The Independent Regulatory Board for Auditors (IRBA) have confirmed that amendments to the Auditing Profession Act, 26 of 2005, were submitted to National Treasury on 15 December 2017. This followed commitments from the Standing Committee on Finance (SCoF) in October 2017 that these changes would be prioritised for consideration by Parliament in the first half of 2018.
According to a press release issued by the regulatory body a follow up meeting with National Treasury on February 7 this year agreed that the amendments should be submitted to National Treasury for tabling in Parliament.
The chairman of SCoF, Yunus Carrim, confirmed to IRBA on T17 April that he had written to National Treasury on 16 April regarding the submission of the APA Amendment Bill and the Postbank Bill, both of which were anticipated by SCoF.
Since the scandals around the accounting and auditing profession erupted last year, SCoF had recognised the need to strengthen the IRBA’s oversight powers so that the regulator can respond robustly to any failures and improprieties committed by auditors.
The APA Amendment Bill seeks to strengthen the IRBA sanctions in line with the sanctions pursued by other international audit regulators; furthermore, the amendments will look to strengthen the IRBA’s powers in its investigations process, and simplify the complexity of disciplinary hearings, ensuring that outcomes can be achieved more speedily while remaining within the boundaries of a fair and due process.
Mark Stewart, CEO of BDO says in a statement that the reported intentions of IRBA to split the structure and functioning of audit and advisory firms lacks the clarity that would be expected from an announcement of this magnitude.
“While we can understand why IRBA would seek such a change, it does require a better appreciation of why audits have failed, including downward pressure on fees, an increasingly complex environment which has ever shortening reporting deadlines and the legal accountability of company boards themselves for decisions,” he says.
He further says that the very intention to improve quality and enhance independence would likely result in an opposite reality, as businesses would need to be disposed of within the context of potential conflicts and existing client commitments. It is in fact highly likely that it is a change that clients themselves do not want.
“There is an expectation for a greater indication of criteria IRBA will use to determine what categories of audit are likely to be included. Without this, it is all but impossible for provide considered input if at all. If all audits (irrespective of category of client) are included, then IRBA’s recommendations are not practical in the least.”
Some of the pressing questions that remain, he says, include:
- Is it that the shareholding in the two firms must be different?
- Is it that the shareholding can be common, but services must not be rendered to the same client?
- Do the names of the firm have to be different?
- What are the realistic timelines?
- How does this impact existing client relationships and contracts? For example, if the regulator simply means that a firm is prohibited from offering both audit and advisory services to the same client then there is already regulation in place to prevent this.
Stewart’s statement concludes:
“IRBA’s recommendations imply a significant change in the way business is done in this sector. This will trigger further market concentration in those firms offering only audit services and those offering advisory services. Should the result of this suggestion indicate that greater market concentration or barriers to entry to the profession would result – which is a possibility – then the regulator would need to re-think its view.
An appreciation that advisory services contribute greater profit with less risk than an audit has contributed to the growth in advisory services. But with this, begs the question as to whether audit committees are giving auditors the appropriate fee for the risk that auditors are exposed to – and more importantly that the public is demanding?”