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Issue 35 | July-September 2016
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GENERAL NEWS
Top Ranking for Auditing and Reporting
Standards Maintained
South Africa has once again been ranked as the world’s number
one for auditing and reporting standards, making it the seventh
consecutive year that the country holds this position. Welcoming
the news, IRBA CEO Bernard Agulhas says: “We are naturally
delighted to be recognised again for this achievement. At the IRBA
we take very seriously our role in upholding the highest standards
and persisting with our commitment to promote and maintain
consistent and sustainable high levels of audit quality.
“South Africa relies very much on external capital and one of the
important components of creating an environment where foreign
direct investment can occur is a well-regulated and reliable capital
market. This results in a reputable audit profession that provides
potential investors and capital providers with reliable and credible
financial information on which investment decisions can be made.
Equally, public confidence in any profession depends on the quality
and robustness of the oversight.”
This repeat recognition was published in the World Economic
Forum’s Global Competitiveness Report issued at the end of
September. It comes despite other challenges currently faced by the
country and provides investors and the public with the assurance
that for as long as the country’s financial pillars remain solid, trust in
financial markets is possible.
Measures to Strengthen Auditor Independence
Announced
The IRBA has announced that it will begin a process to implement
Mandatory Audit Firm Rotation (MAFR) to strengthen audit firms’
independence from their clients. The Board’s decision to pursue
MAFR is aligned to its objective to enhance audit quality, which
ultimately contributes to public and investor protection.
The decision, which was announced at the end of August, follows a
year-long process of extensive research and industry consultations
both locally and abroad on how best to enhance audit firm
independence. The Board’s decision, however, does not exclude
the possible inclusion of additional measures such as mandatory
audit tendering or joint audits, as a combination with firm rotation,
in certain circumstances. The IRBA intends to further consult on the
implementation of the new requirements.
“Our latest inspections findings include independence issues as one
of the top five findings among the audits of financial statements,”
says IRBA CEO Bernard Agulhas. “This is consistent with global
inspections results. In a South African context, the IRBA Board has
also recognised the challenges with lack of economic transformation,
and the domination by certain firms within the profession. Out of the
353 audit partners who sign off on the financial statements of all
JSE listed companies, only nine are black Africans and over 90%
(of the listed companies) are audited by a few firms. We will only see
true empowerment when opportunities are provided equally among
everyone.”
He, however, acknowledges that enforcing the measures will
not be easy. “We accept that any change to the status quo will
be met with some resistance. However, the ultimate mandate of
the IRBA is to enhance and ensure investor protection,” he says.
“Investor protection is facilitated when financial statements are
reliable, credible and trustworthy. A crucial component of creating
the necessary confidence in financial statements, and consequently
the financial markets, is the knowledge that the auditors are
independent when they report to the shareholders.”
EU Commission Recognises the IRBA as an
Equivalent Competent Authority
The IRBA’s application for recognition as an equivalent competent
authority (ECA) under the European Union (EU) legislation has
been approved. This is a positive development for audit firms and
their global clients with shares issued on the Johannesburg Stock
Exchange.
This recognition, which is valid for three years, means the IRBA
meets the EU Commission’s standards for public oversight of
statutory auditors and audit firms. Also, it’s an affirmation that the
IRBA’s quality assurance reviews and investigations are sufficiently
comprehensive to meet the standards of the Commission when it
comes to the exchange of information.
Importantly, this means that during a process of review and
inspection, where portions of the audit were conducted in this
country, firms will not be subjected to additional inspections of their
working papers by member state statutory oversight bodies, where
the IRBA has successfully concluded a cooperative agreement
with that oversight authority. By reaching a mutual reliance on each
other’s oversight systems, the transfer of audit working papers or
other documents held by statutory auditors of audit firms will not be
necessary – it will become the exception rather than the rule.
IRBA Out of B-BBEE Assurance Services
Regulation
The end of September marked the IRBA’s official withdrawal from
the regulation of the Broad-Based Black Economic Empowerment
(B-BBEE) verification industry. The South African National
Accreditation System (SANAS) now remains as the only national
accreditation body offering this service until such time as the
Department of Trade and Industry (DTI) defines a new regulatory
structure for the B-BBEE verification industry.
The IRBA has been accrediting registered auditors offering B-BBEE
assurance services since 2011. SANAS, on the other hand, has
been accrediting verification agencies, other than registered
auditors, since 2007. It will now provide the same service for
registered auditors.
“In our engagements with the DTI to finalise our withdrawal from this
role, the DTI indicated that in due course it will issue communication
to clarify the new regulatory structure and compliance requirements
for B-BBEE verification professionals. In the interim, the department
has assured us that there is a clear process for auditors who wish to
become accredited by SANAS,” says IRBA CEO Bernard Agulhas.
Regarding assurance engagements entered into prior to 30
September 2016, a transitional period of three months – until 31
December 2016 – will be allowed for the sign-off of the verification
certificates for these engagements. Since 1 April 2016 the IRBA has
not registered any new B-BBEE approved registered auditors, and
the annual fees have been discontinued since the beginning of the
2016/2017 financial year.