The respective Auditing Profession Amendment Act No. 5 of 2021 is designed to restore the reputation of auditing profession in South Africa which has been damaged by numerous scandals* primarily by tightening control over this professional activity by a specialised body, the Independent Regulatory Board for Auditors (IRBA).
In particular, the Act gives the IRIBA the ability to enter and search any premises and seize information required for an investigation into an auditor also without the prior consent of their owner having a warrant authorising such search and seizure, as well as to subpoena relevant persons to appear before the court (previously only the Disciplinary Committee was empowered to do so, while this power has now also been extended to the Investigating Committee). A failure to comply with a subpoena or interference with or hindering the conduct of an investigation is considered an offence. A person found guilty of this offence may be liable, on conviction, to a fine and/or imprisonment for a period not exceeding five years.
The Act also introduces amendments aimed at reducing the duration of investigations. In particular, it establishes a Board subcommittee, the Enforcement Committee. Where, following an investigation, sufficient grounds exist to charge an auditor for improper conduct, the Committee can follow an admission of guilt process. This process will free up the capacity of the Disciplinary Committee to deal with more complex matters.
In addition, the Act changes the requirements imposed on the IRBA officers. To avoid conflict-of-interest situations, registered auditors, candidate auditors and other persons related to auditing activities are prohibited from being appointed as members of the IRBA Board, the Investigating Committee and the Disciplinary Committee. The amendments also prohibit these members from:
- sharing, directly or indirectly, in any profits of a registered auditor or any person related to him,
- receiving payments, excluding pension benefits, from a registered auditor.
Besides the amendments concerning the powers and the structure of the IRBA, the Act provides for the imposition of stricter requirements on the auditors. From now on, a conviction for an offence related, in particular, to theft and an infringement of the Prevention and Combating of Corrupt Activities Act will be a bar to registration as an auditor. In addition, the registration of individuals may only be considered where they have membership with a professional body that is accredited as such by the IRBA, which is aimed at ensuring that registered members are accountable for different violations that do not relate to auditing (infringement of ethical standards and codes of conduct) to these professional bodies, thus unburdening the IRBA in relation to the cases where it has not always had enough resources and powers.
The Act also alters the procedure for the imposition of sanctions for the violations committed by auditors. In particular, previously the amount of the fine was calculated in accordance with the general legal provisions and its maximum amount could be limited by the Adjustment of Fines Act. Now, the IRBA is empowered to impose on the perpetrators the fines corresponding to the gravity of the offence with the maximum fines being determined by a special decree of the Minister of Finance. In addition, the Act introduces the imposition of non-monetary sanctions for improper conduct, and this could be in the form of an order to undertake certain training, implement certain controls or refrain from doing certain work.
*Such scandals are normally due to the fact that the firms auditing companies turn a blind eye to their violations. However, false accountability information often implies serious corruption crimes. For instance, South African retailer Steinhoff had overstated profits over several years by recording fictitious transactions with third parties. VBS Mutual Bank cooked the books too: it went insolvent in 2018 and was under investigation, charged with the theft of ZAR 2 billion (roughly USD 141 million) belonging to its clients most of which was transferred to private bank accounts or spent on expensive real estate and vehicles by the bank managers.