Reducing the mandatory audit firm rotation period from 10 years to five and entrenching it into law will be a critical tool in safeguarding against corruption in the public and private sector, trade union federation Cosatu said on Tuesday.
“Ten years is too long given the extent of corruption and incestuous relationships between many auditors and those they are paid to audit,” it said.
The Independent Regulatory Board for Auditors (Irba) instituted a rule requiring the rotation of auditing firms after 10 years. Published in 2017, it comes into effect only in 2023. The rule will however not be law.
In its submission on the Auditing Profession Amendment Bill to the National Council of Provinces (NCOP) select committee on finance, Cosatu said that without entrenching it into law, Irba could “simply delete that rule in the face of massive resistance from compromised auditors”.
“There is the risk that the Irba rotation rule could be rescinded. Placing it into law safeguards this critical anti-corruption tool.
“Reducing it from 10 to five years will help to begin to clean up the sector.”
The bill was passed by the National Assembly last year and is now before the NCOP’s finance committee for a final stamp of approval before being sent to the president, who will then sign it into law.
Firmer hand for the profession
The bill aims to strengthen the powers of the audit watchdog, which has been criticised for its lacklustre handling of audit failures associated with state capture and large corporates such as Steinhoff and Tongaat Hulett in the past decade.
The proposed reforms include enhancing Irba’s investigating processes, strengthening its board governance, strengthening the investigating committee, and giving Irba increased powers to sanction those who have been found guilty of misconduct.
According to a report published by advocacy group Open Secrets in July 2020, the Big Four accounting firms – KPMG, PwC, Deloitte and EY – were complicit and helped facilitate state capture and other accounting scandals in the private sector.
Instead of sounding the alarm on the decaying governance at state-owned enterprises (SOEs) and corporations, these audit firms “consistently shrugged their shoulders and said that it is not their job to identify fraud”.
“In reality, the firms happily accepted millions in fees to sign off financial statements with glaring irregularities,” states the Open Secrets report.
In a statement, Cosatu said: “Workers are now paying the price in the collapse of key SOEs and municipalities, the disintegration of badly needed public services, and in many cases lost wages and retrenchments. Workers in the private sector have not emerged unscathed as supposedly clean listed companies were fleeced, and here too workers lost wages and jobs.”
Cosatu has also called for Irba to be adequately resourced in order carry out its regulatory mandate, saying that “any reckless reductions in financial allocations to Irba should be guarded against, given the critical role that Irba plays and the greater costs to the fiscus and the economy of an incapacitated [regulatory body] that would fail to hold auditors to account”.