Comments from ACCA to the Irish Auditing & Accounting Supervisory Authority (IAASA), January 2009.
ACCA is pleased to offer its comments on the above Irish Auditing & Accounting Supervisory Authority (IAASA) document. We hope that these comments will assist IAASA (the Authority) in finalising its work programme, and would be willing to provide further opinions in the future should the Authority request it in respect of any further draft of the work programme for the years 2009 to 2011. Our comments are numbered for ease of future reference.
The document does not link the Authority's principal activities to the statutory objects. Consequently, we feel that an opportunity may have been lost to give the document a more logical flow and greater focus.
The introduction to the draft work programme sets out the Authority's statutory objects, as laid down by section 8 of the Companies (Auditing and Accounting) Act 2003 (the Act). It also sets out what it perceives to be its 'principal functions', taken from the statutory functions set out in section 9 of the Act. In selecting those functions that the Authority considers to be 'principal', it would be useful to attempt to allocate these to its statutory objects, in order to demonstrate how each of the objects may be met.
The introduction to the draft work programme does not refer to the Authority's strategic goals or its principal activities. These terms are first used in section 5. We suggest that the introduction set out clearly the structure of the document. We also suggest that the Authority's mission be viewed as an overarching objective that is met through meeting the statutory objects efficiently and providing a quality service to its stakeholders. The principal activities should be mapped to the statutory objects in order to ensure that all objects are met in full. The significance of the strategic goals identified is unclear, and provided that the principal activities are all within the functions identified by the Act (ie 'reasonable to further its objects'), the statutory functions and principal statutory functions do not need to be referred to in the document.
If it is decided to continue to relate the principal activities to the strategic goals, it should be demonstrated in the document that the strategic goals are at least as demanding as the statutory objects, and so all the statutory objects are met by the strategic goals.
Although the document refers to 'stakeholders' and 'principal stakeholders' in several places, the Authority's stakeholders are not identified in the document.
The document and the covering letter (which reflects the request for views on the Authority's website) give the impression that the Authority is simply responding to the statutory requirement to prepare a three-yearly work plan. Consequently, an opportunity might be lost to set out the more specific targets of the Authority over the coming years, and thereby help to identify specific resource issues and when they might arise.
There is nothing to prevent the Authority from including a shorter term plan within the final document. This is more relevant due to the limitations of the three-year work programme brought about by the anticipated additional functions to be conferred on the Authority under the 8 th Company Law Directive (recognised in paragraph 5.6).
Most of the work plan covers duties that exist on an ongoing basis. We believe that additional value will be derived from identifying specific challenges facing the Authority and its stakeholders and specific projects over the coming three years (and also in the shorter term).
Section 3: Resources
This section provides detail of the conflicting requirements of a 3.5% increase under the national wage agreement from September 2009 and a Government decision that State Agencies should reduce their 2009 payroll bills by 3%. The Authority currently has approval for 15 members of staff, but actually has 11 employees. Whilst the document states that 'it may not prove permissible for the Authority to fill all remaining positions', it does not state the number of positions that it intends to fill based on its forecasts. We note that, as the national wage agreement would not take effect until September 2009, its impact on costs for 2009 would be significantly less than 3.5%. Therefore, the clarity of the document would be enhanced by setting out the anticipated staff costs in each of the three years under consideration, and the anticipated staff available.
Paragraph 3.3 of the draft work programme states that the Authority has a proposed programme of expenditure of 2009 of 2.7 million Euros, being almost 6% more than the budget for 2008. The document does not explain the basis for the proposed programme of expenditure.
We recommend segregation in the work programme of the Authority's ongoing work from its anticipated additional or exceptional responsibilities. This is particularly important in view of the pressure on the Authority caused by funding pressure and a lack of human resources. It would also be useful to be made aware of areas where the workload is anticipated to be reduced in the future. For example, will there be the need to devote such a high level of resources to approving the constitutions of Prescribed Accountancy Bodies (PABs)?
It is a reasonable assumption that any shortfall in the number of staff required is likely to result in a curtailment of principal activities. Therefore, the work programme would be enhanced by an explanation of how the Authority will prioritise its activities.
Whilst the principal activities refer to a risk-based approach to the supervision of the PABs, there is an opportunity for the Authority to expand on this approach in this section on resources. We believe this is fundamental to understanding the work of the Authority, and would help to link the challenges faced by the Authority to the activities proposed to meet those challenges.
On page 7 of the document, the word 'not' has been omitted in the first bullet point, thereby totally reversing the intended message.
Section 4: Factors impacting on the work programme
This section is largely background data which, we suggest, is more suited to an annual review than this document. Section 4.2 focuses on problems facing the Authority, but these are not linked to solutions, and so their significance with respect to the work programme is unclear.
