 2016 Principal Officer, Revenue Commissioners Revenue Commissioners 3 January 2012 Central Bank 14 October 2015 Head of the Prudential Policy and Governance, Central Bank Head of Legal & Regulatory Affairs, IBEC IBEC PABs PABs 3 January 2006 1 October 20165 30 May 2014 3 January 2014 David Devlin* Accountant Etain Doyle* Accountant Aileen O’Donoghue Director of Strategy, Policy and Communication, ISE ISE Conor O’Mahony Principal Officer, ODCE Director of Corporate Enforcement 1 March 2012 Kevin Prendergast Chief Executive Ex-officio 14 November 2016 Michael Quinlan Principal, Dixon Quinlan, Solicitors Law Society of Ireland 3 January 2011 * Denotes membership of a Prescribed Accountancy Body 5 Mr Devlin was originally appointed to the Board of IAASA on 30 May 2014.
He resigned from the Board on 16 June 2016 as he became ineligible for appointment under SI312.

He became eligible for appointment again on 1 October 2016, and was reappointed by the Minister on the nomination of the PABs.
48 Name David Devlin* Details of changes in Board membership during the year Nominating body Date left the Board Date joined the Board Narrative PABs 1 October 2014 16 June 2016 Ineligible for membership under SI312 for the period 1 October 2013 to 30 September 2016 Helen Hall* Ex-officio 18 December 2012 13 January 2016 Date of resignation as Chief Executive Seán Hawkshaw IAIM 3 January 2006 31 December 2015 Resignation Michael Kavanagh* Ex-officio 14 January 2016 13 November 2016 ICTU 3 January 2013 2 January 2016 Ex-officio director while acting as interim Chief Executive.
Expiration of warrant of appointment Paddy Keating Bernadette McGrory- Farrell* PABs 3 January 2013 2 January 2016 Expiration of warrant of appointment Sylvia McNeece Pensions Authority 3 January 2012 31 December 2015 Resignation Kevin Prendergast* Ex-officio 14 November 2016 Martin Sisk Minister 21 December 2016 - - Date of appointment as Chief Executive Date of appointment as Chairperson Prof. Brendan Walsh Minister 3 December 2013 17 May 2016 Date of death * Denotes membership of a Prescribed Accountancy Body 49 APPENDIX 2: ISSUERS EXAMINED BY THE FINANCIAL REPORTING SUPERVISION UNIT DURING 2016 Issuer Equity issuers examined in 2016 Report type Examination type Reporting date Aryzta AG Aryzta AG Aryzta AG Cairn Homes plc CRH plc DCC plc FBD Holdings plc FBD Holdings plc Glanbia plc Glanbia plc Grafton Group plc Green REIT plc Greencore Group plc Hibernia REIT plc IFG Group plc IFG Group plc Independent News and Media plc Irish Continental Group plc Irish Residential Properties REIT plc Irish Residential Properties REIT plc Kenmare Resources plc Kerry Group plc Mainstay Medical International plc Mainstay Medical International plc Paddy Power Betfair plc Permanent TSB Group Holdings plc Permanent TSB Group Holdings plc Permanent TSB Group Holdings plc Smurfit Kappa Group plc UDG Healthcare plc Closed-ended Fund issuers examined in 2016 Annual Crown Asia-Pacific Private Equity III plc Crown Co-Investment Opportunities plc Crown Global Secondaries II plc Crown Global Secondaries III plc Annual Annual Annual Annual 50 Half-yearly Focused Annual Annual Annual Annual Annual Focused Follow-up Unlimited Focused Focused Half-yearly Unlimited Annual Focused Annual Annual Focused Focused Half-yearly Unlimited Half-yearly Focused Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Follow-up Focused Follow-up Focused Focused Focused Follow-up Focused Unlimited Focused Follow-up Focussed Focused Follow-up Focused Focused Focused Follow-up Unlimited Follow-up Follow-up Follow-up 31-Jan-16 31-Jul-16 31-Jul-16 31-Dec-15 31-Dec-15 