Fall from grace
Irba’s report has chilling implications for auditors and the public trust
Even allowing for some, maybe a lot of, grandstanding by the Independent Regulatory Board for Auditors (Irba), it does seem the local audit profession is in a rather precarious state.
The board’s latest inspection report cites audit firms for a string of contraventions — from the perhaps not too unreasonable (such as taking on work beyond their capacity), to the downright dishonest (such as tampering with audit files and preparing financial statements for companies they were supposed to audit).
By the way, did anyone notice that in the latest World Economic Forum (WEF) “Global Competitiveness Report”, SA’S audit and reporting standards were ranked a lowly 55th?
What a dramatic fall from grace. For seven years until 2017 SA held the
No 1 position.
It’s impossible to know how thorough Irba inspections are or indeed the extent to which they are representative of the profession but, not for the first time, the board has produced a report with chilling implications for auditors. It is difficult to imagine that the public — as shareholders and taxpayers — will continue to be willing to pay hefty fees for something it cannot much trust.
Of course it has to be noted that Irba has been involved in a form of low-level warfare with the profession since it launched its plan for mandatory audit firm rotation in 2016.
That plan marked a dramatic change in the previously cosy relationship between the profession and regulator and, to be expected, was greeted with cries of indignation.
Almost three years later those cries can still be heard. In fact in the past few weeks they’ve become quite a bit shriller. Not satisfied that it now has mandatory rotation in the bag, Irba recently took its low-level warfare up a few notches. The proposed amendments to the Auditing Profession Act would allow the board’s investigating committee to enter premises without consent if there is a warrant to conduct a search. The squeals were loud. “Not only auditors but any other person may be subject to the search and entry procedure,” cried one auditor.
The three big auditing firms that still have the fortitude to push back — Deloitte, PWC and EY — as well as the SA Institute of Chartered Accountants (Saica), are incensed, and claim the amendment would lead to a “gross abuse of constitutional rights”. The power being sought does seem a tad extreme but it’s difficult not to think this is a profession that needed a bit of a wake-up call.
It’s of little comfort but the reality is it’s not just SA; the entire global business community is now trapped in a “too necessary to fail” dilemma.
There seems to be no country in the world where auditors have not been found complicit in corruption. In SA they have played a central role in state capture and have been fairly active in the increasing incidence of corporate capture.
As for the WEF ranking, we shouldn’t be too concerned about the precipitous drop. SA was only able to secure top place because of the utterly flawed nature of the WEF’S ranking process. It essentially involved asking executives what they thought of their mates in the auditing profession.
The results were proof of the clubbiness of the local business community rather than an indication of the quality of auditing.
But we do have a problem.
There seems to be no country in the world where auditors have not been found complicit in corruption