Some of the issues identified clearly impact upon the PABs. It would be useful to explain how these, in turn, impact on the work of the Authority, both in terms of the way it oversees the activities of the PABs and how it offers support to the PABs.
Section 4.5 discusses the problems faced by the Authority in appointing high quality staff with the appropriate experience, as the availability of such people is limited. This is not the reason for understaffing stated in section 3. For clarity and consistency, we suggest this discussion be included within section 3 of the document, and in the light of the perceived problems, the Authority should include in the final work programme details of how it proposes to overcome the staffing issues.
Section 5: Linking strategic goals, workstreams and values
Section 5.4.2 provides little detail regarding the Authority's approach to transparency. This is more restricted than for some other lead regulators, due to 'legislative restrictions'. We suggest that the document explain the nature and effect of those restrictions.
We believe that listing the Authority's core values and expectations in section 5 and reiterating them in appendix 3 adds little value to the draft work programme. We recommend that the document simply notes the Authority's expectations of its stakeholders that underpin the proposed work programme.
In our opinion, the strategic goals are not as clear as the statutory objects. Goals 1 and 2 emphasise 'supervision', and so one might assume that they refer to the supervision of the PABs. Therefore, without reviewing the principal activities underlying each strategic goal, the strategic goals do not appear to cover the requirements of the third statutory object, ie the direct monitoring of companies' accounts. (See also our comments under 'Strategic Goal 2', below.)
There is no explanation of the differences between 'key strategies employed' and 'principal activities'. We believe that the clarity of the document may be enhanced if it is reviewed for possible instances of repetition.
We believe it is unnecessary to set out the statutory functions associated with each strategic goal, as the Authority may 'do all things necessary and reasonable to further its objects'.
Strategic Goal 1
It appears that these activities and outputs are based on ongoing activities of the Authority, and proposed additional and one-off activities have not been highlighted. In addition, a large proportion of the activities relate to administration (eg developing risk assessment processes and review programmes, developing relationships with third parties, etc.), rather than regulation. Therefore, it is difficult to see the impact of specific developments on the activities of the Authority, or the need for the increased funding proposed in section 3.3. (This comment is relevant to other strategic goals also.)
Strategic Goal 2
The wording of Strategic Goal 2 may be misleading, as it refers to supervision and enforcement, but does not include any reference to monitoring. The activities under this strategic goal are required for the Authority to meet the third statutory object. Therefore, we recommend that the wording of the strategic goal be amended to clearly demonstrate that the statutory object will be met.
Strategic Goal 3
This section is rather long. Clarity would be enhanced if activity 2 (providing advice to the Minister) was not broken down into four outputs, but focused on just one output, namely advice to the Minister.
Strategic Goal 4
The output of 'ongoing adherence to the service standards set out in the Authority's Customer Charter' should be explained in terms of the activities necessary to ensure that the high quality output is achieved. Therefore, the document should set out the procedure that the Authority will adopt in order to measure adherence to the service standards. Similarly, we believe that the deemed output of 'adherence to the Authority's core values' should not, in fact, be listed as an output, as there is no explanation of how it will be measured.
The first and second deemed activities are, we believe, better expressed as intended outputs.
The fourth activity is one of monitoring adherence to obligations, and the related output is deemed to be compliance with regulations. However, compliance is not achieved by monitoring without corrective action where necessary. The document should explain the nature of the monitoring process, and any procedures envisaged for resolving issues arising.
Under section 4.5.3, the word 'breath' should, presumably, say 'breadth'.
In the interest of clarity, we suggest that the document be redrafted to include less background information (which is available elsewhere), and include a clearer relationship between:
1. specific activities and intended outputs, and
2. the Authority's statutory objects
An example of a requirement to be more specific appears under Strategic Goal 1, where the second principal activity includes the output 'Consideration of applications for recognised accountancy body status where such applications are submitted to the Authority'. There is no indication of how many such applications the Authority expects to receive during the period being considered, or what the impact would be on resources in respect of each new application.
A briefer document could provide greater clarity to the reader. In the existing draft work programme, many statements (eg concerning issues faced by the profession) stop short of stating their impact on the work programme.
The work programme should provide a better understanding of the necessary resources to meet the objects. This would be achieved in part by differentiating between ongoing activities and new responsibilities and challenges faced by the Authority.
More specifically, the draft work programme discusses problems faced by the Authority regarding the recruitment of staff, although the primary restricting factor (availability of finance or suitable people) is unclear. The work programme should state the number of members of staff that the Authority intends to employ (also stating any assumptions and limitations), and issue a work programme based on that intention. We also suggest the inclusion of shorter-term projections with regard to the resources required and anticipated to be available.