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Importance of regulation, and challenges in regulating professional services

Importance of regulation, and challenges in regulating professional services. Bernard Peter Agulhas. Synopsis. Context Legislative Mandate Importance of Regulation The role of IRBA as a Supervisory Body in terms of FICA Responsibilities of auditors when conducting an audit

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Importance of regulation, and challenges in regulating professional services

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  1. Importance of regulation, and challenges in regulating professional services Bernard Peter Agulhas

  2. Synopsis • Context • Legislative Mandate • Importance of Regulation • The role of IRBA as a Supervisory Body in terms of FICA • Responsibilities of auditors when conducting an audit • Challenges in Regulation • Conclusion

  3. Context • Regulation – Global trends • Audit regulation – Global trends • Independence from profession • Independent funding • Independent boards and structures • Role of the auditor • Misperceptions in respect of the role of the auditor • Role of the auditor in respect of fraud and corruption

  4. Legislative Mandate IRBA is established in terms of section 3 of the Auditing Profession Act, 2005, (Act No. 26 of 2005), which had an effective date of 1 April 2006. The objects of the Act as set out in section 2 of the Act are as follows: • To provide for the establishment of an Independent Regulatory Board for Auditors; • To protect the public in the Republic by regulating audits performed by registered auditors; • To improve the development and maintenance of internationally comparable ethical standards and auditing standards for auditors that promote investment and as a consequence employment in South Africa; • To set out measures to advance the implementation of appropriate standards of competence and good ethics in the auditing profession, and • To provide for procedures for disciplinary action in respect of improper conduct.

  5. Importance of Regulation • Protection of the public • Ensures highest quality and highest standards of auditing and ethics • Importance of harmonisation • Stimulates investment and economy • Creates employment • Provides for disciplinary action • Examples

  6. Importance of Regulation (cont.) • International Forum of Independent Audit Regulators – Founded in 2008 • EU Green Paper on Audit Policy • Spirit of the Paper • Concentration in the market • Independence • Communication from auditors • Appointment of auditors • The role of audit committees

  7. EU Green Paper “Robust audit is key to re-establishing trust and market confidence; it contributes to investor protection and reduces the cost of capital for companies … it is important to stress that auditors have an important role to play and are entrusted by law to conduct statutory audits”

  8. The role of IRBA as Supervisory Body • IRBA is a Supervisory Body for auditors engaged in any activity listed in Schedule 1 of FICA • Accountable Institutions • Auditors who are not accountable institutions • Amendment Act provides for joint supervisory duties with the FIC

  9. The role of IRBA as a supervisory body (cont.) • Key elements of supervisory duties • Provide guidance to auditors to comply with FICA, POCA, POCDATARA and PRECCA • Inspect auditors’ compliance during S47 inspections • Request information from auditors regarding their compliance • Investigate any matter regarding possible non compliance

  10. Responsibilities of RAs when conducting an audit • General Responsibilities • Conduct of the audit • Reporting RIs in terms of the APA • Reporting in terms of FICA, POCDATARA and PRECCA

  11. General Responsibilities • Comply with ethical requirements • Obtain assurance that AFS are free of misstatement, whether caused by fraud or error • Evaluate appropriateness of accounting policies and estimates made by management • Evaluate overall presentation of AFS • Issue audit report

  12. Conduct of the audit • Risk Based Audit Approach • Acceptance of appointment as auditor • Understand the entity and its environment and assess risk of material misstatement • Going Concern • Fraud and Fraud Risk Factors • Laws and Regulations • Procedures where possible ML is discovered • Reporting suspicions of ML as required by statute

  13. Fraud Risk Factors • Relating to Misstatements arising from fraudulent financial reporting • Relating to Misstatements arising from misappropriation of assets • Results from: • Incentives/Pressures • Opportunities • Attitudes/Rationalisations

  14. Reporting RI in terms of the APA • Section 45 of APA • An individual RA of an entity that is satisfied or has reason to believe that a RI has taken place or is taking place must without delay send a written report to the IRBA • The report must give particulars of the RI and must include other information and particulars as the RA considers appropriate • Penalties for not reporting an RI includes 10 years imprisonment, a R10 million fine or both

  15. Reporting in terms of FICA, POCDATARA and PRECCA • Section 29 of FICA • Section 28A of FICA • Section 12 of POCDATARA • Section 34 of PRECCA • The auditor’s report on the financial statements • Internal reporting and training

  16. Challenges in Regulation • Independent funding • Education of the public and stakeholders • Influencing international standards • IFIAR Standards Coordination Working Group • IFAC Oversight Bodies • Responding to investors’ needs • Responding to auditors’ needs

  17. Conclusion SA rated number 1 in the World by the World Economic Forum for its auditing standards

  18. Contact Details Chief Executive Officer Office 087 940 8797 Email bagulhas@irba.co.za

  19. THANK YOU

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