The Independent Regulatory Board for Auditors (Irba) opened and finalised 20 cases relating to 17 audit firms and registered auditors arising from the report of the commission of inquiry into state capture, MPs were told on Wednesday.
In all instances sanctions had been imposed.
The board sets, monitors and enforces standards for the auditing profession but has in the past been criticised for being a toothless body and failing to act expeditiously against auditors who have acted improperly.
Irba CEO Imre Nagy was asked what Irba had done against errant state capture auditors during an engagement with parliament’s standing committee on finance on the board’s strategic plans.
“We had a remarkable success rate and I think in all these instances we imposed fines ranging from R200,000 to R1.3m and collectively charged auditors an amount of R13m,” he said.
In addition to financial and monetary fines, other sanctions were imposed such as compulsory training and in the worst-case scenario the removal of registration as an auditor.
In terms of the Auditing Professions Act, Irba also has a function regarding reportable irregularities, which requires registered auditors to report on any noncompliance, fraud or corruption discovered during audits.
The board received about 3,500 whistleblowing tip-offs over the past five years. More than half of them had to be referred to relevant authorities for further investigation.
Adding to Irba’s ammunition, Nagy said, was the promulgation of amendments to the Irba Act, giving it search and seizure and subpoena powers for its investigations into improper conduct.
A new maximum fine regime has also been introduced, with fines of R5m-R25m per charge compared with the previous maximum fine of R200,000 per charge.
While the maximum fines were high, Nagy said the board did have a framework of proportionality and scalability, especially for small firms, so as not to disrupt the profession amid a declining number of registered auditors.
A balance had to be maintained, he stressed, between strong enforcement against misconduct and the need to make the auditing profession attractive.
“We are now in a place where we have teeth. We cannot be accused of being a toothless regulator. We do have sufficient legislative powers and monetary fines and nonfinancial sanctions at our disposal to hold auditors accountable and to deter misconduct by other auditors,” Nagy said.
On mandatory audit firm rotation, he said Irba believed it strengthened auditor independence. There was a “familiarity threat” if an audit firm had audited a company for a long time.
“We are still in the process of bringing mandatory firm rotation back into our act or at least the power to make a rule. The rule was set aside [two years ago], not because of its merits but because of the process that was followed in setting the rule.
“The board has submitted its proposals to National Treasury as part of a comprehensive review of our act,” Nagy said.
The Supreme Court of Appeal set aside the mandatory audit firm rotation rule in 2023 and in 2024 ruled that Irba lacked the power to prescribe certain assurance fees, which fund most of its operations.
Nagy said this presented the opportunity for a holistic review of the Auditing Professions Act in a bid to address some stakeholder comments as well other gaps and enhancements.
“The proposed amendments include provisions relating to the Irba’s powers to promulgate mandatory audit firm rotation, prescribe fees, and conduct regulator equivalency assessments of foreign audit regulatory oversight regimes over foreign auditors that audit foreign listed entities that are listed on the JSE stock exchange.”
Other amendments related to the removal of transparency restrictions regarding inspections, enforcement of sanctions, extension of the board’s term of office, and the introduction of provisions relating to the lapsing and cancellation of firm registrations.
Nagy noted that even though the mandatory audit firm rotation rule had been set aside by the court, almost 95% of companies listed on the JSE had rotated their auditors after 10 years in the run-up to the introduction of the rule and Irba had observed better audit quality and integrity across audits.
Chairperson of Irba’s audit and risk committee Zine Mshengu reported that as at end-March there were 3,472 registered auditors in 1,513 firms and 683 registered candidate auditors.
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