The Supreme Court of Appeal has ordered the Independent Regulatory Board for Auditors (Irba) to reconsider new fee structures by 2025, after finding the body had improperly implemented its most recent model that would net it an additional R14m.
The ruling affects all auditors who are obliged to pay fees to Irba, which can amount to millions of rand.
Irba was challenged by a group of accountants, the East Rand Member District of Chartered Accountants, after the regulatory body prescribed new fees in 2019.
One of these was a “percentage fee model” for low-risk assurance work, such as voluntary audits. Irba sought a percentage of such work invoiced by the affected firm or auditor.
Irba also imposed tax practitioner fees, late penalty fees, and above inflation increases for annual renewal registration fees. It further also withdrew a 50% discount for annual fees for auditors older than 65.
The group of accountants challenged the decisions in the Pretoria high court, which set aside the decisions. Irba appealed to the SCA.
On Monday, the SCA upheld most of the High Court’s findings but placed a limit on the final ruling out of concern for intruding on Irba’s statutory domain.
Writing for a unanimous court, judge Ashton Schippers noted that Irba had imposed the new fee structures because “the board is in dire financial straits” as a direct result of the Treasury’s decision to reduce Irba’s budgetary allocation by R8.7m. In 2018, the board was told “drastic measures” were needed.
One of these was the low-risk assurance fees. Previously, low-risk assurance auditors were rarely, if ever, inspected. However, they would be, under the new fee structure, which required the low-risk auditors “to cover the costs of [Irba’s] inspections”.
This meant the auditor paying a percentage fee of their total audit work done for that year, which Irba calculated could net it R14m.
However, Schippers ruled the Auditing Profession Act did not allow Irba to do so. While it could charge for inspections, it must do so based on an hourly rate, to cover its expenses. “The board simply looked at its budget and determined such fees accordingly,” Schippers wrote
He also ruled that Irba’s failure to consult with auditors before imposing fees, such as tax practitioner fees, rendered its decisions unlawful.
However, Schippers added: “The High Court should have remitted the matter to the board by virtue of its expertise, experience and access to sources of relevant information.”
He said it was wrong for courts to rule on complicated fee structures, especially for professional bodies.
Irba must now reconsider and make new decisions by 2025. In the meantime, auditors can benefit from the lower fees in place before the decisions.
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