A case of shared ambitions

Just six months into the role, the Chief Executive of IAASA, Kevin Prendergast, has a lot on his plate. But he plans to get even busier in the years ahead.

It has been a “busy” but “enjoyable” first six months for Kevin Prendergast, who assumed the role as Chief Executive of the Irish Auditing & Accounting Supervisory Authority (IAASA) in November 2016. Prendergast came to IAASA from the Office of the Director of Corporate Enforcement (ODCE), where he had spent 11 years – the last three as Head of Enforcement with responsibility for overseeing the office’s civil and criminal judicial enforcement activities.

It was time for a change, however. “There’s a comfort in being somewhere for 10 years or more, but everyone needs a new challenge every now and then,” he says.

In his time with the ODCE, part of the job had been liaising with IAASA. But the transition has had its surprises nonetheless. “It’s inevitably a learning curve when you get under the hood,” he says. “There’s definitely a different dynamic in that, in my previous role as Head of Enforcement, I always had the big stick. Ultimately, people have to do what you ask them to do,” he says, noting that the background potential for criminal proceedings “gives you power to cut through stuff and get things done”.

At IAASA, however, the scope for enforcement is a little less direct with the authority overseeing the various accountancy bodies, which in turn regulate their own members. “Ultimately, it’s a different sort of stick that we have,” he says, adding that he believes in an element of the regulator working with the people it regulates. “We’re all trying to achieve the same thing – the improvement of the quality of the profession. A lot of it is around having good relationships with the people you regulate.”

He is content with the model that’s in place, whereby for the most part professional bodies regulate their members and then IAASA regulates the profession. “We’re very happy with that model,” he says.

Approach to regulation

So, is he a “light touch” or “rules-based” regulator when it comes to dealing with the bodies and their members? For Prendergast, it’s all about a “healthy tension”.

“We don’t expect to have the welcome mat rolled out, but I do hope we’re all trying to achieve the same thing,” he says, adding that he’s not afraid of taking the hard line. “If there are tough decisions to be taken, I’ve no issue taking those decisions,” he says, but adds, “To some extent, good regulation is about avoiding getting into positions where you have those tough decisions.

“If there are serious systemic issues, there is no option then but to go in and flex regulatory muscles.”

The Brexit conundrum

Apart from regulation, preparations for the UK’s departure from the European Union are also on Prendergast’s mind. “It’s something that’s at the forefront of my mind and the board of IAASA at the moment,” he says, noting that it is likely to impact in several different ways on the accountancy profession.

Indeed, IAASA currently issues auditing standards for Ireland under license from the Financial Reporting Council (FRC) in the UK. But if, post-Brexit, the FRC goes in a “radically different direction in breach of EU guidelines”, what should IAASA do? The option would be to adopt international standards, or to do it themselves. “But it would be a big challenge for Ireland on its own to do that,” he says. “The FRC is much better resourced than IAASA”.

Brexit could also mean a dilution of the strong relationship between IAASA and the FRC. “There is an inevitability that Brexit will have an impact on that,” he says. But will the FRC diverge from the EU’s approach? “It’s one of the great imponderables,” he says. “It seems in everyone’s best interest to maintain that parallel with international standards.”

Another possible issue is the mutual recognition of auditors across the EU and whether or not some UK auditors may seek an Irish registration – as solicitors have done – to remain accepted across the EU.

A growing role

Since its establishment in 2005, both the role and the scale of IAASA has changed. From a headcount of just 12 or 13 a year and a half ago, Prendergast is now overseeing a significant expansion of the authority. “Over the year, we’ve moved away from pure oversight into more direct supervision,” says Prendergast. He adds that much of the change has been driven by European requirements and has seen IAASA up its game in terms of looking at auditors of public interest entities, issuing auditing standards and increasing its investigation powers.

IAASA is also currently granting exemptions under the new audit rotation rules, which require companies to change auditors after 10 years, or apply to the authority for an extension. To date, the board of IAASA has had about six applications for an extension, and “where appropriate, we have granted extensions,” Prendergast says. However, he notes that in future, the authority may be inclined to look less favourably on extensions, given the amount of time people will have had to prepare for them.

Last June, IAASA took on expanded responsibility with regard to the direct inspection of larger audit firms and in general, Prendergast says it has been a positive experience, but “there have been challenges”. “They’re probably a little bit more intrusive than the inspections they would have gotten up until now,” he says.

And more change is on the way. The forthcoming Companies (Statutory Audits) Bill, which is likely to be passed into law by the end of the year, will change the relationship between recognised accountancy bodies and IAASA. “We will ultimately have responsibility for key regulatory tasks that those bodies undertake; that relationship will now be built on agreements specifying how they will be carried out and reporting back to IAASA in terms of how they’ve carried out those tasks”.

It is, Prendergast concedes, going to be “an enhanced burden” for the profession. “We are discussing how best to minimise the additional burden, but at the same time, we have to recognise that these are legal requirements,” he says.

But while it might be an added burden for the profession, it is also one for IAASA and in this respect, Prendergast is keen to scale up the authority. It currently employs 21 people – “historically we always would have been below the staff level we were seeking” – and, as it takes on increased responsibilities, so too must its staffing increase. This means that Prendergast hopes to bring the headcount up to about 43. “It’s important to get the right people in,” he says. “It’s an ongoing challenge.”

Indeed, the authority is looking for people with experience of working in audit at a relatively senior level and, where appropriate, calling out where there are issues. “It requires skill and expertise, the right temperament.

“We can’t compete on salary, but hopefully what we’re offering is a genuinely interesting job,” he says, adding that the work/life balance can also be more attractive in IAASA than in the private sector.

In the public interest

In the fight for talent, Prendergast is in a sense selling something that attracted him in the first place to the public sector – the notion of acting in the public interest. His pivot from private to public came after he completed his training at Mazars. While working in financial services, he got a phone call one day from a recruiter, promising him that interesting things were happening in the Revenue Commissioners, which at the time was about to create a large cases division.

He took on the role and ended up staying there for six years before moving to the ODCE. “There is always a sense that your work is worthwhile in the public sector,” he says. “Also, you’re acutely aware that what you’re doing has a direct impact on improving the State and the business environment.”

His path from ODCE to IAASA is a path that has been travelled before – albeit in the opposite direction. The former chief executive of IAASA, Ian Drennan, is now the Director of Corporate Enforcement at the ODCE.

But if he has left the intensity of the ODCE behind, the stress of the job has not disappeared entirely. “It’s my first role as a CEO, and it’s a new challenge. Everything stops with you, it’s a very different role. You realise you’re responsible for everything.

Everyone is looking to you for direction and answers to questions they don’t have.”
In this respect, having children “is a great leveller”. “It keeps me busy,” Prendergast laughs. Indeed, when not inspecting audits, Prendergast operates a “taxi service” for his three children, running from Gaelic pitches to soccer pitches and dropping them off at swimming lessons.

But his focus is nonetheless steadfast on what he wants to achieve in the role over the coming years. “What I hope, by the end of five years, is that our expanded roles are properly bedded in, there is respect both within the profession and the wider public for the role IAASA is doing, and that IAASA will be more visible,” he says.

And the profession has a role to play in this, too. “If I had one message to Chartered Accountants, it would be to go back to the point already made: that both IAASA and the bodies and members should all be trying to achieve the same end – a high quality profession.

“Hopefully you will see that we’re working with you to ensure higher standards are maintained. Will it be a burden from time-to-time? It’s an inevitability of working with a profession that’s deemed to be of such importance.”