Watchdog to probe auditing at three listed companies

The Independent Regulatory Board for Auditors (Irba) will launch an investigation into the auditing of three unnamed listed companies after its quality inspection exercise flagged issues of independence by the auditors, material misstatements not picked up in the auditing process and inappropriate audit opinion.

The watchdog on Friday released its “2023 Public Inspections Report on Audit Quality”, in which it was found that while the number of files referred for investigations decreased, troubling auditor behaviour was still present in the system.

“Despite the decrease in the referral for investigation outcome, the fact that 30% (258) of the findings were identified from only 15% (13) of the engagement files is concerning,” reads the report.

“These inspected engagements were from 10 different audit firms; and ... eight were referred for investigation on certain matter(s) that included three listed entities, while for five the referrals were on an overall basis that included only one non-listed public interest entity.

“Out of the three firms referred, two of the referrals were for independence matters and one for the quality of the audits performed, suggesting a failure in the system of quality at the firm.”

SA has had no shortage of disastrous audits flowing from auditors whose proximity to the audited company caused them to overlook glaring misstatements, to the detriment of investors.

KPMG had to recently settle with the liquidators of the defunct VBS Mutual Bank for R500m over shoddy auditing of the lender’s books. An investigation into the collapse of VBS found the lead auditor, Sipho Malaba, played an active role in covering up the fraud and was rewarded with a handsome R34m in loans by the bank’s top brass.

Settlements

“In all the circumstances, I find that Malaba approved and signed off on VBS’s financial statements for the year ended March 31 2017, knowing of the falsities and inaccuracies contained therein. This is fraud,” reads investigator Terry Motau’s report.

Deloitte and Tongaat Hulett’s business rescue practitioners last year reached a R260m settlement, with the audit firm not admitting liability.

The Irba report also found an increase in staff turnover, with firms grappling with higher turnover rates.

“The restrictive availability of skilled resources and the subsequent impact on audit quality now pose a significant global challenge ... we urge firms to explore strategies to retain their talent by, among others, considering factors such as benefits, work-life balance, flexible work arrangements and talent management.”

Most of the top auditing firms in the country have flagged the attractiveness of the profession as an emerging challenge.        Among the reasons for the industry losing its lustre are high entry requirements to study accounting, high tuition fees, low pay, high work stress and tight deadlines, and negative publicity about the auditing profession.

The contest for talent in SA was worsened by low maths literacy, which significantly reduced the student pool; and a number of push-and-pull factors such as political and socioeconomic instability, which fostered emigration, while highly skilled, in-demand professionals were pulled away from SA to alleviate global shortages, Irba has previously warned.

Irba CEO Imre Nagy said that audit quality remained at the centre of the watchdog’s strategy and was critical to restoring confidence in the profession.

“We recognise that audit failures are very seldom caused by auditors and that investors and users of financial statements continue to place significant reliance on the work of audit professionals,” Nagy said.

“However, we cannot ignore the devastating impact that even a single audit failure on a public interest entity can have on investors, the public, the audit firm, the reputation of the registered auditor brand and our profession. Public trust in the auditing profession is essential for the functioning of capital markets and the broader economy.”

khumalok@businesslive.co.za