Accounting Weekly recently reported on Namibia’s groundbreaking draft Accountants and Auditors Bill, which provides comprehensive legislation for the accounting profession. This is a major improvement on the fragmented legislation governing the profession in SA.
Saiba has made several recommendations to the draft Bill which it believes will further the purposes of the legislation and provide greater certainty to professional practitioners. The following is a brief summary of the recommendations made by Saiba to Namibian authorities. These recommendations could equally be applied to SA.
One of the recommendations is to make a clear distinction between the role of auditors and that of accountants. For example, only auditors should be subject to practice review and strict regulation. Auditors have a bigger impact on the public interest in comparison to accountants.
Big audit firms pose the biggest risk to the profession
“We believe that large audit and accounting firms pose the biggest risk to the profession and the economy of Namibia. Regulations should consider a risk-based approach to fees and compliance.
“We view the Bill as seeking to regulate only accountants and auditors that perform a variety of functions including tax, and advisory services. This implies that only professionals that render services for reward that are regulated by an Authority should be able to provide professional services such as tax and advisory.”
The law should cover only accounting services for reward, not accounting employees
The services that should be regulated are those that accountants provide for a fee when working in practice. If a person is employed as an accountant, then the employer takes responsibility and the risk. The intention is to protect the public.
The Bill should allow for non-IFRS accounting standards
Small entities prepare their financial statements in accordance with accounting policies appropriate to their business. IFRS and IFRS for SMEs are not appropriate for these small entities as they do not prepare general purpose financial statements. The Bill should provide for other basis of accounting relevant to small entities i.e. cash basis and tax basis of accounting.
Audits standards should have the flexibility to enhance the local economy
The Board should have the flexibility to adjust international standards to enhance the Namibian economy and only authorize standards if they meet the national policy criteria. Adoption implies taking the standards “as is” with no critical evaluation.
External audits are in the public interest and require a unique approach
External auditing is performed to benefit the public interest. It should therefore have a unique approach and be limited to registered auditors applying audit standards.
Registered accountants should be encouraged to perform non-audit functions
Registered accountants should be encouraged to perform all non-audit (non-public interest) engagements. This allows for skills transfer and skills development and broaden the choices available to the public. This is in line with international jurisdictions where only audit engagements are restricted to registered auditors.
The Board should oversee audit firms, profession bodies should do risk-based reviews of registered accountants
Practice review should be unique to registered auditors as they more than any other professional act in the public interest by expressing opinions. Practice review of audit firms should be the mandate of the Board. Accredited Professional Bodies should be authorised by the Board to conduct risk-based reviews of firms of registered accountants. This approach is in line with international best practice.
Accounting technicians should also be required to be members of an accredited professional body
Accountants may also assist with preparing returns but are skilled to perform higher order accounting services such as analysis, interpretation, advisory work.
Audit firms should not be allowed to perform both accounting and audit services
Worldwide the audit profession is subject to financial reporting scandals. The reason for this is that auditors are allowed to perform both accounting services and audit services to their audit clients. We believe that auditors can only by independent if they are not allowed to perform both services.
Remove the word “professional” when referring to accountants
The terms “registered” is the key word that denotes that the persons are now subject to the AA Bill, the Board and an accredited professional body. The addition of the term “professional” is confusing, unnecessary, and an oxymoron. The adoption of the new Bill creates only two types of accountants namely, registered or non-registered. The term professional is a generic term used by some as part of their naming convention and this will be confusing to the public and not in the public interest to use this term in the Bill.
The term professional should therefore be removed from the Bill in those circumstances where it refers to individuals.
How to deal with trainee accountants
Trainee accountants should also be members of accredited professional bodies.
Prior to the Bill the accounting profession was not subject to a statute requirement for trainee contracts. This means the definition should be interpreted in its widest sense to allow for the continuous recognition of existing members of professional accounting bodies.
The requirement that accountants will only be accredited if they completed a training contract is a new provision not previously required. Administrative justice and common law principles of fairness and equality requires a phased implementation approach.
The training contract requirement can only become effective once the Board has prescribed the underlying requirements. This will only occur after the Board is created and operational which may take several months or years. A transitional approach is therefore prudent.
Recognition of Prior Learning
The definition should also be aligned to international best practice and laws and regulations governing Recognition of Prior Learning (RPL). During difficult economic times, such as currently being experienced under COVID19, many professionals may get retrenched and have no other option but to start their own accounting firms. The Bill should make provision for this type of economic scenarios. This is achieved by a process of RPL based on a competency framework.
Recognise accountants who are members of professional bodies as “registered” accountants
Existing accountants that are members of accredited professional bodies, should be recognized as registered accountants once the new AA Bill becomes effective. A differentiated approach should be allowed to regulate auditors and accountants respectively.
Avoid adopting standards that are subject to special interests
The Board and Authority should not be made subject to or forced to adopt codes or standards issued by voluntary associations that are themselves subject to influence by special interest.
The IASB, IAASB, and IFAC are voluntary membership organisations not subject to any government sanctions. Although they perform necessary functions, have good intentions, and allow advisory groups to review their activities, it is still funded by private enterprise and subject to big audit firm influence. Namibia is a sovereign country responsible for the well-being of its citizens. It alone can decide to what extent codes and standards are relevant to growing the Namibian economy.
Auditors have a primary function to act in the public interest and should be regulated differently than accountants and accounting technicians.
Auditors should be required to register with the Board, accountants with professional bodies
Accountants should be required to register with accredited professional bodies. The bodies can then communicate and report to the Board on the registered accountants under their mandate.
Based on this report the Board can issue certificate of practice and keep a record of registered persons.
Registration of individual trainee accountants, trainee accounting technicians, and accountants should be aligned to require membership of an accredited professional body.
No disqualification as a result of insolvency
Disqualification as a result of insolvency: Many entities or individuals may go insolvent or bankrupt without any fault of their own due to changing market conditions or normal business risks. Being able to work is also the only means to earn a living. The constitution also allows for the protection of liberty and the right to work.
Audit firms should be forced to procure services from smaller audit and accounting firms
Audit firms are restricted from providing non audit services to entities that are subject to a statutory audit. Audit firms should include in their procurement policies an agreed percentage as set by the Authority, of non-audit work to unrelated small and medium sized firms of registered accountants and, or auditors.
Recommendations to address audit firms’ inherent conflict of interest
Auditor independence and their inherent conflict of interest of being appointed by the entity that they audit, remains the root cause of audit and financial reporting scandals.
The audit market is also subject to the dominance of large audit and accounting firms.
The proposed new legislation can address these issues by limiting the work performed by audit firms to their audit clients, if the audit is a statutory mandate such as in the Companies Act.
In addition, large audit and accounting firms should be required to support smaller firms by making them part of their financial reporting supply chain.
The powers of inspection and quality assurance committee, inspectors and forensic inspectors: Practice reviews are supportive of audit firms and intended to improve service delivery. They are not intended to be punitive. Perhaps it should be the function of the education, training and professional development committee to perform practice reviews.