Gifts to auditors from clients to be ‘regulated’
Under the new draft, the acceptance of any gift would be subject to an ‘intent test’
A draft of new principles detailing how auditors and other professional chartered accountants are to deal with inducements, such as gifts from clients, is expected in August.
The draft of the new inducement standards, from the International Ethics Standards Board for Accountants (IESBA), would impose stricter principles on gifts and hospitality, said Michael Dorfan, chairman of the South African Institute of Chartered Accountants’ (SAICA’s) ethics committee.
IESBA is a standard-setting board of the International Federation of Accountants, of which SAICA is a member.
The ruling standard says chartered accountants should refuse gifts when they threaten independence, objectivity or integrity. Under the new draft, the acceptance of any gift would be subject to an "intent test" and would be prohibited even if there was only a perception that it could improperly influence the behaviour of the recipient, Dorfan said.
The independence of auditors has been thrust into the spotlight after leaked e-mails showed that audit partners at KPMG had attended the 2013 Gupta wedding at Sun City, at the time they were auditing companies owned by the family. The e-mails revealed that Linkway Trading, one of the Gupta-owned companies that KPMG was auditing, was the recipient of government funds intended for Free State farmers.
Separately, concerns about auditor independence have led the Independent Regulatory Board for Auditors to institute mandatory audit firm rotation — a move criticised by the Chief Financial Officers Forum, among other bodies.
This will compel listed companies to change audit firms every 10 years from 2023.
The institute would submit comment on the inducements standard, which would need to be approved by the public-interest oversight board before becoming part of SAICA’s professional code, Dorfan said.
In July, IESBA’s noncompliance with laws and regulations standard came into effect. It sets a framework to guide auditors and other professional accountants on what actions to take in the public interest when they become aware of a potential illegal act by a client or employer. The standard provides for an override of confidentiality between auditors and clients in matters concerning the public interest. "No member will be disciplined for reporting unethical behaviour where the public interest is at stake," Dorfan said.
The standard provided that, where auditors became aware of noncompliance with laws in the course of their duties, "turning a blind eye was not a response", said Willie Botha, senior executive of assurance and practice at SAICA.