Auditing Profession Act, 2005 (Act No. 26 of 2005)

Notices

Regulatory Strategy for Independent Regulatory Board for Auditors

Part B : IRBA Mandate

Legislative and Policy Mandate
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As a Schedule 3A public entity, the IRBA supports the State’s policy outcomes; and its five-year Strategic Plan demonstrates how it contributes to selected outcomes. The IRBA Strategic Plan is also aligned to the National Development Plan (NDP), and the IRBA has an important role to play on the road to government’s desired destination.

 

The IRBA continues to support the national initiative in respect of transformation in relation to its employment policies as well as its procurement policies; and it also takes advantage of opportunities to appoint and procure the services of women and people with disabilities.

 

The strategy addresses the IRBA’s mandate with reference to two programmes:

 

• Programme 1: The current mandate, which arises from the APA.

 

• Programme 2: The extended mandate, which includes sub-programmes that are designed to coordinate specific interventions to address issues and challenges in the profession and the current economic environment, and in response to government’s priorities for economic growth. These proposed interventions will allow the IRBA to contribute significant added value to the efforts of government to grow the economy, while also being critical success factors in support of delivering effectively on its own primary mandate.

 

Programme 1: Regulation of Auditors – Legislative Mandate

 

Our Changing Legislative Context

 

The independent regulation of auditing was implemented based on recommendations from the 2003 World Bank Report on the Observance of Standards and Codes for Accounting and Auditing (ROSC), as adopted by the Minister of Finance. Subsequently, the APA was promulgated in 2006. The IRBA then became the successor body to the Public Accountants’ and Auditors’ Board. Further amendments to the Act were made in 2015, following recommendations from the 2013 World Bank ROSC report to the Minister.

 

A further round of amendments commenced in 2017, in response to corporate and audit failures that had occurred or were emerging, including:

 

• African Bank/Deloitte;
• Linkway Trading/KPMG;
• Steinhoff/Deloitte;
• Tongaat /Deloitte; and
• VBS Mutual Bank/KPMG.

 

Programme 2: Institutional Responsibility

 

The IRBA acknowledges its institutional responsibility to also focus on identifying and addressing current challenges in the auditing profession. As a responsible and responsive regulator, our strategy has been revised to respond to challenges in the market, as outlined below.

 

The New Institutional Responsibility Strategic Areas

 

Arising out of the situational analysis, the three strategic focus areas are:

 

1. Sustainability and Relevance

 

The sustainability of the IRBA is dependent on its financial and human capitals to execute on its mandate. The increased volume of complaints and disciplinary matters, however, has placed a severe strain on both capitals.

 

Going forward, the IRBA will be focusing on redefining business processes, harnessing the efficiencies to be gained from technology and looking at alternative funding models to ensure its sustainability.

 

2. Audit Quality

 

Stimulating economic growth requires confidence in the capital markets and in attracting increased foreign direct investment. Likewise, rebuilding confidence locally will unlock private-sector investment. Improving investor sentiment is key to how the IRBA can contribute to one of the core elements of the NDP, which is “strong, sustained and inclusive economic growth to sharply reduce unemployment, poverty and inequality”.

 

Improving audit quality is also a critical success factor in rebuilding confidence; and the IRBA is committed to engaging with the profession, locally and internationally, to identify and rectify issues of poor audit quality.

 

In addition, the IRBA is committed to performing a gap analysis of the auditing profession and implementing measures to address significant gaps.

 

By restoring investor confidence in auditing and audit quality, and rebuilding trust in the financial statements of public interest entities, it is possible for the IRBA to play its role in supporting government’s efforts to promote an economic recovery, in line with national and public interest.

 

3. Comprehensive Stakeholder Engagement

 

Some discussion on our stakeholder engagement is covered in Part C of this document. In addition to that, the following are key focus areas:

• Adequate resourcing of the IRBA; and
• Digital transformation.

 

Our Regulatory Philosophy

 

Participation in global regulatory meetings of IFIAR, of which South Africa is one of the 55 member countries, and in the African Forum of Independent Audit and Accounting Regulators (AFIAAR), of which South Africa is a founding member and one of the 11 member countries, is key to benchmarking the IRBA against international developments and best practice in audit regulation.

 

Consequently, the IRBA subscribes to the following IFIAR Core Principles in developing its regulatory philosophy:

 

The Structure of Audit Oversight

 

Principle 1: The responsibilities and powers of audit regulators should serve the public interest and be clearly and objectively stated in legislation.

 

Principle 2: Audit regulators should be operationally independent.

 

Principle 3: Audit regulators should be transparent and accountable.

 

The Operations of Audit Oversight

 

Principle 4: Audit regulators should have comprehensive enforcement powers which include the capability to ensure that their inspection findings or recommendations are appropriately addressed; these enforcement powers should include the ability to impose a range of sanctions including, for example, fines and the removal of an audit license and/or registration.

 

Principle 5: Audit regulators should ensure that their staff is independent from the profession and should have sufficient staff of appropriate competence.

 

Principle 6: Audit regulators should be objective, free from conflicts of interest, and maintain appropriate confidentiality arrangements.

 

Principle 7: Audit regulators should make appropriate arrangements for cooperation with other audit regulators and, where relevant, other third parties.

 

Audit Inspection Principles

 

Principle 8: Audit regulators should, as a minimum, conduct recurring inspections of audit firms undertaking audits of public interest entities in order to assess compliance with applicable professional standards, independence requirements and other laws, rules and regulations.

 

Principle 9: Audit regulators should ensure that a risk-based inspections program is in place.

 

Principle 10: Audit regulators should ensure that inspections include effective procedures for both firm wide and file reviews.

 

Principle 11: Audit regulators should have a mechanism for reporting inspections findings to the audit firm and ensuring remediation of findings with the audit firm.

 

Regulating the Financial Reporting Chain

 

The ROSC2 highlighted the need for broader regulatory oversight over the financial reporting chain. As such, comprehensive regulation continues to form part of the IRBA’s broader stakeholder engagement strategy; and the IRBA has assisted National Treasury by formulating a proposal for ways in which this could be implemented.

 

The IRBA is also committed to performing a gap analysis, in the broader financial reporting and governance ecosystem, of factors that adversely affect audit quality; and then to make recommendations to relevant stakeholders and decision-makers.

 

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2 There are a significant number of people working as accountants who are not members of any of the recognized professional accountancy organizations—this situation can cause reputational risk to the accountancy profession (paragraph 3.29). There is a need for a comprehensive arrangement to supervise and regulate PAOs to ensure that all PAOs serve public interest, a move that would also contribute to enlisting all accountants to be members of PAOs (2013 World Bank Report on the Observance of Standards and Codes for Accounting and Auditing, http://documents.worldbank.org/curated/en/ 661381468302454182/pdf/824940ROSC0P130official0use0only090.pdf.)