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DRAFT AUDITING PROFESSION BILL. DELIBERATIONS. National Treasury: Republic of South Africa 17 October 2005. Contents. Background & History of the Profession Role of auditors Interested Parties Common issues raised in public hearings Treasury’s view Main areas of disagreement

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slide1

DRAFT AUDITING

PROFESSION BILL

DELIBERATIONS

National Treasury: Republic of South Africa

17 October 2005

1

contents
Contents
  • Background & History of the Profession
  • Role of auditors
  • Interested Parties
  • Common issues raised in public hearings
  • Treasury’s view
  • Main areas of disagreement
  • Conclusion

2

background
Background
  • PAAA enacted in 1951
  • Protecting public interest main object of that Act
  • Minister handed the regulation to the profession – de facto self regulation
  • Amended 40 years since, in 1991
  • Discussions on improving it since early nineties

3

history 1
History (1)
  • Great depression impact on the profession
  • Oil price crisis in early seventies
  • US authorities question – self regulation practices
  • Increase competition, increase of non-audit services
  • Audit overtaken by non-audit services in contributing to revenues of firms
  • Authorities warn of impact to independence of auditors

4

history 2
History (2)
  • Firms compete on prices for audit work and solicitation of clients intensifies
  • Low-balling develops into practice
  • Firms consolidate from “big 8” to “big 4”
  • Fall of the Soviet union & emergence of globalisation
  • Standards of accounting & auditing harmonised
  • Culture & character of profession changes

5

role of auditors 1
Role of Auditors (1)
  • Corporate failures world wide infuse urgency in SA legislative reform
  • Public interest the focal issue
  • Auditor independence & some practices questioned
  • Profession admits consulting impairs independence
  • Increased focus on risk management- but often skewed perspective

6

interested parties
Interested Parties
  • Expression of opinion – on AFS
  • Shareholders including pension funds
  • Workers in client companies
  • Creditors and other investors
  • Governments

7

focus of this bill
Focus of this Bill
  • Enhance integrity of the profession
  • Protection of the Public interest
  • Enhance independence & effectiveness of the regulator
  • Enhance independence of auditors
  • Ensure the RB is accountable
  • Hold auditors accountable
  • Ensure equitable access to profession

8

common issues 1
Common Issues (1)
  • Definition of Audit
  • Reportable irregularity
  • Education & training
  • Character of the RB
  • Section 44
  • Disciplinary procedure
  • Limitation of liability

9

common issues 2
Common Issues (2)
  • Disciplinary procedure
  • Other issues
  • Multi Disciplinary Partnerships

10

definition of audit
Definition of Audit
  • Not in accordance with IFAC
  • Part b of the definition
  • Use of audit services somewhat confusing
  • Act should focus on regulating external auditing only

11

reportable irregularity
Reportable irregularity
  • Definition too wide – any unlawful act
  • Reporting process cumbersome
  • Materiality preferably should refer to entity
  • Otherwise dishonest
  • Revert to S20(5) of PAAA
  • Penalty is harsh
  • Overlapping reporting with other legislations
  • PAIA

12

education training
Education & Training
  • Referee & a player - exams
  • Withdrawing of recognition of educational institutions on students
  • Alternative supervisory arrangement on training contracts
  • Partial accreditation
  • Accreditation every five years
  • New syllabus required

13

character of rb
Character of RB
  • No guarantee RA will be in the RB
  • 4 + 1 representation of RA’s
  • Funding of RB – independence & reciprocity
  • Minimum representation of RA’s in DC
  • No room made for academics in the standards and ethics
  • Powers of RB to issue rules
  • Standard setting & ethics committee > separate bodies

14

section 44
Section 44
  • Fair representation not the same as fair presentation
  • Provisions archaic
  • Drop section or mention all audit procedures
  • Truthfulness and correctness
  • Materiality on testing existence of A&L
  • Conflict of interest – two year rule, ethics code
  • Including annexure
  • Term “without any restriction”

15

limitation of liability
Limitation of Liability
  • Align with audit only
  • Allow for limitation non-audit engagements
  • Proportionate liability

16

disciplinary procedure
Disciplinary Procedure
  • Make it a regulation
  • Allow for simpler process for minor cases
  • Consent orders
  • Decisions of DC not to be revoked by RB
  • Right of appeal
  • Self incriminating evidence
  • Right to remain silent
  • Subpoena powers for investigation committee

17

other issues
Other issues
  • Renewal of registration
  • Consent to employ people refused registration
  • Public interest company - inspection
  • Confidentiality of information - inspections
  • Nominated auditor vs engagement partner
  • Erosion of audit profession
  • Transitional provisions – limit to one year
  • Section 41 – potentially confusing terms

18

multi disciplinary practice
Multi Disciplinary Practice
  • Partnership
  • Sharing of profits

19

conclusion
Conclusion
  • Thanks to all the presenters and hoping the committee will ensure the intention of the policy is carried out in the resultant legislation

20