Give auditing watchdog more teeth, Cosatu urges Parliament

Widespread accounting irregularities and audit failures in SA saw National Treasury introduce the Auditing Profession Amendment Bill to Parliament in 2019.
Photo: Getty Images
Widespread accounting irregularities and audit failures in SA saw National Treasury introduce the Auditing Profession Amendment Bill to Parliament in 2019. Photo: Getty Images
  • The standing committee on finance heard oral submissions from various organisations on the proposed Auditing Profession Amendment Bill.
  • The Bill, which recommended giving the Independent Regulatory Board for Auditors (IRBA) search and seizure powers, rankled auditing firms.
  • But Cosatu and Open Secrets told the committee that those were exactly the powers the IRBA needed in order for it to do its job.

Labour union federation, Cosatu has asked Parliament to pass the Auditing Profession Amendment Bill "as soon as possible" to help the auditing watchdog deal with transgressing members who aided corruption by turning a blind eye to questionable accounting practices.

Cosatu, accounting firms and the South African Institute of Chartered Accountants (SAICA) were among the organisations that made representations to the standing committee on finance on Wednesday, supporting the Bill's proposals to give the Independent Regulatory Board for Auditors (IRBA) more prosecuting powers.

National Treasury introduced the Bill to Parliament early last year, but because of the change of Parliament after the May 2019 elections, it had to be reintroduced again in February 2020. The standing committee on finance then issued the Bill for comment on 23 September 2020. 

Cosatu's parliamentary coordinator, Matthew Parks, told the committee that the implementation of the Bill, especially its proposal to give the IRBA search and seizure powers, was crucial, given how some auditors were found to have facilitated state capture by failing to pick up or disclose unbecoming financial conduct they had discovered in Gupta-owned entities and state-owned entities.

Dispute over search and seizure powers

"We fully support the provisions to capacitate IRBA to conduct search and seizure operations to deal with delinquent auditors... We need to start using the tools of the law to deal with delinquents who are running amok in our society," said Parks.

Cosatu, however, asked that certain aspects of the Bill be revised to eliminate "weaknesses".  These included the proposal that search and seizure operations must be carried out only during normal office hours. The federation said if this was allowed, it would weaken that "critical operation", placing the IRBA back at square one, where it, would, in its bid to get crucial evidence, be at the mercy of firms and auditors.

"You are dealing with criminals. There is no need for diplomacy. I'm not aware of the SAPS or other organs of the state being restricted to only do search and seizure during office hours," said Parks.

However, accounting firms said while they supported the spirit of the Bill and how it could help the industry regain public trust, it needed to strike a balance to protects auditors' rights.

"We do understand the need for the regulator to have unrestricted access to information to be able to achieve its mandate and we support that," said Stephen Ntsoane, partner at EY.

He said the Bill sets the bar for obtaining search and seizure warrants too low for the IRBA, which would compromise auditors' rights to privacy.

Carla Budricks, regulatory leader for Deloitte SA, told the committee that the IRBA was already afforded powers to obtain information from auditors, just like regulators of other professions.

"Given the existing powers in the IRBA, it is our contention that the additional entry and search provisions in the Bill are unnecessary. If it is believed that the IRBA's powers must be extended, it should be done in a manner that is constitutionally balanced," she said.

Hold firms accountable too

Open Secrets, the NGO that researched private sector economic crimes, wanted fines to be imposed on audit firms employing auditors found wanting and to make those fines much greater and commensurate with the harm that auditing failures had caused society.

"What we've often seen with the audit failure is that the registered auditor as an individual is targeted and yet there is extensive evidence of systemic failure on the part of the firm," said Michael Marchant, a researcher on investigations at Open Secrets.

But Budricks argued that infinite fines, as suggested by the Bill would deter entry into the industry. Instead, Deloitte suggested that a maximum fine be set by the Finance Minister.

Cosatu said the Bill should also deal with auditing firms' "incestuous" relationship with its clients by making mandatory rotation of auditors a legislative requirement and not an informal rule. At the moment, the IRBA had a rule that companies must rotate its auditors every 10 years, but Cosatu said that must be reduced to five years.

"This is a major gap where you have a direct profit relationship between auditors and companies where auditors are afraid to rock the boat because if they expose skeletons, they can lose out on evergreen contracts," said Parks.

SAICA CEO, Freeman Nomvalo threw another spanner in the works, asking the committee to add involvement in violent crimes as another ground for disqualifying and deregistering auditors.

He recommended that auditors be disqualified if they had been convicted of any violent crime with no option of a fine; or where there was an option for a fine, the IRBA should have the discretion to look at the matter closely and decide if it wanted to deregister the offending party.

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