31-Mar-16 30-Jun-15 31-Dec 15 3-Jan- 2015 02-Jan-16 30-Jun-16 31-Dec-15 25-Sep-15 31-Mar-16 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-14 31-Dec-15 31-Dec-14 31-Dec-15 30-Sep-15 31-Dec-15 31-Dec-15 31-Dec-15 31-Dec-15 Report type Annual Examination type Follow-up Reporting date 31-Dec-15 Issuer Global Fixed Income Realisation Ltd Debt issuers examined in 2016 AerCap Global Aviation Trust Allied Irish Banks plc BrokerCredit Service Structured Products plc Freshwater Finance plc Freshwater Finance plc Freshwater Finance plc Annual Annual Unlimited Unlimited Annual Unlimited Half-yearly Focused Annual Follow-up Half-yearly Focused Land Securities Capital Markets plc Half-yearly Focused Morgan Stanley Asia Products Ltd Annual Unlimited Pelican Mortgages No 1 plc Half-yearly Focused Santander International Products plc Annual Focused Notes: 31-Dec-15 31-Dec-15 31-Dec-15 30-Jun-15 31-Dec-15 30-Jun-16 30-Sep-15 31-Dec-14 30-Jun-16 31-Dec-15 a) Focused examinations are different in nature to follow-up examinations and are classified as a separate examination.
For that reason an issuer may appear more than once in the list of examinations for the same financial statements.

b) The examinations performed by IAASA during 2016 (as above) includes three examinations which were commenced in 2016 and on-going as at 31 December 2016. c) The issuers selected for thematic examinations are listed in the publication, if any, resulting from the thematic examination and are not, therefore, listed in the above Table.
51 APPENDIX 3: TABLES OF DECISIONS PRESENTED BY IAASA DURING 2016 TO THE EUROPEAN ENFORCERS’ COORDINATION SESSIONS IAASA decisions to EECS database of financial reporting decisions Financial reporting pronouncement IAS 1 IAS 36 IAS 32 IFRS 7 IAS 12 IFRS 11 IAS 8, IAS 34 IFRS 2 IFRS 13 IAS 7 Financial reporting matters considered Disclosures where the gross presentation of gains/(losses) on financial assets will be separate from the (losses)/gains from financial liabilities on the face of the Statement of Other Comprehensive Income Disclosures required for an individual cash generating unit in accordance with the requirements of IAS 36.134(f) Determination of whether ‘conversion price adjustments’ in a convertible bond breaches the ‘fixed-for-fixed’ condition of IAS 32.22 Disclosures provided in respect of certain market risk information relating to the market risk of property in accordance with IFRS 7.33 (a), (b) and IFRS 7.40.
Disclosures provided in relation to the quantification of the underlying key Deferred Tax Assets assumptions Treatment of an investment in an entity as an associate rather than as a joint venture Correction of material prior period errors retrospectively in the first set of financial statements authorised for issue which in this instance were interim financial statements Determination of the grant date (for equity settled share-based payments) when the grant is subject to an approval process after the year end Disclosures by a Real Estate Investment Trust (REIT) of unobservable assumptions supporting fair values, in this instance, estimated rental values used to determine the fair value of investment properties classified at level 3 fair values and the sensitivity of fair values to changes in significant unobservable inputs Classification of cash flows resulting from the purchase and disposal of financial assets as ‘investing’ activities in accordance with IAS 7.6, 16(c) and 16(d) and cash flows resulting from the issuing of structured notes and related financial instruments as ‘financing’ activities in accordance with IAS 7.6, 17(c) and 17(d).
