The cost of new obligations on auditors will have to be passed on to clients, the president of the Institute of Certified Public Accountants (CPA) said yesterday.

Mr Brian Coffey also criticised the Government for bringing in obligations on auditors without adequate consultation with the profession.

Addressing the institute's annual president's dinner, Mr Coffey also said increased insurance costs arising from the Enron and WorldCom scandals would also have to be passed on.

"From a professional viewpoint, 2002 has seen a disproportionate liability exposure fall on large and small audit firms. The impact of over-regulation and increasing risk is not just an issue for the four largest international audit firms.

"Smaller firms are also coming under increasing pressure. It is ironic that corporate fraud in Texas can add up to 60 per cent on the professional indemnity insurance of a sole practitioner in Ireland. No firm can bear such a heavy increase without passing on part of the cost to its clients."

Mr Coffey said the combination of "over-regulation" and increased risk was moving firms closer to the scenario where the risks involved in an audit far outweighed the return to professional firms. "This is not in the interest of business or in the interest of shareholders."

Under section 74 of the Company Law Enforcement Act 2002, auditors are obliged to report to the Director of Corporate Enforcement all instances where they suspect an indictable offence under the Companies Acts has been committed. "There are over 128 such indictable offences - an enormous number to look out for - and this imposes an onerous requirement on auditors with time and cost implications."

The low or non-existent level of awareness of directors as to their obligations increased the workload for auditors, who have to serve as educators as well as shouldering their new reporting obligations, he said.

Mr Coffey said there was a "severe danger of over-regulating the profession on an ad-hoc basis without putting forethought into what needs to be achieved and how best to achieve it without wrapping businesses up in red tape."

"If we had better consultation from the Government with the professional bodies in advance of the introduction of new legislation many of the problems we are now encountering would not occur."

He called for an information campaign to educate directors as to their new responsibilities.