Auditors and auditing firms have been in the news in recent months. We read about the likes of VBS Mutual Bank, Steinhoff and others, where auditors seemingly turned a blind eye to irregularities. Firms such as KPMG, which has been implicated in scandals involving the Gupta-owned Linkway Trading as well as the South African Revenue Service, and Deloitte, which was the subject of a disciplinary hearing related to its work with African Bank, have undermined public trust in the auditing profession. Deloitte was also the auditing firm of the Steinhoff fraud saga. These auditing firms are overseen by regulatory bodies in their respective countries, such as the Auditing Practices Board in the UK, the Auditing & Assurance Standards Board in Australia, and the Independent Regulatory Board for Auditors (IRBA), South Africa’s statutory auditing watchdog. However, even the IRBA has been unable to prevent the rash of recent scandals. “The overall credibility of the auditing and accounting profession in South Africa is in the gutter,” said auditor-general Kimi Makwetu in an interview in April 2018, “and I think we need to look at the bigger picture and look at what it is doing to all of us as auditors and accountants. It’s possibly about time that all those practitioners stand up and deal with this matter decisively.” Makwetu was speaking to Bruce Whitfield of 702’s The Money Show, after his announcement earlier that day that the Auditor-General would be terminating its contract with KPMG as well as Nkonki Inc, the firm whose CEO had dealings with the Gupta-linked Trillian Capital. “Once people do not trust what comes out of South Africa, it will have far-reaching implications for all of us as citizens.” Makwetu added. Not long after that, the efficacy of the IRBA was questioned. The body has “an obligation to protect the investing public by regulating auditors through setting, monitoring and enforcing high quality auditing standards and ethical behaviour,” wrote Makhosandile Kwaza, internal audit general manager at Amathole District Municipality, in his personal capacity. “If IRBA has such a powerful mandate, why is it the order of the day to hear about corporate scandals?” he asked. “Is IRBA effective? Perhaps our Parliament needs to review the effectiveness of our auditing watchdog.” Parliament is now doing just that. IRBA sharpens its teeth The IRBA functions in terms of the Auditing Profession Act. Its members are appointed by the minister of finance. At the end of August the National Treasury released a Financial Matters Amendment Bill for public comment, which closed on 14 September. The bill proposes amendments to several pieces of legislation, namely the Insolvency Act, the Military Pensions Act, the Banks Act, the Government Employees Pension Law, and importantly, the Auditing Profession Act. In terms of the latter, the bill aims to enhance the IRBA’s regulatory powers. The purpose of the amendment is, according to the bill, to “to strengthen the governance of the regulatory board; to strengthen the investigating and disciplinary processes; to provide for the power to subpoena persons with information required for an investigation or disciplinary process; and to provide for the sharing of information amongst the regulators of the auditing profession.” The amendments relate to the qualifications and conduct of members of the IRBA, the period of their appointments, the protection of personal information, the composition and function of investigative and disciplinary committees and the conduct of such members, the disciplinary process, and proceedings after the disciplinary process i.e. decisions, actions and sanctions to be taken. Currently the IRBA’s harshest punishment is a R200 000 fine per offence, on either a firm or an individual. According to IRBA CEO Bernard Agulhas, “It’s not enough.” But the proposed amendment provides a power for the finance minister to determine the maximum amount which can be imposed on a registered auditor as a sanction following a guilty finding in a disciplinary hearing. This means that, with the minister of finance using his discretion to set the upper limit of fines, these are likely to be significantly more than the current limit – which is not much, considering the multi-million amounts that have been mentioned lately – and deter unethical behaviour more effectively. To address the challenges faced by the IRBA due to non-co-operation by auditing firms during investigations into improper conduct by registered auditors, the amendment provides a power for IRBA to subpoena any person with information required to complete an investigation. The amendment also empowers the IRBA to, if it deems appropriate, refer a matter brought against a registered auditor to an accredited professional body for investigation. It is hoped that the amendments will be passed by the end of this year, Agulhas wrote in a recent article.