Change is coming for SA auditors

The auditing regulatory body is working on a number of changes to deal with the deteriorating quality of the auditing profession in SA.

Speaking at the Finance Indaba on Thursday, the technical manager at the Institute of Internal Auditors SA, Charles Nel, said the Independent Regulatory Board for Auditors (Irba) is working on several projects that will introduce changes to how the quality of audits is assessed. However, he did not provide further information on the projects. 

SA has been plagued by a number of accounting irregularities and poor corporate governance in the recent past. Auditing firm KPMG’s involvement in state capture raised questions about the quality of auditors in SA.  In July Irba named and shamed several auditors who had repeatedly contravened its professional standards, code of conduct and the law.

Nel said while the coming changes would help to deal with concerns about the quality of auditors’ work, he had an issue with companies wanting to hold audit firms accountable for everything that goes wrong.

“It’s the leadership’s job to put governance structures in place. You can put all the structures in place as an auditor but if you have collusion, like in the case of Steinhoff, it becomes very difficult for auditors to pick that up. Your controls are not going to work if you have collusion,” he said.

McDonalds SA CFO Zaf Mohamed said the root of the problem is a drop in the quality of graduates produced by universities in recent years. “Compared to 25 years ago, the skills level has dropped significantly, and it scares me. We don’t only see that in the industry or the people we interact with, but also in people we are recruiting. Universities are not producing quality graduates.

“Yes, there were governance issues at Steinhoff, but the skills set of people who were auditing the company was also a problem. They were not suitably qualified to pick up what was obviously fraud.”

But Mohamed said there is undue pressure on external auditors, while those responsible for internal controls are often let off the hook.

“As CFO of McDonalds, what I produce has to be of high quality. I can't hope that the external auditors will pick things up on my behalf. Then I must be fired. We can’t only hold audit partners responsible.”

Nel said overreliance on the audit report is problematic because auditors are held accountable even when management ignores internal auditors’ recommendations and masks things from external partners through collusion.

“We are putting a lot of pressure on KPMG, we are putting pressure on the auditor-general, but we are not dealing effectively with management that makes decisions at the SOEs [state-owned entities]. Governance starts at the top, from company culture to the kind of leadership the organisation has. It’s all about the ethics. If ethics is right, the rest filters into place,” said Nel.

Mohammed said the mandatory rotation of audit partners, for which the parliamentary committee on finance has given green light to start in 2023, will solve many of the challenges confronting the audit profession in SA. However, directors and managers of companies cannot be let off the hook.

buthelezil@businesslive.co.za