FROM THE CEO’S DESK
Like it or not, the auditing profession has been called upon to
take a hard look at itself. The pressure from the market for change
increased significantly following the VBS Mutual Bank failure in
March. As the bank went into curatorship and more information
around the matter has been revealed, public sentiment towards the
role of the profession, its professional bodies as well as the regulator
has become increasingly critical.
The IRBA Board anticipated this and charged the executive
management in November last year to deliver a plan that would
address public perceptions and help to shape a new conversation
around auditing and help the profession in adapting to the changed
Consequently, the IRBA has for the first few months of the year
been working on a plan for the profession to restore confidence in
the public interest role of auditors and the regulator. Many of the
activities that we believe are integral to restoring confidence were
already projects that were underway at the IRBA. Nevertheless,
during this period we revisited all our projects and reviewed these
with consideration for the Board’s directive, which is to focus on
those key activities that will help us to meet public expectations.
Projects that were underway, which were viewed as critical,
were fast-tracked and others were prioritised. Among those fast-
tracked were the projects on Audit Quality Indicators and Audit
Firm Transparency Reports, both of which are expected to be
released shortly. The Auditing Profession Act Amendment Bill was
fast-tracked and is currently with the Minister for Finance, awaiting
submission to cabinet. It is expected that it will be open for comment
after the next sitting of Parliament. A review of the disciplinary rules
and process is also underway.
All initiatives were collated into one strategic plan, which was
adopted by the IRBA Board in May and we can now also proceed
with the new initiatives we identified.
We recognise that now is not the time to try to restore the status
quo but to adapt and transform to address the questions and
challenges the new landscape is presenting. Part of this is listening
to the market not only about what is expected from auditors but
also from the audit product. Closing the expectation gap will rely on
understanding what needs to change. The IRBA has for many years
employed a stakeholder approach to responding to the market. Our
readiness to recognise that we must also implement continuous
improvement is part of this philosophy.
We also recognise that complacency is the enemy of quality. If the
IRBA and the profession can root out complacency and replace it
with innovation rooted in the public interest, we will achieve mutually
beneficial solutions for firms and the users of financial statements.
It is time for auditors to reclaim their place as watchdogs and
guardians of good practice to ensure a better society for all.
At the root of this is audit quality. In May 2018, the IRBA released
its Public Inspections Report for 2017 which provides an analysis of
key inspection themes arising from firm and assurance engagement
(audit) inspections performed by the IRBA from 1 April 2016 to 31
March 2017. The nature and extent of the findings reported do not
significantly differ from what was reported in the prior two years.
At an audit engagement level, on the file inspections of 197 audits
conducted at 101 firms, significant findings were recorded on 124
files and 12 auditors were referred for investigation. This indicates
that 63% of audits from the high-risk files selected were deficient. In
some cases the themes identified were recurring, which highlights
a pressing need for audit firms to analyse, remediate and monitor
reported deficiencies more effectively.
The objective of the report is to promote improvement in audit
quality at a broader level and influence auditors to pursue consistent,
sustainable high-quality audits that adhere to the highest standards.
In response to this, a number of changes have been made to the
seventh cycle inspections process, with a new or increased focus
being included in the inspections approach on leadership, tone-
at-the-top, leadership involvement in remedial action processes,
independence and ethics, acceptance and continuance, and non-
compliance with laws and regulations.
At the core of restoring the reputation of the profession is the
auditor’s ability to instill confidence in investors and the public
again. Such confidence is enhanced when all the role players in
the financial reporting chain, including management, those charged
with governance and the investors themselves, assume the required
responsibility for creating the necessary trust in our markets.
Bernard Peter Agulhas
Chief Executive Officer
Issue 42 | April - June 2018