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Since 2017, South Africa has experienced a number of corporate failures that have eroded trust in the accountancy profession. While these corporate failures are not necessarily caused by auditors only, the media and public opinion shotgun is often aimed at auditors and not necessarily at directors, audit committees and others involved within the wider corporate reporting ecosystem.
This led to the Minister of Finance, Tito Mboweni, making an announcement in the February 2020 budget speech, “that an independent panel of experts will soon be appointed to review practices in the auditing profession.” Furthermore, the Minister made a commitment to make plans to strengthen the powers of the Independent Regulatory Board for Auditors (IRBA) through further legislation, which process is already substantially underway.
The sole focus on auditing may seem unreasonable, however, the auditing profession plays a crucial role in ensuring the stability of the financial market system and attracting investment. Corporate failures result in significant losses for South Africa’s working class due to job losses and the erosion of savings. Transparent and accurate financial reporting are essential for investors to make informed decisions on how to allocate investments. This is even more important for a developing country like South Africa. SAICA believes that it is important that the reputation of the auditing profession is restored as this function has the potential to contribute significantly to repairing the socio-economic problems that South Africa is grappling with because of corruption and corporate failures.
With that said, it is noteworthy that the problem manifests across the financial reporting ecosystem and focusing on the auditing profession alone will not resolve problems. Those charged with governance in organisations remain responsible for doing more to protect public interest through more stringent financial reporting and better controls. SAICA has embarked on various trust restoration initiatives, including coordinating discussions on audit reform, to promote overall improvement in the financial reporting ecosystem. This entails a wide stakeholder engagement process to understand the causes of the audit expectation gap as well as initiatives to narrow it.
A number of significant developments have occurred recently
Since the 2020 budget speech, revelations of alleged corruption at the Zondo Commission of inquiry and the implication of chartered accountants in some of these cases have damaged the image of the audit profession.
The Auditing Profession Amendment Bill currently being considered in parliament is aimed at enhancing IRBA’s investigative powers through search and seizure provisions. The Bill also contains provisions to enhance the independence of the IRBA Board. It is noteworthy that certain stakeholder groups are also calling for Mandatory Audit Firm Rotation to be made into law, through amendments in the Auditing Profession Act, 26 of 2005.
On 15 February 2021, KPMG made a ground-breaking announcement that as from 31 March 2021, the firm will cease providing non-assurance services to their listed clients. This is an important decision that may have a positive impact on removing perceptions of conflicts of interests with listed clients of the firm.
The immediate socio-economic impact of COVID-19 may have led to reprioritisation of activities within the National Treasury, possibly placing less focus on activities within the auditing profession.
Expectations from the February 2021 budget speech
While COVID-19 and its devastating effects may continue to dominate attention as well as the fair share of the budget this year, it is our view that the Minister may highlight activities and developments in the auditing profession as outlined above.
Revelations from the Zondo Commission have made it clear by now that a narrow focus on auditors alone will not solve the large problem of corruption in South Africa. There is a need to look at the wider financial reporting ecosystem. SAICA anticipates that the Minister may make announcement on the ministerial panel; however, the scope for this panel should be spread wider than just the auditing profession and look into other role players such as directors, audit committees and senior executives within entities.
The Minister may urge regulators to collaborate in a firm, decisive, and prompt manner in dealing with corporate malfeasance.
Leadership at the IRBA will most likely feature in the Budget speech and may focus on improving the efficacy and effectiveness of the regulator.
The auditing profession is vital in the efficient allocation of capital which is crucial for the much-needed economic growth. Therefore, SAICA is of the view that the Minister will give the profession the requisite attention during the delivery of the 2021 budget speech.
Issued on behalf of: Freeman Nomvalo, SAICA CEO