South Africa’s Independent Regulatory Board for Auditors (IRBA) has published a consultation paper Enhancing Disclosures in the Auditor’s Reports in South Africa: Addressing the Needs of Users of Financial Statements.
The report is published following concern expressed by various stakeholders, including investors in South Africa.
The IRBA Consultation Paper discusses how an audit report can be enhanced and it seeks to explore the usefulness, benefits and drawbacks of the additional disclosures, which include:
- What was covered in the scope of the audit and what materiality was applied;
- What was the audit effort related to irregularities, including fraud;
- Audit effort in relation to going concern procedures and conclusions;
- Scope and disclosure of reporting on Key Audit Matters;
- Disclosure of fees for the audit and non-audit services;
- Whether the Entity is classified as a Public Interest Entity (PIE);
- Disclosures arising from prior year misstatements; and
- Disclosures regarding unadjusted misstatements.
IRBA acting CEO Imre Nagy said: “Given the number of corporate failures and scandals in South Africa and around the world, confidence in the auditing profession has been negatively impacted. Questions are asked about whether auditors are doing enough when they audit financial statements; and more particularly whether the auditor’s report goes far enough to meet the needs of the users. These include questions about the transparency of the auditors in relation to their independence and objectivity, as well as their conclusions on matters such as fraud and going concern.
“Investors and users request these additional disclosures as they believe, among other reasons, that these will provide additional transparency about the audit process and also be an indicator of the auditor’s independence, therefore, impacting audit quality positively.
“We aim to gather perspectives from a wide variety of stakeholders – but specifically those who use audit reports to inform investment decisions – regarding their views of our proposed additional disclosures and how this might help them in making wise investment decisions. The information gathered in this process will assist the IRBA to consider possible outcomes or reforms that will enhance audit quality and ultimately provide useful information to users of financial statements that will restore confidence in the auditor and the audit report.”
Nagy concluded: “We would really like to hear from investors, shareholder representatives, directors, preparers, members of audit committees and oversight structures, academics, researchers as well as practitioners and their firms. We would also welcome inputs from professional bodies and other regulators from within South Africa and around the world.”
The consultation paper was prepared by a Committee for Auditing Standards (CFAS) Task Group, comprising technical representatives from firms, the South African Institute of Chartered Accountants (SAICA), the IRBA and other South African regulators. At this stage, the IRBA is canvassing ideas on how to enhance transparency in auditor reporting and address the needs of stakeholders and is not committing to what the outcomes of the consultation might produce.
The full consultation paper can be here and feedback to the consultation paper can provided via this form.