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Public Expenditure and Reform Minister Brendan Howlin today addressed The Leinster Society of Chartered Accountants annual lunch.

Minister Howlin began by highlighting some of the effects of the current financial climate...

The resultant severe impact on the labour market is evident across key measurements. The unemployment rate has increased from an average of just 4½ per cent in 2006 to 14.7 per cent in the final quarter of 2010. Few have gone untouched by the economic downturn we have experienced over the last three years – let us be clear unemployment is not a matter of statistics and numbers on a page. The unemployed are our neighbours, our children, and our friends.

• There are now 440,000 individuals signing on the Live Register every week. Around 140,000 have been signing on for a year or more, highlighting the real problem of long term unemployment; and

• Emigration has made unwelcome return as a feature of the Irish labour market.

The Minister then spoke of a return to economic growth...

despite the current employment situation, in 2011, there is now a broad consensus that the Irish economy will return to growth. The Department of Finance revised economic forecasts anticipate that the economy will expand by 0.8 per cent this year and 2½ per cent in 2012. This is in line with the forecasts of other institutions such as the IMF, the EU Commission and the Central Bank. The OECD’s assessment of Ireland’s economic prospects for next year, published today, broadly reflect the Department of Finance’s view. It’s outlook for this year however is out of line with our thinking and that of the consensus at this time.

The recovery is being driven by strong export growth which increased by 9½ % last year – the strongest rate of growth in a decade – and has continued this impressive performance at the start of 2011. In nominal terms exports recorded an annual increase of over 14 per cent in February, while survey data points to robust export order books in the first half of the year.

Minister Howlin then spoke of progress made by the Government and highlighted the jobs initiative...

In this context the recently announced Jobs Initiative is one important step in ensuring that individuals and families affected by unemployment are given additional opportunities to return to work, education or training. The new Government, in launching the recent Jobs Initiative has taken an approach by investing in job intensive sectors, boosting labour market flexibility and improving competitiveness by a series of measures. A key element of the Jobs Initiative is the provision of almost 21,000 training and work experience places available to the unemployed.

The measures outlined in the jobs initiative will re-focus our resources to where they are most beneficial and thereby help to underpin confidence. They are indicative of the proactive strategic approach that will help to ensure that individuals have the necessary skills and are well equipped to take up employment once again as the economy starts to create jobs in the medium term.

Minister Howlin spoke of stabilisation of the Government deficit but warned that challenging times were still ahead...

Notwithstanding this it is a challenging environment; the General Government balance is now forecast to be 10 per cent of GDP this year. This means that as a Government we are expected to borrow €18bn in 2011 and €17bn in 2012 to pay for goods and services. The sheer size of the deficit means that further budgetary consolidation measures will be required to align the State’s spending and revenues more closely in the coming years. Crucially, we are all aware that the Agreement the Government has signed with our partners in the EU/IMF and the fact that this places an onus on the Government to deliver on the consolidation objectives - with clear action.

The Minister referred to the Nyberg Report and welcomed the debate among accountants on the topic of auditors...

This report is the first to look at the role of external auditors with specific focus on their role in commenting in their audit reports or other communications to the institutions concerned on standards and controls in the context of corporate governance and prudent risk management policy and procedures or the business models and strategies and business and lending practices of the covered institutions.

In brief the main findings relating to auditors were:

• auditors’ commentary regularly focused only on issues which they considered related to the accuracy of the historic accounts,

• auditors clearly fulfilled this narrow function according to existing rules and regulations,

• in the absence of an express requirement for the auditors to do so, there appears to have been no challenging dialogue with the covered banks on their business models and their growing property and funding exposures. Such dialogue could have highlighted the business model risks and might have influenced the banks in relation to their growing vulnerabilities as the Period progressed, and

• Mr. Nyberg found it unfortunate that sufficient, timely and challenging auditor dialogue was not used to influence the banks’ business models and lending practices.

These findings raise a number of issues for the audit profession concerning how it sees its own role and its relationship to both client firms and to external statutory and other stakeholders.

It is clear however that the Nyberg report generally agrees with the view that the audit profession should be able to contemplate an enhanced role in co-operation with supervisory authorities, while recognising their respective statutory functions. This is a view which I generally support and indeed I understand that the Central Bank has commenced a process of engagement with the audit profession to explore the potential for enhanced, regular dialogue between auditors and supervisors and how the profession can best assist the Bank in carrying out its supervisory functions.

I welcome the fact that the Accounting profession is actively engaged in this debate and the Institute of Chartered Accountants is undertaking an industry-level review of the role of statutory audit which is considering issues such as the scope of the audit; how the audit profession interacts with and reports to shareholders and the information included in such reports; relationships between auditors and supervisors; and how the profession is regulated.

The Minister concluded...

In relation to the future one of the key challenges facing the Government is the management of the public finances. The Government will continue, through the management of the Comprehensive Expenditure Review, to take the appropriate steps to manage the public finances and the economy. We will do so in a way that is fair and equitable and ensures that the most vulnerable remain protected. The past week has lifted public morale and public confidence. We are determined to build on that restored sense of pride in our ability “to do” – “is féidir linn – to guide this economy and this society to a better place.