Audit firms slapped with heavy fines for misconduct

Firms plead guilty to professional misconduct Auditors gave thumbs up to faulty financials Oversight body promises further sanctions going forward

Amajor firm and four auditors were fined a total of P270,000 for breaching financial reporting standards and audit laws last year, the Botswana Accountancy Oversight Authority (BAOA) has revealed.

The BAOA is the oversight body of the accounting and auditing profession in Botswana, regulating the activities of auditors and regulating the financial reporting of Public Interest Entities and the corporate sector. Public Interest Entities (PIE) are major firms listed on the Botswana Stock Exchange, licensed by the Non-Bank Financial Institutions Regulatory Authority or the Bank of Botswana, parastatals and others deemed significant in terms of their presence in the country. PIEs can be firms that have revenues of more than P200 million per year, more than 200 employees or assets exceeding P200 million.

BAOA directors said the fines handed down last year were the first ever for the 11-year-old audit and accountancy watchdog.

“This will serve as a deterrent to others that the regulator is serious about compliance, as ultimately, we strive to improve financial reporting, auditing and governance,” BAOA chair, Lynette Armstrong said in the organisation’s recently released annual report.

“Auditors and a Public Interest Entity were referred to the Enforcement Committee for sanctioning for non-compliance with the provisions of the [Financial Reporting] Act, International Financial Reporting

Standards and International Standards on Auditing and the respondents were accordingly charged.” Documents from the BAOA indicate that the watchdog found irregularities in the financial reporting of audit firms and a PIE, with reviews showing ‘poor performance’ by auditors. While the overall compliance with financial reporting was rated at 80% amongst the firms and auditors supervised by the BAOA, the regulator noted that there was a high incidence of repeat findings amongst offenders.

“The high incidence of repeat findings demonstrated that the respondents were not putting the appropriate level of effort to address weaknesses identified,”

BAOA CEO, Duncan Majinda said.

According to the BAOA’s enforcement committee, a public interest entity was fined P100,000 last year for submitting a financial statement that violated reporting standards and delaying the release of the statement. Three audit firms were charged with professional misconduct for various violations, including issuing and endorsing financial statements that did not comply with International Financial Reporting Standards. The firms pleaded guilty in all cases and were each fined P50,000.

A fourth audit firm pleaded not guilty of professional misconduct and endorsing non-compliant financial statements, but was only fined P20,000 as the BAOA’s enforcement committee agreed with some of the firm’s pleadings. BAOA directors said the quality of audit firms’ control systems was of concern as only 50% of the certified audit firms reviewed were considered to be low risk.

“Although the authority values developing the certified auditors to ensure the highest standards of compliance with applicable standards and codes, the new emphasis will be towards sanctioning non-compliance in accordance with the amended Act,” said audit practice review committee chair, Daniel Loeto.

“It is evident, based on the audit practice reviews carried out to date, that audit firms need to improve their systems of quality controls, particularly, the quality of the work performed, and evidence obtained to support the audit opinions issued.”