IRBA attains a clean audit report amidst resource constraints and cost containment measures
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Johannesburg, Monday, October 16, 2023 – The annual report of the Independent Regulatory Board for Auditors (IRBA) was recently tabled in Parliament at the Standing Committee on Finance (SCOF). The IRBA is audited by the Auditor-General of South Africa (AGSA) and it received a clean audit opinion for the financial year 1 April 2022 to 31 March 2023. The legal mandate of the IRBA is impacted by budget resource constraints and vacancies, which continue to be a challenge to fill, particularly the recruitment of professionally qualified staff. Vacancies are highest in the professionally qualified segment at 19 percent. However, the board is pleased that all senior executive positions have been filled during the year, including the permanent appointment of a Chief Executive Officer. The operations of the IRBA are funded by revenue from exchange transactions and non-exchange transactions, including government grants. The revenue generated and the operating expenses incurred resulted in an operating surplus of R13.0-million (2022: R12,7-million) before interest received. The surplus is mainly due to higher than budgeted revenue collections, a higher vacancy rate and various cost savings implemented. Revenue from exchange transactions which comprise registration, licence and training contract fees increased to R54.4-million from R48.8-million mainly due to an increase in trainee levies as 19 percent more trainee contracts were registered - 3881 in 2023 up from 3241 in 2022 (+640) - and an increase in licence fees. The overall register of licenced auditors declined by 33 registered auditors (RAs) to 3601, with most deregistration’s being in the non-assurance register which declined to 812 from 864 (-52). Assurance RAs, meaning signing auditors responsible as engagement partners, increased marginally from 2770 to 2789 (+19). One factor contributing to the overall decline is emigration. Amongst other issues, emigrating auditors highlighted economic uncertainty, service delivery issues, safety and security and quality basic education among the factors leading to emigration. Revenue from non-exchange transactions comprise recoveries for disciplinary and investigation expenses, sanctions for improper conduct, assurance fees and government grants. Non-exchange revenue increased 28 percent to R83.3-million from R65.0-million in part due to the IRBA receiving higher contributions from respondents towards disciplinary expenses and monetary sanctions received for improper conduct, due to an increase in the number of enforcement and investigation matters finalised. The additional capacity from an increased number of investigator positions has had a positive impact on addressing the backlog of enforcement matters, with current investigations in progress dropping from 221 to 192 (-29) while matters finalised each year have been increasing steadily from 56 in 2020 to 96 in 2023. During the year under review eight matters were finalised following disciplinary hearings. A key focus area of the IRBA is promoting the attractiveness of the profession, thereby attracting young accountants into the Audit Development Programme (ADP) and addressing education and transformation requirements of the profession to increase representation and diversity. This requires further investment in promotion, engagement, marketing and development activities for the IRBA to increase its visibility. Encouragingly, the ADP is growing. There has been a steady increase in annual intake onto the ADP over the last four years, with the current number of candidate auditors being 550. With 169 new ADP registrations in 2022/23 this is more than double the intake in 2019/20 prior to the pandemic. The IRBA has been doing a significant amount of work around repositioning the auditing profession as a viable career for those who want to make an impact on the economy by serving society, increasing accountability and building trust in the financial ecosystem. Operating expenses increased 16 percent to R170.5-million from R145.9-million. Disciplinary and investigation expenses increased by R5.6-million as more hearing days took place in the current year. Consequently, committee expenses increased by R4.3-million due to the increase in hearing days and committee days. Employee costs increased by 9 percent (R11.9-million) due to a job grading review, market related salary benchmarking review, and an average annual salary increase of 6.4 percent. The government grant to the IRBA in 2023 increased marginally by 2 percent to R45.6-million (2022: R44.,6-million). However, whereas the government grant was historically around 30 percent of the overall revenue of the audit regulator, this contribution has declined to just 25 percent of total revenue. Total revenue increased 15 percent over the prior year due to increased revenue from regulatory functions. The IRBA continues to attempt to contain costs, but as an entity that is critical to maintaining audit quality, and the key role auditors play in the fight to build accountability in the financial system, the IRBA cannot be underfunded. There is increased focus on innovation of processes and other potential revenue streams, in order to ensure that the delivery of its legal mandate is not negatively impacted by recurring cost containment measures. The Minister of Finance, Mr. Enoch Godongwana, MP said in the executive authority statement in the annual report: “The changes in our fiscal position and the increased risks outlined in the budget speech earlier this year have become a reality. Inflation and the impact of global events have intensified the financial risks for our economy, and this has further increased the reliance placed on the assurance work of auditors. In fact, we collectively want to see all role-players in the financial and governance ecosystem, including auditors, playing their part in helping the government to remove South Africa from the Financial Action Task Force’s (FATF) grey list.” Says Imre Nagy, IRBA CEO: “To fulfil our mandate and meet the public expectations to effectively respond to the risks in the system with enhanced standards, regulation and enforcement, we require adequate resources and skills to perform optimally. While we expect ongoing financial and resource constraints in the coming years, besides the prospects of expanding our regulatory scope and coverage, we are committed to innovate and adapt, to ensure that we continue to strengthen the profession and our role in it. Concludes Nagy: “The continuing lack of regulation over other role-players in the financial reporting ecosystem, specifically professional accountants, continues to be a systemic blind spot. Ongoing work among all role-players aim to identify the risks and find possible solutions to various gaps in the ecosystem.”
Ends Notes to Editors: A financially unqualified opinion with no findings (clean audit) means the auditee:
More about the IRBA: The IRBA is a public protection statutory body established to protect the financial interests of the public by ensuring registered auditors and their firms deliver services of the highest quality. It upholds audit firm independence to ensure that audit quality is such that it enhances the accuracy and credibility of financial performance reporting. In this way, the IRBA has an important role to play in building the reputation of South Africa as an investment market for both local and global investors and driving economic growth for the country. The IRBA also registers suitably qualified accountants as auditors, who must adhere to the highest ethics standards, and promotes the auditing profession through the effective regulation of assurance conducted in accordance with internationally recognised standards and processes.
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