IRBA Newsletter Issue 49

Issue 49 | January - March 2020 12 INSPECTIONS FIRST INSPECTIONS REPORT IN THIS CURRENT CYCLE IS OUT The IRBA has released its 2019 Public Inspections Report, which covers the first year of the Seventh Inspections Cycle. The report, which highlights the most prevalent deficiency themes reported to firms, introduced numerous enhancements to the IRBA’s inspections process. The regulator performed firm-wide and individual assurance engagement file inspections at various firms during the year to give effect to its mandate and strategy to promote audit quality and help restore confidence in the auditing profession. The objective of the report is to promote audit quality at a broader level by highlighting significant themes arising from the inspections reported on. The report is aimed at auditors and those responsible for quality management/control systems within firms, as well as other relevant stakeholders, such as audit committees, investors, oversight bodies, company directors and financial accountants who are responsible for the integrity of financial information. In 2019, the IRBA issued inspection reports on a total of 116 inspections performed at 44 firms. These reports include 14 firm- wide and 102 individual engagement file inspections. The 2019 results of positive inspection outcomes declined compared to the previous year. Also, the frequency of findings in South Africa remains higher compared to other jurisdictions, as per the latest global inspection survey results released by the International Forum of Independent Audit Regulators (IFIAR). There are instances where previously reported deficiencies have not been effectively remediated by firms, despite following a formal remedial action process. As such, this has forced the IRBA to increase its focus on firms’ remediation and improvement practices and take stronger action against firm leadership. There has, however, been significant improvement observed at a few firms, where considerable investments were made into quality management. This was underpinned by leadership’s sound tone, time and hands-on approach to create and sustain a culture and an enabling environment that consistently produce sustainable high- quality assurance work. In 2019 the IRBA continued to focus on audits with a higher public interest exposure, and that included audits of listed entities, other public interest entities (PIE) and state-owned companies. The majority of the engagement file inspections were performed at firms that are accredited by the Johannesburg Stock Exchange Ltd, and the report provides a further breakdown of inspection outcomes at these firms. Despite our focus on firms and audits with greater public interest exposure, our current mandate goes beyond listed entities and PIEs. Therefore, small to medium-sized practices and firms that audit non-PIEs cannot be overlooked. In line with international best practice, the IRBA follows a risk-based inspections approach, supplemented by random selection, when selecting firms and engagements for inspection. The IRBA will continue with its Remedial Action Process with the firms and their partners. The process aims to promote prompt and effective improvement in audit quality across all audits of a firm where significant deficiencies were reported. It is critically important for firm leadership to set the appropriate tone at the top, promoting an internal culture of high audit quality that is supported by prompt and effective remediation of identified root causes and deficiencies. In response to the recent failures in the auditing profession, the IRBA, as a proactive regulator, embarked on a legislative process to strengthen its regulatory powers through amendments to the Auditing Profession Act 26 of 2005. In addition, the IRBA has undertaken several projects to help restore public confidence in the auditing profession, a priority that requires all stakeholders to work together to achieve this common goal. The report also emphasises the importance of auditors’ proper implementation of existing and new standards to ensure consistent sustainable high audit quality and compliance that meet user expectations. The 2019 Public Inspections Report can be downloaded on the IRBA website . IFIAR ISSUES REPORT ON THE 2019 GLOBAL INSPECTIONS FINDINGS SURVEY In February, IFIAR published its report on the results of its seventh annual survey of inspection findings. The Global Inspections Findings Survey is based on IFIAR’s 54 member regulators’ individual inspections of audit firms affiliated with the six largest global audit firm networks. It collected information about two categories of activities: inspections performed on firm-wide systems of quality control and inspections of individual audit engagements. Members reported that 33% of audit engagements inspected had at least one significant deficiency reported, compared to 37% in the 2018 survey and 47% in the first survey (2014). While the downward trend is encouraging, IFIAR urged the Global Public Policy Committee networks (the six firms and their member firms) to continue with efforts to improve audit quality. The survey results do not measure precisely and are not the sole factor when considering developments in a firm’s progress in improving audit quality. A comprehensive evaluation of audit quality involves a consideration of various factors beyond numerical information about deficiencies identified and reported over the course of an inspection. Although the frequency of findings from inspections of individual