The Independent Regulatory Board for Auditors (IRBA) is the statutory regulator for auditors established in terms of the Auditing Profession Act, Act no 26 of 2005. The new Act, which was signed into legislation in January 2006, has been drafted to provide the independent regulator with increased powers to regulate auditors and audit services to protect the financial interests of the public.

The IRBA (then the Public Accountants’ and Auditors’ Board) submitted comments on the Companies Act Amendment Bill in July 2005 and has had sight of the DTI’s responses to our comments. Unfortunately, due to other commitments, the IRBA was unable to attend the public hearings, but wishes to make the following submissions for your consideration:

The proposed section 275A prescribes that certain non-audit services should not be open to the current designated auditor of a public interest company. While we support the principle that auditors should not audit their own services, we believe that rules and regulations in respect of the restriction of certain services should be prescribed by the independent regulator for auditors. In this respect, the Auditing Profession Act provides for the establishment of a Committee for Auditor Ethics (sections 20 and 21) which must, amongst others, assist the Regulatory Board to determine what constitutes improper conduct by Registered Auditors by developing rules and guidelines for professional ethics, including a Code of Professional Conduct. It is our view that the determination of independence rules, which include restriction of certain non-audit services, fall within the mandate of this committee.

The Auditing Profession Act requires that the IRBA establish a Committee for Auditing Standards (sections 20 and 22) which will, amongst others, assist the IRBA to develop, maintain, adopt, issue or prescribe auditing pronouncements that are consistent with International Standards on Auditing.

In January 2005, the Auditing and Assurance Standards Board, the predecessor to the Committee for Auditing Standards, adopted the full suite of international auditing pronouncements. This decision was largely based on the Board’s objective to ensure that audit reports issued in SA would be understood anywhere in the world and conform to international best practice. This objective is believed to apply equally to financial reporting standards. In terms of these auditing standards, auditors can only express an opinion on the fair presentation of financial statements which have been prepared in accordance with a recognised or comprehensive financial reporting framework. Currently, the applicable financial reporting frameworks for companies in SA are SA Statements of Generally Accepted Accounting Practice (GAAP) and/or International Financial Reporting Standards (IFRS). The JSE Securities Exchange Ltd requires all public companies to comply with IFRS.

Section 285A of the Bill requires public interest companies to comply with financial reporting standards to be established by the Financial Reporting Standards Council (FRSC) in accordance with IFRS (section 440S). We do not believe that these financial reporting standards are necessarily the same as IFRS.

Section 440S requires the FRSC to develop standards for limited interest companies and section 285A requires limited interest companies to comply with the accounting framework of financial reporting standards. It is our understanding that a framework alone (presumed to be the conceptual framework of the International Accounting Standards Board) will not necessarily result in fair presentation of financial statements. The framework deals with the concepts that underlie the preparation and presentation of financial statements, while the application of these concepts to recognition and measurement of financial statement items are dealt with in the specific financial reporting standards. We therefore do not believe that the current requirements in the Bill will ensure that limited interest companies will comply with financial reporting standards that will result in fair presentation of financial statements.

Amendment to section 280 – Reportable Irregularities

The amendments to the section does not reflect the amendments to the previous section 20(5) of the Public Accountants’ and Auditors’ Act. Section 44 of the Auditing Profession Act (and not section 22 as indicated in the Bill) provides as follows:

‘44(2) The registered auditor may not, without such qualifications as may be appropriate in the circumstances, express an opinion to the effect that any financial statement …

(a) fairly present in all material respects …

(b) are properly prepared in all material aspects …

… unless a registered auditor who is conducting the audit of an entity is satisfied about the criteria specified in subsection (3).’

Subsection (3) states that the criteria specified in subsection (2) are …

‘(e) that the registered auditor has not had occasion, in the course of the audit or otherwise during the period to which the auditing services relate, to send a report to the Regulatory Board under section 45 relating to a reportable irregularity or that, if such a report was so sent, the registered auditor has been able, prior to expressing the opinion referred to in subsection (1), to send to the Regulatory Board a notification under section 45 that the registered auditor has become satisfied that no reportable irregularity has taken place or is taking place.’

Furthermore, the Auditing Profession Act no longer refers to ‘in the conduct of the affairs of the entity’, but to ‘any person responsible for the management of the entity’.

Attendance of auditors at the Annual General Meeting (AGM)

Section 300A requires auditors to attend the AGM of a public interest company. As mentioned in our previous submission, we believe that attendance should be left to the discretion of the auditor, unless there are specific matters which the auditor wishes to bring to the attention of the members.

Should you wish to further discuss the above, please do not hesitate to contact us.

Yours faithfully

Kariem Hoosain

Chief Executive Officer