INDEPENDENCE OF FIRMS
Audit inspection makes case for tougher approach, says Irba
Irba CEO says a 27% increase in the rate of unsatisfactory inspections of large audit firms justifies a tougher approach to their independence
A 27% increase in the rate of unsatisfactory inspections of large audit firms justifies a tougher approach to their independence, says Independent Regulatory Board for Auditors (Irba) CEO Bernard Agulhas.
Agulhas was referring to the results of the latest audit inspection by Irba. They reveal a significant increase in the number of inspections in which the audit partner was referred to the investigative committee of Irba.
The most common root cause of adverse findings at firm level was "human error". One of the most common reasons for auditors being referred for investigation by the inspection committee was for independence breaches of Irba’ s code.
Agulhas said the inspections, which were done regularly, were not only critical to ensure that the highest standards were maintained, "they also provide the public and investors with the confidence that they can rely on the work of auditors".
The results of the inspections reinforced the need to ensure greater levels of independence and the most effective way of doing this was through mandatory audit firm rotation, he said.
Irba has proposed that an audit firm should not serve a listed company for more than 10 consecutive years. There should then be a break of at least five years. The proposal has been met with opposition.
The Chief Financial Officers’ Forum says mandatory rotation is the solution to a problem that does not exist.
The South African Institute of Chartered Accountants has warned Parliament that mandatory rotation might lead to unintended consequences and not deal with the problems targeted by Irba.
Agulhas said it was the responsibility of regulators to be proactive. "We can’t wait for failures ... before we act; if something happens, it’s too late."
Irba’s inspection findings are in line with those of the global inspection survey released by the Independent Forum of Audit Regulators (Ifar) in early March. Irba is a member of Ifar.