IRBA 2024 Public Inspections Report Highlights Steady Improvement in Audit Quality

Johannesburg, Thursday, 3 April 2025 — The Independent Regulatory Board for Auditors (IRBA) has released its 2024 Public Inspections Report, highlighting important strides in audit quality across South African audit firms inspected. The report also presents the key deficiencies, themes and trends observed during the year’s inspections cycle.

Says Imre Nagy, IRBA CEO: “As in previous years, the results indicate a continued focus on improving audit quality, with incremental improvements in several areas. While progress has been made by firms, recurring and new deficiency themes on firm-wide and engagement levels highlight those areas where further improvements are needed.”

The content of the report is based on the results and matters reported from the inspections performed during the 2023/2024 cycle, as mandated by Section 47 of the Auditing Profession Act 26 of 2005 (as amended 2021) (APA) which requires the IRBA to regulate all registered audit firms and individual registered auditors. This act further requires IRBA to inspect or review the practice of a Registered Auditor (RA) that audits a public company at least once every three years.

In the 2023/2024 inspections year, the IRBA continued to select firms and audit engagement files for inspection using a risk-based approach, in line with the International Forum of Independent Audit Regulators’ (IFIAR) core principles. This approach influences how firms, engagements, and sections (at both the engagement file and firm levels) are selected for an inspection. Also, the selection process is focussed mostly on audits with a higher public interest exposure and the audit firms that audit public interest entities.
The scope for the engagement file inspection includes a selection of sections, based on risk assessment, and does not necessarily mean all components of the file are inspected. A typical inspection, over and above the selection of higher risk components of the financial statements, would include a review of audit planning and completion; a financial statement review; other information and audit report reviews; meetings with the auditors; and/or a selection of other audit files and/or group audit engagements and consolidations.

Where the audits of listed entities are performed by South African audit firms, more than 90 percent are performed by the ten largest audit firms or network firms, nine of which were scoped in for an inspection during the year. The inspections performed at these audit firms included firm-wide inspections of their systems of quality, engagement inspections and theme-based inspections.

Theme-based inspections are a selection of engagement files, and/or other areas of focus to inspect specific themes, which could be firm-specific and/or be focused on risks or deficiencies noted across audit firms.

The adoption of the International Standard on Quality Management (ISQM) 1 and 2 (ISQMs) in South Africa, effective as of 15 December 2022, resulted in audit firms changing how they view their systems of quality management (SOQMs) from a mere compliance measure to actively managing their businesses around audit quality to achieve quality objectives, thus requiring firms to demonstrate a strong commitment to quality management practices.

The report highlights the following key areas:

• Steady Improvement in Audit Quality: The report highlights a consistent improvement in audit quality at engagement level over the past six years, with a notable reduction in files requiring major improvements. The number of engagement files with positive outcomes has increased from 38 percent in 2019 to 45 percent in 2024.
• Successful Implementation of ISQMs: The full adoption of ISQMs has led to enhancements in firms' systems of quality management, particularly in risk management, engagement performance, and leadership involvement.
• Reduction in referrals for investigations: There has been a decrease in the number of referrals to the IRBA’s Investigations Department from 14 percent in 2023 to 7 percent in 2024, indicating improved audit practices at the firm level.
• Proactive Remediation Efforts: Audit firms have shown a growing commitment to remediating deficiencies and strengthening internal processes, leading to better inspection outcomes. The IRBA's proactive monitoring initiative has played a crucial role in driving this improvement.
• Technological Advancements: Firms are increasingly adopting advanced tools and techniques, in the audit process. These technological advancements are aimed at transforming audit practices and enhancing efficiency.

While these are positive steps in the right direction, the report also identified some areas of deficiencies and areas for further improvement in the firms’ system of quality management. Amongst these are:

• Some firms did not implement an effective system of quality management;
• Deficiencies in engagement performance raised doubts about the effectiveness of firms’ quality control practices;
• Lack of evidence for the selection and appointment of engagement quality reviewers, ineffective reviews, and non-compliance with the firm’s own policies and professional standards;
• Some firms failed to design and implement responses to address quality risks identified;
• Some firms did not establish the necessary policies and procedures as required by the quality management standards;
• Lack of documentation regarding the firm’s risk assessment processes, monitoring procedures and/or results;
• Issues with the timely archiving of engagement files;
• Deficiencies in acceptance and continuance processes including evaluating independence and non-assurance services;
• Deficiencies in evaluating uncorrected misstatements and reassessment of materiality; and
• Persistent issues in areas such as revenue recognition, audit of journal entries, financial statement presentation and disclosures, significant judgements and estimates, assessment of going concern, and reliance on IT controls.

Says Nagy: “As a result of the deficiencies encountered in the inspections process, certain areas for improvement were identified by the report. These centred around some key principles of external audit that require attention.”

Areas highlighted by the report for additional focus for improvement include:

• Auditors need to apply appropriate professional scepticism and judgement, especially in areas requiring significant accounting estimates and judgements;
• Audit documentation should clearly demonstrate the application of professional scepticism and judgement;
• Firms need to improve their Root Cause Analysis (RCA) processes, including adequate brainstorming, skilled resources, and quality control processes;
• Firms should design measurable action plans linked to true root causes to mitigate recurring deficiencies;
• Firms participating in proactive monitoring should link their internal plans to inspection findings for early remediation;
• Improve integration, training, and effective communication regarding IT general and application controls;
• Address technical review deficiencies and time pressure issues;
• Ensure adequate senior involvement and review during audit planning and completion; and
• Emphasise leadership accountability and tone at the top to shape a culture of quality within firms.

 Nagy concluded: "“The report also reflects the IRBA's unwavering commitment to enhancing audit practices and protecting the public interest through rigorous inspections and proactive remediation efforts with the audit firms. As we look ahead, we remain committed to maintaining high standards of audit quality and collaborating with stakeholders to tackle emerging challenges. The IRBA will continue to support audit firms in their remediation efforts and foster a culture of continuous improvement and excellence, key objectives that will help build a thriving and trusted profession in South Africa.”

Appreciation is also expressed for the co-operation the IRBA received from the registered auditors and firms that were involved in the critical inspections process in the period under review.

Ends

About IRBA:

The Independent Regulatory Board for Auditors (IRBA) is the statutory body mandated to regulate the auditing profession in South Africa. Established by the Auditing Profession Act 26 of 2005, the IRBA's mission is to protect the public interest by ensuring the highest standards of audit quality and ethical conduct among registered auditors.

More about the PIR 2024:

The risk-based inspections approach is the cornerstone of the IRBA’s inspections programme, in line with the International Forum of Independent Audit Regulators Core Principles. Accordingly, the IRBA focuses mostly on audits with a higher public interest exposure and the audit firms that audit public interest entities.

The inspections scope does not select a statistically representative sample of all firms, components of their systems of quality or all assurance work throughout the year, as such, the results cannot be extrapolated across the entire population.

During the year under review, the IRBA visited 322 audit firms, issuing 27 firm-level reports. Inspections performed full firm-level inspections at all the firms visited.

The inspections landscape includes all registered audit firms and RAs that issue audit reports. As at end-March 2024, a total of 3 527 RAs were registered with the IRBA (2 703 assurance RAs and 824 non-assurance RAs).