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DELIBERATIONS

National Treasury: Republic of South Africa17 October 2005

DRAFT AUDITING PROFESSION BILL

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Contents

• Background & History of the Profession

• Role of auditors

• Interested Parties

• Common issues raised in public hearings

• Treasury’s view

• Main areas of disagreement

• Conclusion

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Background

• PAAA enacted in 1951

• Protecting public interest main object of that Act

• Minister handed the regulation to the profession – de

facto self regulation

• Amended 40 years since, in 1991

• Discussions on improving it since early nineties

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History (1)

• Great depression impact on the profession

• Oil price crisis in early seventies

• US authorities question – self regulation practices

• Increase competition, increase of non-audit services

• Audit overtaken by non-audit services in contributing

to revenues of firms

• Authorities warn of impact to independence of

auditors

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History (2)

• Firms compete on prices for audit work and

solicitation of clients intensifies

• Low-balling develops into practice

• Firms consolidate from “big 8” to “big 4”

• Fall of the Soviet union & emergence of globalisation

• Standards of accounting & auditing harmonised

• Culture & character of profession changes

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Role of Auditors (1)

• Corporate failures world wide infuse urgency in SA

legislative reform

• Public interest the focal issue

• Auditor independence & some practices questioned

• Profession admits consulting impairs independence

• Increased focus on risk management- but often

skewed perspective

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Interested Parties

• Expression of opinion – on AFS

• Shareholders including pension funds

• Workers in client companies

• Creditors and other investors

• Governments

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Focus of this Bill

• Enhance integrity of the profession

• Protection of the Public interest

• Enhance independence & effectiveness of the

regulator

• Enhance independence of auditors

• Ensure the RB is accountable

• Hold auditors accountable

• Ensure equitable access to profession

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Common Issues (1)

• Definition of Audit

• Reportable irregularity

• Education & training

• Character of the RB

• Section 44

• Disciplinary procedure

• Limitation of liability

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Common Issues (2)

• Disciplinary procedure

• Other issues

• Multi Disciplinary Partnerships

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Definition of Audit

• Not in accordance with IFAC

• Part b of the definition

• Use of audit services somewhat confusing

• Act should focus on regulating external auditing only

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Reportable irregularity

• Definition too wide – any unlawful act

• Reporting process cumbersome

• Materiality preferably should refer to entity

• Otherwise dishonest

• Revert to S20(5) of PAAA

• Penalty is harsh

• Overlapping reporting with other legislations

• PAIA

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Education & Training

• Referee & a player - exams

• Withdrawing of recognition of educational institutions

on students

• Alternative supervisory arrangement on training

contracts

• Partial accreditation

• Accreditation every five years

• New syllabus required

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Character of RB

• No guarantee RA will be in the RB

• 4 + 1 representation of RA’s

• Funding of RB – independence & reciprocity

• Minimum representation of RA’s in DC

• No room made for academics in the standards and ethics

• Powers of RB to issue rules

• Standard setting & ethics committee > separate bodies

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Section 44

• Fair representation not the same as fair presentation

• Provisions archaic

• Drop section or mention all audit procedures

• Truthfulness and correctness

• Materiality on testing existence of A&L

• Conflict of interest – two year rule, ethics code

• Including annexure

• Term “without any restriction”

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Limitation of Liability

• Align with audit only

• Allow for limitation non-audit engagements

• Proportionate liability

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Disciplinary Procedure

• Make it a regulation

• Allow for simpler process for minor cases

• Consent orders

• Decisions of DC not to be revoked by RB

• Right of appeal

• Self incriminating evidence

• Right to remain silent

• Subpoena powers for investigation committee

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Other issues

• Renewal of registration

• Consent to employ people refused registration

• Public interest company - inspection

• Confidentiality of information - inspections

• Nominated auditor vs engagement partner

• Erosion of audit profession

• Transitional provisions – limit to one year

• Section 41 – potentially confusing terms

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Multi Disciplinary Practice

• Partnership

• Sharing of profits

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Conclusion

• Thanks to all the presenters and hoping the

committee will ensure the intention of the policy is

carried out in the resultant legislation

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THANK YOUANY QUESTIONS?