SAICA’S COMMENTS ON THE AUDITING PROFESSION BILL

Education and training and professional development

We fully support the need for the Regulatory Board to oversee the education and training of auditors. We also support the opening up of the process to allow members of other bodies to carry out the attest function, provided they meet the defined standards.

The role of the regulatory body is to protect the public interest. Part of this role is to ensure that auditors are properly trained and have an appropriate theoretical knowledge.

To achieve this objective the regulator should set minimum standards of education and training and it should monitor adherence to these standards.

Professional institutes should apply for accreditation. If they meet the standards on a sustainable basis, they should be accredited. This process should be open and transparent.

It is vital to separate the regulatory role from the role of the professional institute to ensure that the proper checks and balances are always in place. If the regulator registers training contracts and sets examinations, it becomes a player, and then the checks and balances fall away. This is particularly relevant in the fast changing world we find ourselves in today where there will be frequent changes to the content being taught.

The Bill allows the regulator to conduct a number of activities which should be carried out by professional institutes. These include:

the setting of professional examinations (Sections 7(1)(b) and 37(2)(c))
recognition of educational institutions (Section 7(1)(a))
registration of training contracts as well as the recognition of registered auditors as training officers (Sections 7(1)(e) and (g)).

In our view the regulator should only register training contracts, accredit educational institutions and set examinations if there are no institutes that meet the accreditation requirements.

Taking into account the above matters, as well as the fact that registered auditors do not have to belong to a professional institute, this means that the regulator would be performing the functions of an institute at the same time as being a regulator. This is fundamentally wrong.

Clearly there needs to be a period of phasing-in for the new Act, however, such phasing-in period should be limited.

An issue that may be of concern to the Minister is that there is currently only one institute that has its programmes accredited. We acknowledge this is not a healthy situation, particularly given the growth objectives for our country. Other institutes need to be given an opportunity to meet the standards. To this end SAICA is prepared to assist other institutes to achieve accreditation. We do not believe it is the role of the regulator to assist such institutes directly because it affects the independence of the regulator.

We recommend that all references to the regulator setting examinations, registering training contracts and accrediting educational institutions should be qualified and it should be clearly stated that they only apply if there are no professional bodies that meet the accreditation criteria.

Disciplinary matters

The disciplinary function is an important part of the regulatory process. It is vital that this process works effectively and efficiently and deals with matters in a timely manner. In addition, it is important that registered auditors, against whom complaints are laid, are given a fair chance to defend themselves.

We have three serious concerns with the process contained in the Bill.

Firstly, in terms of the provisions of this Bill, all cases will follow the same route, whether they are high-profile, public interest matters, or trivial procedural matters. Because of the large volume of cases dealt with, unless there is a significant increase in resources, it is very likely that the disciplinary process will be protracted even further. Most countries have mechanisms for dealing with lesser cases, either by diverting them to the accredited institutes or by operating a separate ‘fast-track’ investigatory process that can impose penalties and admission of guilt fines. This inability to deal speedily with matters will enhance the perception that the profession drags its heels when dealing with disciplinary matters. We believe that a separate process for lesser cases should be included in the Bill and we recommend that this committee should be empowered to accept admission of guilt fines.

Secondly, in order to speed up the process we would like to see a provision in the Act that evidence led at disciplinary hearings may not be used against Registered Auditors in criminal and civil cases, as currently happens in the United States. This would greatly improve the regulator’s ability to deal with matters speedily as the defendant would not have to worry about evidence being used elsewhere. Otherwise defendants will use every mechanism they can to delay cases until all related criminal and civil cases have been completed.

Thirdly, we believe the composition of the disciplinary committee as set out in the Bill is not appropriate and this is probably due to a drafting error. The Bill uses the term ‘non-registered auditors’. By definition there is no such thing. We presume the Bill means persons who are not registered auditors. However, the way the section is written, there would be no registered auditors on the disciplinary committee. Clearly this is not the intention.


Reportable irregularities

SAICA supports the principle of reportable irregularities. The definition of a reportable irregularity contained in the revised Bill has been improved, however a ‘reportable irregularity’, no matter how well-defined it is, will always require the auditor to exercise his or her judgement.

It is extremely unfortunate that the drafters have seen fit to make it an offence for an auditor not to report a reportable irregularity (Section 52). As mentioned above, this section requires a great deal of judgement on the part of an auditor. The result of this section will inevitably be that auditors will report virtually any non-compliance they find (including trivial matters) because of the criminal offence threat. Furthermore, the notion of recognising negligence as a criminal offence is, in our view, completely inappropriate, especially given the important role that auditors play in the governance and regulatory framework of this country. The vast majority of auditors carry out their work diligently and in good faith. Individuals do make mistakes and inevitably there will be times when auditors do not recognise irregularities through no fault of their own. This section turns such an individual into a criminal. We believe that the profession’s disciplinary process via the Regulatory Board should be adequate to deal with any shortcomings in this area.

Multi-disciplinary practices

The Bill excludes the possibility of establishing multi-disciplinary practices.

In order to effectively audit a large entity today, skills beyond those of traditional auditor, for example, legal, actuarial, forensic and information technology skills are required. Indeed audit teams include many other professionals these days and international regulators are now saying that they believe it is critical for non-audit professionals to be included in audit teams.

To accommodate these skills, we believe that multi-disciplinary practices should be allowed with the necessary safeguards. An example of a safeguard in allowing multi-disciplinary practices would be to require that at least 75% ownership of such a practice is held by registered auditors and that the multi-disciplinary practice itself, as a firm, should be subject to the disciplinary powers of the Regulatory Board. Whilst we acknowledge that the profession effectively operates multi-disciplinary practices now through convoluted structures, we believe it would be better to recognise them as such and bring these elements into the regulatory net.

Multi-disciplinary practices are permitted and operate effectively in other countries. In our view, this provision should be in line with that of our international counterparts.

Composition of committees for auditing standards

The Bill introduces a model where people are appointed to positions based on their skills, experience and expertise (e.g. for the Regulatory Board). We support this model. We therefore question why the Bill is prescriptive insofar as the membership of the committee for auditing standards is concerned. The fact that representatives from certain industries and regulators are specifically prescribed constrains the flexibility of this committee to operate in a changing environment. This also applies to a lesser extent to the committee for auditor ethics.

We recommend that the composition be left to the consideration of the Regulatory Board, with reference to members having suitable qualifications and experience.


30 September 2005
Ref: 104610/hh