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Auditing regulator revises disciplinary rules as it aims for greater accountability

South Africa’s big four auditing firms – Deloitte, EY, KPMG and PwC – were implicated in playing a systemic role in abetting state capture as they prioritised profit over professional duties and the law. File photo.

South Africa’s big four auditing firms – Deloitte, EY, KPMG and PwC – were implicated in playing a systemic role in abetting state capture as they prioritised profit over professional duties and the law. File photo.

Published Apr 5, 2022

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SOUTH African auditors charged with improper conduct will now find it difficult to escape accountability after the auditing profession regulator revised disciplinary rules, including allowing search and seizures, as the profession has been sullied by its role in high-profile corporate collapses and state capture revelations.

The Independent Regulatory Board for Auditors (IRBA) yesterday gazetted the new disciplinary rules for registered auditors following a consultation process, which began in November 2021.

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This brings the rules and procedures to be followed during investigation and disciplinary processes into alignment with the Auditing Profession Act 26 of 2005, as amended by Act 2 of 2015 and Act 5 of 2021.

Over the past four years, the profession has been besieged by high-profile corporate collapses and state capture revelations that have implicated auditors and highlighted audit failure in some instances.

South Africa’s big four auditing firms – Deloitte, EY, KPMG and PwC – were implicated in playing a systemic role in abetting state capture as they prioritised profit over professional duties and the law.

Corruption linked to state capture has been estimated to have cost the country a conservative R500 billion to R1.5 trillion.

As negative sentiment has increased, the regulator recognised that it was necessary to improve its enforcement processes to ensure its effectiveness.

IRBA acting chief executive Imre Nagy said the new disciplinary rules support the IRBA’s mandate to promote the integrity of the auditing profession by investigating allegations of improper conduct; conducting disciplinary hearings; and imposing sanctions for improper conduct.

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However, an area which raised some concern during the public hearings on the Auditing Profession Act Amendment was the inclusion of search and seizure provisions to align with the legislation of other financial bodies reporting to the National Treasury.

Nagy said they recognised that search and seizure powers, when not properly exercised, could encroach on constitutional rights, and thus had to develop this procedure guide to ensure the proper and lawful exercise of search and seizure powers.

The guide also sets out in broader terms the procedure to be followed in exercising such powers, as well as the rights and obligations of those subjected to a search and seizure in terms of section 48A and/or 48B.

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“The way in which the rules articulate how and when these powers will be implemented will allay many of the concerns expressed by stakeholders during the promulgation of the amendments,” Nagy said.

“Importantly, following public comments, we have incorporated the insertion of sub-rule (4) under rule 30, which provides persons from whom search and seizure consent is required, to elect to have their legal representative present prior to consenting to the search and seizure.”

According to the guide, an authorised person conducting a search and seizure will only enter premises with consent or a warrant issued by a court, and may only seize information that is relevant, or believed to be relevant, to an investigation.

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This could include paper records, electronic records, as well as records stored in any other form.

The guide further sets out procedures to ensure that search and seizure is conducted in a decent and orderly manner.

Given the changes to Sections 48 to 51 of the Act, Nagy said it was necessary to revise the disciplinary rules to ensure compliance with the new legislative provisions.

Nagy said the investigation and disciplinary processes were re-written to achieve efficiency and to align with the IRBA’s comparative benchmarking research, as well as the amendments to the Act.

“These new rules implement the amendments to the Act, which strengthened the powers of the IRBA and will improve both the efficiency and effectiveness of the IRBA investigation and disciplinary processes,” he said.

“This will ensure that the IRBA effectively delivers on its public interest mandate to hold auditors charged with improper conduct to account and will contribute to restoring confidence and rebuilding trust in the profession and the regulator.”

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