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South African regulator to boost sanctions

The South African regulator, the Independent Regulatory Board for Auditors (IRBA), has proposed to lift the limit on the level of fines it can issue as part of series of measures to beef up sanctions at its disposal. The announcement came the day before IRBA announced an investigation into the conduct of Steinhoff auditor Deloitte.

Some of IRBA’s recommendations require amendments to the Auditing Profession Act. But other sanctions can be enforced immediatly, such as:

  • suspension of right to practice, which will be utilised where the transgression warrants more than just a monetary penalty, but is not so severe as to warrant a removal from the register,
  • removal from the register, which may now also include preconditions that the RA needs to comply with, as well as the timeframe, prior to the RA being eligible to re-apply for re-registration with the IRBA,
  • specific publication of findings and names of auditors and firms where settled by consent order in public interest entity matters,
  • specific publication of findings and names of auditors and firms in non-public interest matters where the auditor is a repeat offender,
  • specific publication of findings in all cases which go to disciplinary hearing.

IRBA CEO Bernard Agulhas said: “There have been too many recent examples of improper conduct by auditors to continue to believe that it is ‘business as usual’. The professional standards and code of conduct are not only there to protect the public, but also the auditor. These standards and codes uphold the quality of audit services, which ultimately builds confidence in our financial markets. What is the use of having standards if those who fail to comply cannot be held accountable? And what is the use if those that fail to comply create their own practices and use that as an excuse not to comply?”

There is a growing interest to see how South Africa will respond to the current crises it faces in its accounting and auditing environment, Agulhas continued. “The board has tasked its disciplinary committees with the immediate implementation of a more effective approach which could include combinations of permissible penalties rather than merely imposing a fine.”

The day following these proposals, IRBA started an investigation into Deloitte South Africa following the share price collapse of Steinhoff International DV and allegations of accounting irregularities.

The global retail company Steinhoff lost 90% of its stock price value after CEO Markus Jooste stepped down on 5 December following allegations of fraud. Chairman Christo Wiese has also resigned on 14 December following mounting pressure after the company finally admitting to the fraud. Steinhoff has previously had to defend itself regarding accounting irregularities and non-disclosures relating to acquisitions. In November, Steinhoff denied allegations of wrongdoing, including that investors had not been informed about deals worth R14.2bn ($1bn). The retailer also announced that it approached PwC to perform an independent investigation.

IRBA will conduct an investigation into the audits of financial years ended 2014, 2015 and 2016. “The investigation will follow due process and the timing will depend on information which will come to our attention once we have established the nature of the alleged irregularities and have had further discussions with the relevant parties, including the audit regulators in Germany, where the company has its primary listing, and the Netherlands. These discussions, including matters relating to jurisdictional responsibilities, commenced in the previous week,” Agulhas said.

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