You can't sue auditor's pants off

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Liability to be limited.

Just when the heat on auditors was intensifying comes news that soon their liability may be limited.

This would be a major setback to RandGold & Exploration, which is currently suing PricewaterhouseCoopers for R7.6bn in the wake of the late Brett Kebble's theft from the company.

According to Bernard Agulhas, CEO of the Independent Regulatory Board for Auditors (IRBA), the profession proposes to limit an auditor's liability.

One proposal is that it be limited to a multiple of the audit fee.

Another possibility is that auditors will become limited liability partnerships. Like a company, they will have partners' funds and that will be the limit of their liability.

In the past, a plaintiff could claim not just against the partner who wronged him but all of his partners as well.

Until now, like other professionals, auditors have been liable down to their personal houses and cars.

SA follows most global practices. IRBA, however, is an independent regulator and its first responsibility is to the public, not to the auditors it regulates. It is in the process of considering these international proposals.

Agulhas thinks liability should not be limited in the case of fraud or other criminal conduct.

Says Agulhas: "The main reason the international profession is considering limiting liability is that a big lesson was learnt in the Arthur Andersen collapse. That reduced the Big Five to the Big Four. The American profession was worried that if another of the Big Four lost a big suit there could be just the Big Three."

IRBA regulates the 4 500 auditors registered in SA. It differs from its predecessor, the Public Accountants and Auditors Board in being more independent. Only 40% of its board are auditors. Users of financial statements and academics are represented and the chairman is a lawyer.

A number of professional bodies outside Saica have agitated for the right to be auditors, for example the SA Institute of Professional Accountants. Agulhas says anyone who complies with the minimum requirements has the right to sit the auditors' exam but so far only the CA(SA) qualification covers all the bases. Different standards for companies that are not public interest organisations could well open up alternate assurance services to non CAs.

IRBA has a staff of 60 and a budget of approximately R70m a year. Auditor registration fees cover a third of the cost and compulsory practice reviews another third. National Treasury picks up a third of the cost.

IRBA's education department sets the final examination for chartered accountants who have not elected to go the financial management route. In the future more CAs(SA) are expected to follow that route but IRBA will continue to set the auditing exam.

IRBA's continuing professional development (CPD) office monitors that registered auditors obtain 90 hours of audit related CPD over a three year period. The standards department issues auditing standards while the inspectorate ensures compliance. All 15 members of the inspections department are CAs(SA).

IRBA participates in the standard setting activities of IFAC and was a founding member of the International Forum of Independent Audit Regulators.

Its legal department handles investigations and disciplinary matters. At present 118 investigations are under way.

It is also involved in reportable irregularities reported by auditors. The compliance department oversees reportable irregularities as well as that auditors comply with anti-money laundering measures.

It remains a priority for the profession to darken its complexion. Only 222 members of the 4 500 are black Africans. Another 425 are coloured or Indian. Agulhas wants to see more small and medium partnerships of colour coming to the fore - all the more reason to decrease concentration and the domination of the Big Four.

IRBA maintains that all auditors are qualified to undertake audits for listed companies, provided they have the required resources, but is still in the process of resolving the point with the JSE, which has set its own standards and undertakes training for the auditors of listed companies.

Said Agulhas: "We believe all registered auditors are capable of auditing listed companies. High standards are what the stress on training and monitoring is all about."

Write to David Carte: davidcarte@moneyweb.co.za