Firms slam plan to split advisory, audit units

AUDIT firms Deloitte and BDO South Africa came out swinging yesterday at the plan by the Independent Regulatory Board for Auditors (Irba) to split their advisory and audit units to improve audit quality.

Deloitte Africa chief executive Lwazi Bam said Deloitte did not believe that mandating “audit-only” firms would have any direct positive impact on audit quality, independence or market concentration.

“Deloitte strongly believes that the creation of ‘audit-only’ firms would be to the detriment of the capital markets. The multidisciplinary model provides the investments, depth and range of skills required to deliver high-quality audits in the public interest,” Bam said.

“The process of providing non-audit services to audit clients is rigorously regulated in terms of both international and local standards, as well as our own internal risk management processes to uphold our independence as auditors.”

Irba has been on a crusade to clamp down on the bid audit firms and strengthen its hand to deal with issues of misconduct in the industry.

The regulator has also said that financial statements of the auditing firms should clearly indicate the revenue split between advisory and audit.

Irba is also looking at amending the Auditing Profession Act 26 of 2005 to give it more teeth to deal with errant auditors.

Irba chief executive Bernard Agulhas said the amendments should be submitted to the National Treasury for tabling in Parliament.

“The APA Amendment Bill seeks to strengthen the Irba sanctions in line with the sanctions pursued by other international audit regulators… the amendments will look to strengthen the Irba’s powers in its investigations process,” Agulhas said.

Engulfing

Scandals in recent months, which include the KPMG SA Revenue Service report, its failure to pick up alleged money-laundering activities by Gupta-owned Linkway and the recent saga engulfing VBS Mutual Bank have resulted in significant criticism of the auditing profession.

BDO South Africa chief executive Mark Stewart said Irba required a better appreciation of why audits had failed, including downward pressure on fees, an increasingly complex environment which has ever-shortening reporting deadlines.

“Irba’s recommendations imply a significant change in the way business is done in this sector. This will trigger further market concentration in those firms offering only audit services and those offering advisory services,” Stewart said

“Should the result of this suggestion indicate that greater market concentration or barriers to entry to the profession would result – which is a possibility – then the regulator would need to re-think its view.”

PricewaterhouseCoopers declined to comment, while EY could not be reached for comment.

In June last year, Irba issued a rule prescribing that auditors of public interest entities in South Africa must comply with mandatory audit firm rotation (MAFR) with effect from April 1, 2023.

The regulator has said that the MAFR was meant to strengthen auditor independence and enhance public investor protection.