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Mandatory audit firm rotation should happen every five years – Cosatu

It should also be entrenched into law, or Irba could ‘simply delete’ the rule in the face of ‘massive resistance from compromised auditors’.
Shorter intervals will help efforts to clean up the sector, says the trade union federation. Image: Shutterstock

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“There is the risk that the Irba rotation rule could be rescinded.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.

Read: New bill aims to give auditing regulator teeth

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”.

Read: Irba board divisions were not caused by the incoming CEO – Motala

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The same with political parties, Cosatu.

As far as I know, the Companies Act already prescribes a five year period for Auditors and Directors to rotate.

Its rotation of partners in the same audit firm. The client can keep the same audit firms for 100+ years if they want to and the partners in the same firm can play musical chairs with the same client. Which raises risk of familiarity and dependence on the client for money.

Cusato is the 2nd last entity that can express an opinion about a professional entity that they know less than nothing of – the corrupted and rotten to the core anc is the last one.

It is the resposiblity of the board of directors /ceo’s of the entity to provide the auditor with the financial statements to be audited – the auditors audit the financial statements to see that it represent a fair value of the entity’s financial position – The auditors are NOT responsible for the day to day management of that entity.

After the audit, the auditors provide the directors /ceo’s of the entity with a recommendation letter where weak points / irregularities / fraud etc is pointed out and how it can / must be correct – what the directors /ceo’s / management DO with these recommendations is NOT the auditors responsibility – was it not implemented, it will be pointed out again in the next audit.

I can understand the rotation idea, but don’t blame the audit profession for 99% of SOE’s incompetent cadre employed directors /ceo ‘s / management incapacity to understand why they are there in the first place, if recommendations are not implemented, small wonder that the auditors consistently shrugged their shoulders.

It sounds very similar to the SAA, DPE or BRP who wants to blame the pilots for the imploding of SAA ,whilst they don’t have anything to do with the day to day management of bankrupt SAA. Case of: visit the doctor every year – he recommends: stop smoking, but I simply continue smoking – what do you expect – surely I can’t blame the doctor if I get lung cancer

So now auditors are responsible for SOE collapses not the ANC .I guess that’s a new tack from blaming Apartheid.
These irrelevant trade unions should be shut down and shut up.

Cosatu has a legitimate point.

The interesting part is where is the the so-called opposition DA on this point?

They should be all over this, like Cosatu is.

That they are “missing in action” (again!) speaks to who they have been “captured” by!

The DA – like every other party – is beholden (ie “captured” in today’s vernacular) to its “behind-the-hidden-curtain” sponsors.

Civil society is ill-served by these secret hands putting their fingers surreptitiously on the scales of democracy to advance their own interests.

Don’t be childish. They perpetually point out the disparity in audit outcomes between the areas they (the DA) control and those under the ANC. For public bodies the Auditor General, despite being an ANC appointee, regularly dishes out audits exposing irregular expenditure. The DA publicises this as far as it can; unions, their members being major beneficiaries of the expenditure, are usually quiet.

What is really needed is for the unions to be independent of the ANC and appoint competent and honest people to their liaison structures. Ha ha.

Who exactly is being “childish” when making silly personal comments like yours, that EVADE answering my specific criticism of the DA on this specific point??

That the DA may “perpetually point to audit disparities between DA and ANC controlled areas” is irrelevant.

Maybe tell us where in DA controlled entities the AG “regularly dishes out audits exposing irregular expenditure”?

Oh and pray tell, what unions aligned to the DA are “their members being major beneficiaries of the expenditure”?

Gosh, Kearney, grow up!

Stick to the subject and answer the question I posed.

Why is it that it is Cosatu that gets to make this important suggestion. And the DA is nowhere in sight making – or enthusiastically supporting – a similar observation??

If the DA were anywhere near as wide awake as you think they are, then the answer would have been easy. Even for you!

Who would ever take any advice or input from Cosatu seriously. They can , and have, added nothing.

Cosatu’s finances being squeaky clean of course, maybe we should all get in there and learn by example.

Auditors in SA ..a bunch of Rogues that have cost the public millions in lost value on their Retirement Funds.Tongaat ..Stenhoff..and the list goes on..

Viva Cosatu 5 years yes…

I work in Corporate and their cosyness with Management cannot be discounted.Also only one qualification allows you to qualify as an Auditor…a mafia body..

End of comments.

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