52 IAASA emerging issues presented to EECS plenary meetings for discussion during 2016 Financial reporting pronouncement IFRS 11 IAS 8, IAS 34 IFRS 2 IFRS 10 Financial reporting matters considered Treatment of an investment in an entity as an associate rather than as a joint venture Correction of material prior period errors retrospectively in the first set of financial statements authorised for issue which in this instance were interim financial statements Determination of the grant date (for equity settled share-based payments) when the grant is subject to an approval process after the year end Establish whether or not a parent company is required to prepare consolidated financial statements in accordance with IFRS 10.4 in circumstances where the parent company is not required by its National law (Cypriot company law in this instance) to prepare, and does not prepare consolidated financial statements 53 AAC ACCA GLOSSARY Audit and Assurance Council of the FRC Association of Chartered Certified Accountants Accounting Council Accounting Council of the FRC Act, the AIA Companies Act 2014 Association of International Accountants Authority, the Irish Auditing and Accounting Supervisory Authority C&AG Comptroller and Auditor General Central Bank Central Bank of Ireland CIMA CIPFA CLRG Chartered Institute of Management Accountants Chartered Institute of Public Finance & Accountancy Company Law Review Group Code, the Code of Practice for the Governance of State Bodies CPA CRO Institute of Certified Public Accountants in Ireland Companies Registration Office Department The Department of Jobs, Enterprise and Innovation DPER EAIG EC EEA EECS ESMA EU Department of Public Expenditure & Reform European Audit Inspection Group European Commission European Economic Area European Enforcers’ Co-ordination Sessions European Securities and Markets Authority European Union EU Audit Regulation (the) Regulation (EU) No 537/2014 FRC Financial Reporting Council 54 FRS FRS 8 FRS 25 FRS 29 GAAP IAA IAASB IAS IAS 1 IAS 7 IAS 12 IAS 19 IAS
 24 IAS 32 IAS 34 IAS 36 IAS 37 IASB IBEC Financial Reporting Standard FRS 8 Related Party Disclosures FRS 8 Financial Instruments: Presentation FRS 29 Financial Instruments: Disclosure Generally Accepted Accounting Principles Individually Authorised Auditor International Auditing and Assurance Standards Board International Accounting Standard(s) IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IAS 12 Income Taxes IAS 19 Employee Benefits IAS 24 Related Party Disclosures IAS 32 Financial Instruments – Presentation IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets International Accounting Standards Board Irish Business and Employers’ Confederation ICAEW Institute of Chartered Accountants in England & Wales ICAI ICAS IFAC IFIAR Institute of Chartered Accountants in Ireland Institute of Chartered Accountants of Scotland International Federation of Accountants International Forum of Independent Audit Regulators 55 IFRS IFRS 3 IFRS 7 IFRS 8 IFRS 13 IFRS-IC IFSC IIPA ISAs ISE Issuer International Financial Reporting Standards IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosure IFRS 8 Operating Segments IFRS 13 Fair Value Measurement IFRS Interpretations Committee International Financial Services Centre Institute of Incorporated Public Accountants International Standards on Auditing Irish Stock Exchange An entity coming within IAASA’s remit under the Transparency Regulations Minister, the Minister for Jobs, Enterprise & Innovation MoU ODCE PAB PCAOB PEC Memorandum of Understanding Office of the Director of Corporate Enforcement Prescribed Accountancy Body Public Company Accounting Oversight Board (US) Preliminary Enquiry Committee (Section 933) Periodic Financial Reports Refers collectively to annual and half-yearly financial reports published pursuant to the Transparency Regulations PIE RAB Public Interest Entity Recognised Accountancy Body Relevant
 reporting framework The body of financial reporting standards, legislation, codes and rules with which issuers are required to comply in preparing the annual and half-yearly financial reports SI SI 312 Statutory Instrument Statutory Instrument 312 of 2016 European Union (Statutory Audits) (Directive 2006/43/EC, as amended by Directive 2014/56/EU, And Regulation (EU) No 537/2014) Regulations 2016 56 Statutory Audit Directive Directive 2006/43/EC Statutory Audit Directive Regulations European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 (SI No.
220 of 2010) Third country Non-EU Transitional Regulations European Communities (Transitional Period Measures in Respect of Third Country Auditors) Regulations 2009 (SI No.

229 of 2009) Transparency Regulations/TD Regs Transparency (Directive 2004/109/EC) Regulations,2007 Transparency Directive Directive 2004/109/EC Transparency Rules Transparency Rules issued by the Central Bank of Ireland (November 2012) 2003 Act, the Companies (Auditing and Accounting) Act, 2003 (repealed) 57