IRBA wants a super regulator for accountants and auditors

IRBA’s CEO wants to implement a 2013 World Bank recommendation to regulate professional accounting bodies and is prepared to serve as this super regulator. The auditor general disagrees and believes more collaboration is needed. 

• IRBA believes that in order to prevent future audit failures, systemic issues in the reporting ecosystem need fixing. 

• IRBA plans to issue a discussion paper next year on reforming the financial reporting and governance ecosystem, followed by draft policy reform proposals in 2025. 

• IRBA may push for a super regulator and is prepared to act as one. 

Are auditors the scapegoats for systemic failures? 

Imre Nagy, CEO of the Independent Regulatory Body of Auditors (IRBA) wants to restore confidence in auditing. To achieve this, he believes the entire financial reporting and governance ecosystem needs addressing. 

Nagy, while acknowledging that auditors are not blameless, told a stakeholder event last month, “The expectation on the auditors has maybe gone too far because the entry level of financial information that is submitted to the auditors is not at a level anymore that one would have expected when this whole system was designed.” 

“What we’ve seen in many instances [of audit failure] is that the information presented to the auditors is of such a low quality and such a low representativity of the truth that now it becomes the auditor’s problem.”

Speaking at the stakeholder meeting, Auditor General Tsakani Maluleke said, “Hopefully everybody else in the ecosystem will start to recognise much more the role that the professional accountants ought to play, whether they’re acting as preparers. But I suspect we ought to look even at internal audit. We’ve got to look at audit committees as well. And one of the things that I believe needs great attention, is a focus on internal controls.”

Nagy’s drive to regulate professional accounting bodies  

“I would say that there is definitely a need for us to relook at the regulatory and supervisory environment,” Nagy told the audience. “I’ll start with the fact that we don’t have regulation of professional bodies and that has a huge public interest risk because you have fragmented regulation and supervision and you have a different regulator for everything.”

“It becomes even more and more difficult to bring those parties together, to collaborate and be effective in the regulatory oversight.”

Nagy referred to a World Bank recommendation to the Minister of Finance in 2013, calling for comprehensive regulation of all external auditors and accounting professional bodies.  

“That is something that I believe can happen, and should happen, and should have happened,” said Nagy. 

“We often get the question, do you want to be the comprehensive regulator?” Nagy told the audience. 

“My answer is that it is not for us to say as an audit regulator, it should not be about the body because it’s about key principles in the regulatory framework. But it cannot be denied that the work of accountants and auditors are closely linked, as the financial statements is the very subject that the auditors are actually auditing [which is] coming from accountants.

“Recognising this, I do believe that IRBA might be in a good position to take on this role. It wouldn’t add to the fragmentation because it would be under one roof, and we are well positioned to expand our supervisory reach to include professional bodies. It would be fairly straightforward if there’s an amendment to our Act for us to start doing that, and that oversight and supervision could be done in a matter of months because we have all the regulatory principles and functions in place.”

IRBA wants to present a discussion paper on five gaps in the ecosystem early next year, followed by draft potential policy reform proposals in 2025. 

The Auditor General prefers collaboration

“I’m not sure that comprehensive regulation is the thing to go for, certainly not under one body. I may be wrong, but my sense is that you can go a long way if you drive collaboration with the players  and ensuring that the players that do exist actually do their part,” Maluleke told the audience. 

Maluleke gave the example of the AG’s real-time audits during Covid, where different institutions worked together to arrest people and recover lost money. 

“Yes, we could have always achieved more, but I don’t think we should miss the lesson here – that without changing the law, without putting an onerous responsibility on one super regulator through effective collaboration, you actually can go very far.”

Maluleke is, however critical of the enforcement record of professional accounting bodies. 

“The professional accounting bodies are very good at advocating for their own brands, very good at ensuring that people with their own designations are appointed as CFOs, as members of committees, very good at talking about the need for technical competencies, ethical posture, but not so great at the disciplinary aspects and in showing that there is a set of consequences when things go wrong and that those consequences are meted out courageously and on time, swiftly. 

“So I think we’ve got to start putting more pressure on each of these professional bodies to do that, and not limited just to those in the professional accountant domain, but also to look at other professionals that form part of the ecosystem, whether it’s the analysts, whether it’s the actuaries and a host of other professionals.”

Audience members were asked in a poll which of several reforms they would most recommend. ‘National legislated supervision of professional accounting organisations (POAs)’ obtained the most votes followed by ‘National legislated supervision of other assurance providers (e.g. internal auditors, forensic auditors, IT auditors). 

If you touch it, you own it

Nagy responded to the AG’s perspective by saying, “I fully agree with Tsakani that we can’t wait for rules. . . And I will take it upon myself to use this opportunity to engage with other stakeholders and role players to see how can we collaborate.

“We don’t need to wait for legislation to be better. But in the long run, I do believe that we need to look at the entire framework and see how we can strengthen it. Because the biggest thing that a lot of people are telling me is that we will never have a solid regulatory framework unless it is based on the principle that if you touch it, you own it.