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Post-1994, South Africa experienced one of the longest periods

of positive economic growth in the country’s history. The Minister

of Finance at the time had adopted the recommendations of the

2003 World Bank Report on the Observance of Standards and

Codes (ROSC) for accounting and auditing. The report suggested

that government should focus on strengthening the enforcement

mechanisms for ensuring compliance with established accounting

and auditing requirements by

“establishing an independent oversight

body, consisting of eminent persons, and restructuring the statutory

regulator of the auditing profession under an effective governance

structure and with broader mandate for efficiently regulating the


Until then, the profession was governed by the Public Accountants

and Auditors Board (PAAB) under a regime of self-regulation with

limited powers. In 2005, South Africa became one of the first

countries worldwide to adopt International Standards on Auditing

(ISA) and the Independent Regulatory Board for Auditors (IRBA)

was created under the Auditing Profession Act, Act 26 of 2005

(APA), creating a statutory oversight board for which the maximum

number of auditors on the board was prescribed (no more than

40%), with powers to lay down regulations and set standards.

In 2008, the IRBA became one of the founding members of the

International Forum of Independent Audit Regulators (IFIAR), a

forum that shares best practices in regulation and has a mission to

strengthen global audit quality. One of the requirements to become

a member of IFIAR is that the audit regulator must be completely

independent of the auditing profession.

Over the years, the IRBA has continued to make improvements to

regulation within itsmandate. The auditor’s report has been improved

and now includes more disclosures than before for the benefit of

investors. In 2015, mandatory disclosure of the audit tenure of the

audit firm with the client was required as part of the independent

auditor’s report. This was to highlight potential familiarity threats for

investors that could lead to independence issues, which could, in

turn, impact on the reliability and credibility of the audit opinion on

the financial statements.

Further improvements were made to strengthen the IRBA’s

Inspections and Investigations departments based on the

recommendations of the World Bank’s 2013 ROSC. However,

deficiencies in audit quality concerned the Board, which required

that more should be done to protect the public, safeguard auditor

independence, improve the quality of audit and enhance trust in

the credibility of audit opinions. In 2017, the Board prescribed that

from 2023 Mandatory Audit Firm Rotation would be required every

10 years.

This progressive implementation of standards, regulations and

guidelines is a necessary role of effective regulators worldwide in

support of continuous improvement and the creation of public trust.

Recently, it became evident that the public expected more from the

IRBA than the APA prescribed or allowed, specifically considering

the recent audit and accounting failures. The limit to monetary

sanctions and the speed of bringing auditors to account were key

among these.

The Act Amendment process was subsequently fast-tracked and

the amended Act submitted to National Treasury in December

2017. It included several changes to address not only the low level

of fines, but others that will remove restrictions to obtain critical

information for investigations, as well as further strengthen the

independence of the IRBA.

The amendments apply mostly to the investigation and disciplinary

processes. These amendments will provide the IRBA with subpoena

powers in the investigation process, simplify the disciplinary

hearing process, and provide the Minister of Finance with power to

determine maximum fines, which are currently limited by the audit

legislation to R200 000 per offence. The Minister of Finance has not

indicated what level of fines he would prescribe, but these are likely

to be significantly more than the current limit, which will provide a

more effective deterrent to unethical behaviour.

The ability to subpoena will ensure that the IRBA has immediate

access to all the evidence and audit files we require to complete

an investigation more speedily, even where information is being

withheld. This will also shorten the duration of investigations.

The disciplinary process will also be simplified, without infringing on

the rights of any of the parties, by removing many of the burdensome

legal practices that mean disciplinary matters are heard in a manner

similar to that of a high court, making them unnecessarily lengthy

and costly.

In dealing with constraints, the amendments propose removing

limits to the size of the Disciplinary Committee, allowing the IRBA

to appoint as many members as it determines. This will mean

we can call on additional resources when there is any substantial

increase in the number of matters to be considered. Currently, the

limited number of committee members, often further limited by the

exclusion of members who may have a conflict of interest and the

availability of members, has had a negative impact on the speed at

which matters can be heard.

Given the IRBA’s focus on public protection, and the fact that some

of the investigations and matters referred to the IRBA are issues

that do not relate to public interest entities (PIEs), an amendment

to allow the IRBA to refer non-PIE matters to another relevant body

will ensure that we can focus on public interest matters. This will

improve the utilisation of limited resources for matters in the public


On 22 August 2018, cabinet approved the Draft Amendments to the

APA and referred these to Parliament for consultation as part of the

Financial Matters Bill 2018. Consultation closed on 14 September

and it is hoped that the Amendments will be passed by the end of


The amendments, however, on their own will not prevent corporate

malfeasance, fraud or future scandals, as business failures can

be caused by complex internal fraud and corruption by directors

or employees. Until the whole financial reporting eco-system is

regulated, which was also included among the recommendations

in the 2013 World Bank ROSC, there will continue to be opportunity

for such malfeasance to exist and possibly go unpunished. But

Issue 43 | July-September 2018