Uproar from auditing firms over proposed search and seizure powers

The auditing profession is up in arms over what it says are extreme, unconstitutional powers of search and seizure that  proposed legislative amendments would give to the Independent Regulatory Board for Auditors (Irba).

The proposed amendments to the Auditing Profession Act form part of the Financial Matters Amendment Bill, which was the subject of public hearings by parliament’s finance committee on Tuesday.

The amendments would allow Irba’s investigating committee to enter premises with prior consent, but without any consent if there is a warrant for the purposes of conducting a search. Irba argues that it needs these powers to be able to complete investigations as quickly as possible while following due process.

However, auditing firms Deloitte, PwC and EY and the SA Institute of Chartered Accountants (Saica) all said in their submissions to the committee that the proposal goes too far and would undermine the constitutionally enshrined right to privacy.

Finance committee chair Yunus Carrim said, in principle, that he has nothing against search and seizure because it will not be opposed if the person had nothing to hide. However, Saica CEO Freeman Nomvalo said the proposals seemed “very extreme” and noted that the proposed entry to premises would only be for the purposes of investigation without any proof that an offence had been committed.

“The rights to enter and search are normally included in criminal cases investigated under the Criminal Procedures Act and not for other types of offences,” Nomvalo noted. He suggested that existing measures requiring auditors to provide relevant information be strengthened.

EY professional practice director Roger Hillen stated that no sufficient reasons have been given as to why Irba requires such significant powers. He said the proposed amendment would give Irba powers greater than those given to the police, which can only enter a premises when there are reasonable grounds to believe an offence has been committed.

Deloitte regulatory leader Carla Budricks told MPs it was not necessary to increase Irba’s powers as it already has sufficient powers to request and obtain documentation. She also said the extended powers would not pass constitutional muster as they are not justifiable or proportional in relation to the invasion of privacy.

Current act

The current Auditing Profession Act stipulates that an auditor may not refuse producing any information requested by Irba, even if they are of the opinion that the information contains confidential information about a client. Non-compliance constitutes an offence.

The new bill would also allow an Irba investigating committee to require, or subpoena, the person investigated — or any other person with specific knowledge of the matter under investigation — to produce documents. The committee would be empowered to get a court order to enforce compliance.

“The consequence of the current proposal is that not only auditors but also any other person may be subject to the search and entry procedure,” Budricks said. She argued that if Irba’s powers have to be extended, a search and entry warrant should be an exceptional remedy of absolute last resort after all available remedies have been exhausted and the judicial officer is satisfied that no other recourse is available.

“Search and entry may not be conducted on the grounds of mere consent by the respondent due to the extensive liability that may be incurred where third-party information is held and an ignorant respondent had no access to legal advice or representation.”

PwC CFO Fulvio Tonelli is concerned that the proposed extended powers are not fair. “We believe the proposed power to enter premises and search and seize documents is out of balance with the intended powers of the regulator and may lead to a gross abuse of constitutional rights,” PWC said in its submission. It appears that foreign audit regulators do not possess similar powers. Search and seizure powers are universally limited to those regulators and prosecutors with authority to bring criminal charges.”

The excessive powers proposed are not a justified basis to limit guaranteed constitutional rights, PwC said: “We submit that Irba’s current powers to investigate and subpoena documents is sufficient and should not warrant constitutional rights being infringed or limited.”  

ensorl@businesslive.co.za