Their number’s up: proposed law to crack down on auditors
And the provision to search premises and seize evidence is not sitting well with some firms
Amendments to the law governing the auditing profession could give the regulator powers enjoyed by select law-enforcement agencies.
The bill the national treasury introduced to parliament had striking changes compared with the one published in August 2018. It is proposed to give the Independent Regulatory Board for Auditors (IRBA) the power to enter and search premises when investigating auditors for improper conduct.
In the first draft it was proposed only to give the IRBA powers to subpoena any person with information required to complete an investigation. This, the treasury said, was due to auditing firms not co-operating when the IRBA investigates auditors. The new proposed amendment followed public consultation which started in 2018.
IRBA chief executive Bernard Agulhas said the regulator experienced difficulties in gathering the evidence, audit files and correspondence it required for its investigations. “This led to the investigations being lengthy due to unnecessary delays,” he said.
Agulhas said it was the national treasury that proposed giving the IRBA power to search and seize evidence. He said the regulator requested only subpoena powers. Rebuilding public trust
In the 2017/18 financial year, the IRBA initiated 112 new investigations and only 60 cases were finalised. High-profile cases investigated by the regulator include two Deloitte partners who were in charge of African Bank audits before its 2014 collapse. They still face disciplinary hearings.
The IRBA also finalised the investigation and disciplinary hearing of a former KPMG partner who was responsible for the audits of Linkway Trading in 2018. It is now investigating another KPMG partner who was the lead auditor for VBS Mutual Bank.
“The proposed amendments will go a long way in rebuilding the public trust. The amendments come at a critical time when attempts to regain confidence from the public and investors, and the prevention of further losses of hard-earned savings, can no longer be compromised,” said Agulhas.
But the provision to search premises and seize evidence is not sitting well with auditors. One auditor who did not want to be named said the amendments sought to give the regulator more power than warranted.
Deloitte said it supported any effort to improve the regulatory and oversight framework. However, the auditing firm said in its submission that it raised issues of concern as the powers to search would affect not only auditors but third parties as well. “But if it is believed that search and entry is needed we have made extensive recommendations to ensure a fair constitutional process,” Deloitte said.
The company said a more comprehensive oversight framework that went a step further than the proposed amendments to include those who prepared financial statements and those charged with governance, was needed.
Other auditing firms approached did not want to comment or share their submissions.