The most basic responsibility of an auditor is to ensure that shareholders and potential investors are provided with a company’s accurate and reliable financial records.
An auditor’s independence is important, as stakeholders need assurance of objectivity and integrity when a company’s financial statements are accounted for.
This is why the much-publicised audit failures at private and public companies over the last decade, as well as the failure of auditors to respond timeously to issues of misconduct in the industry, is concerning.
The fall-off in standards can be seen in SA achieving the top-ranking for the strength of auditing and reporting standards in the World Economic Forum’s 2013–2014 Global Competitiveness Report, but having fallen to 49 out of 141 countries in the 2019 report.
The revelations coming out of the state capture inquiry regarding the alleged complicity of auditing firms in aiding the decay of governance at state-owned entities, and the accounting scandals at JSE-listed companies Tongaat Hulett and Steinhoff have affected the perception stakeholders have of the profession.
The Independent Regulatory Board for Auditors (Irba) has not escaped unscathed from this negative perception, following numerous high-profile scandals over the past few years. These negative perceptions are one of the reasons behind the resignation of Jenitha John as Irba chief executive on Tuesday. This follows the dissolution of the board by Finance Minister Tito Mboweni.
John’s eight-month tenure at the helm of the regulatory body was plagued by challenges: from reports of board infighting to her previous non-executive directorship of Tongaat Hulett at the time of the company’s accounting scandal, which cast a shadow over her time at Irba.
Although John herself was not implicated in the Tongaat matter, Irba caretakers Nonkululeko Gobodo and Roy Andersen said in a statement that John feels “that it would be in the best interests of the Irba” that she call it a day as chief executive.
The whole ordeal negatively affects Irba’s credibility as a regulator, says Deloitte chief executive Lwazi Bam.
Going forward, Irba should reinvent itself into a credible regulator – and a stable board and leadership is essential to achieving that goal, Bam says.
Mboweni has given Gobodo and Andersen three months to nominate members of the new board, who will then be tasked with appointing a new chief executive. The regulator can then begin to pick up the pieces and get back on its feet.
For chartered accountant and commentator Khaya Sithole the time period given for the caretakers to nominate new individuals to serve on the Irba board is too short.
He says the regulator effectively shot itself in the foot when it appointed John and that attracting highly qualified people to serve on the board, following recent events at the audit watchdog, will be no easy feat.
When organisations find themselves in a crisis, there are very few people who will volunteer to be turnaround soldiers, Sithole says.
He adds that the individuals who accept nominations to serve on the Irba board will most likely be required to take responsibility as opposed to ordinary board members.
“I don’t see people queuing in line to take this on unless the caretakers are able to convince a lot more people to put their hands up and ensure them that support will be provided,” Sithole says.
BDO South Africa chief executive Mark Stewart says much of the confidence in the profession is based on perception, adding that the events at Irba are not isolated from where the profession finds itself generally. It is therefore important that the industry has a regulator who is stable and consistent, and the steps taken by the minister will make a contribution to achieving that trust.
South African Institute of Chartered Accountants chief executive Freeman Nomvalo echoes similar sentiments regarding the importance of stability at Irba, saying a stable regulator will inspire confidence in the country’s capital markets and is essential to attracting investment.
“It is therefore imperative that the Irba has independent leadership to address governance challenges and to effectively regulate the auditing profession,” Nomvalo says.