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Long road ahead for Irba’s recovery

The market will be watching to see how the audit watchdog reinvents itself, following almost a year of upheaval.
The industry needs a regulator that is stable and consistent. Image: Shutterstock

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.

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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.

Read:
Irba board divisions were not caused by the incoming CEO – Motala
Jenitha John resigns as Irba CEO

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.

Pressure

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.

Read: New bill aims to give auditing regulator teeth

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COMMENTS   8

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This isn’t rocket science. There are plenty of suitably qualified CA’s with audit backgrounds that will very quickly get this regulator back into shape.

The problem is that there is an overwhelming desire in SA to appoint incompetent individuals to senior positions, for whatever reason, the main reason however being, political expediency…

They are the wrong colour

I hear you regarding the colour, but the main driver of incompetence is political doctrine rather than colour. We tend to seek the most apparent solution, but that may cloud our vision and may even be factually incorrect. The disasters in communists, socialist and fascist countries were perpetrated by people of all races, colours and nationalities.

The common denominator is the doctrine, not the colour.

That’s not case here Africa Pragmatist,the lead auditor in the so called SARS “rogue unit” report by KPMG was white. And let’s not forget about the biggest accounting fraud in SA corporate history at Steinhoff. Almost everyone involved in that is white and Afrikaner, this is not about race but the below-basement ethical standards of some in the accounting/auditing profession and the general moral decay of every sector in our country.

It is all of the above but the single biggest contributor is political doctrine. Cadre deployment. Fair discrimination.
Bending the knee to BEE CODES and forsaking quality.

We as CA’s who now reap the harvest of the crop planted 5-7 years ago and all had an opportunity to respond and say NO to the path the then leadership of SAICA and IRBA chose to embark upon.

To stop this…………
Competency over colour.
Skills and experience above connection or factions
Get the true standards back. The cream will rise to the top.

CA(SA) now stands for Cant Add

Correct. The practice stems from a culture of corruption, which in turn stems from the practice of colour and party above all.

You have to stop both for this country and its accounting profession to start being accountable and for the nation to grow again.

Can I add that possibly a major factor is that the way the ANC regime has applied BEE is that its cadres get appointed to senior positions, regardless of how venal and incompetent. In this situation it is easy for a marginally scrupulous “auditor” to offer “advice” and concoct lucrative schemes to enrich themselves (and the cadres).

all i can say is if irba’s recovery is going to be a long road, the recovery for the current government will be endless.

In almost any profession it takes only a few bad ones to cause great damage to that profession which will take much longer to heal than the period the damaged was done in

End of comments.

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