The authors of the Nyberg Report have said it is “unfortunate” that a challenging dialogue was not used by auditors to influence the business models and lending practices of financial institutions.
Investigating the causes of Irish banking crisis, the Commission said that a sufficient, timely and challenging auditor dialogue could have been used to influence the banks’ business models and lending practices.
There is no express requirement for an auditor to do so and the report found that their commentary regularly focuses on issues relating to the accuracy of historic accounts.
“In practice, this means that auditors look primarily backwards and at technical issues that may influence the accuracy of the accounts,” said the report. “The auditors clearly fulfilled this narrow function according to existing rules and regulations.”
However, Nyberg criticises the bank’s auditors for not pointing out their clients’ 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,” added the report.
The report of the Commission of Investigation into the Banking Sector, Misjudging Risk: Causes of the Systemic Banking Crisis In Ireland, more commonly known as the Nyberg Report has been considered by the Cabinet and published by the Minister for Finance this afternoon.
The investigation was commissioned by the government to establish exactly what happened to lead to the utter collapse of the Irish banking system in 2008.