Newly announced IRBA CEO Imre Nagy shares how to restore the finance profession.

Imre Nagy, new CEO of the auditing regulating body IRBA, has had time to work out what has gone radically wrong and how to fix it.

Imre Nagy, new CEO of the auditing regulating body IRBA, has had time to work out what has gone radically wrong and how to fix it. Nagy was appointed acting CEO back in 2021.Nagy wants to move forward. His understanding of how to do so is rooted in lessons from the recent past.

The whole ecosystem is faulty, including accounting

“I’ve looked at this ecosystem and recognise that there’s too much reliance on audit,” says Nagy. Auditing historically works in a system where the other accounting, governance and management roleplayers do their jobs and are largely acting with integrity and competence. While Nagy doesn’t shy away from the auditing profession’s shortcomings, he believes a holistic approach is needed.

“I think we’ve reached the point in South Africa and globally where we’re seeing these huge audit failures all over the place. Are we in a place or have we been in a place where the management has 10% integrity, and then the auditor must pick up on the rest? Which is unsustainable. I don’t think audit was ever designed to replace the custodians and those with fiduciary duties in running a business.”

Nagy plans to start conversations with those outside IRBA’s traditional lane.

“I would want to be seen as the CEO that brings a broad range of stakeholders together to address honestly and openly, and weigh all the gaps and to come up with at least five recommendations within the next year or two.”

“I would want to be seen as the CEO that brings a broad range of stakeholders together to address honestly and openly,

“Not just auditors but other regulators, even government, to see what are the gaps in this ecosystem? Why have the lines of defence failed? Where’s the credibility and the accountability of management and of accountants? We’re not regulating accountants currently in the country,” says Nagy.

Nagy explains that historically, there was some desire to regulate the accounting space in South Africa. “We’ve made recommendations to the Minister of Finance in 2019 around comprehensive regulation, but we’ve realised there’s probably insufficient traction on that project. We’ve since changed our approach to say let’s reach out to all the stakeholders in the ecosystem and make collective recommendations.”

“I believe one of the key gaps would be the lack of regulation of accountants and accounting bodies in South Africa,” says Nagy.

Trying to improve enforcement and accountability

One criticism levelled at IRBA is that the body moves too slowly, and its punishments are too light. Nagy believes the new legislative amendments address both issues. “About two to three weeks ago, for the first time in IRBA’s history, we had two concurrent disciplinary hearings running in our offices.” Nagy also expects a new upper fines limit will soon be gazetted .

Another issue plaguing IRBA is the backlog of investigations. “We’ve appointed more investigators, all the positions are currently filled, and we are looking forward to the next twelve to 18 months to get rid of that backlog. Ideally, you want to get to a point where someone lays a complaint, and you can open the investigation immediately, and the investigation can commence.”

Some commentators criticised IRBA for not sufficiently disclosing details about their investigation or disciplinary actions. “One of the things that is on the radar for us in the next tranche of amendments is we would want to publish publicly our inspection results because currently our act prohibits IRBA from publishing any third party inspection outcomes, which is unfortunate,” says Nagy.

“Our board has already sort of endorsed us to bring a recommendation in the next act amendments to remove that restriction. The same would go for investigations to some extent: how far you can go in terms of what you can divulge during an investigation, and also, what you can divulge following an investigation.”

On attracting people to the profession

Nagy is concerned that the small pool of auditors in South Africa is shrinking. Nagy hopes that increasing the number of recognised controlling body (RCBs) will increase the pipeline of auditors. Nagy also wants to increase the number of auditors by making the profession more appealing. “We need to move on and start building up this profession again because youngsters are shying away from becoming auditors.”

“It’s highly regulated. It’s highly stressful. We need to attract the right people with integrity who want to make a difference. The only way we’ll do that is if we succeed with the strategy to reduce risk in the system and to restore confidence by making sure auditors do what they are supposed to do properly.”

Nagy has become the captain of a vessel, blown off course by a hurricane, that is in dire need of repair. “I think we’ve plugged quite a few holes already,” says Nagy. “The boat is fine, we’re working on the sails now.”