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July 31, 2008

Audit reviews drive South African firms out of business

Regulatory burdens have the potential to further amplify the South Africa audit profession’s crushing skills shortage, according to two industry leaders.

There is a danger of small- and medium-sized firms being pushed out of audit due to the costs associated with quality control reviews, according to South African Institute of Chartered Accountants president Ignatius Sehoole. South African audit firms must be reviewed by the Independent Regulatory Board for Auditors (IRBA). However, where in other jurisdictions costs are shared by government and other stakeholders, in South Africa they are paid for in full by the firm.

Sehoole said this is an unmanageable burden in some cases: “While it is still a significant cost for the Big Four, one can argue that because of the size of the firms they are better able to absorb those costs. But our medium to small firms… some I understand have actually closed shop.

“A lot of them are quite optimistic that if they were to be reviewed they would pass with flying colours. But because of the nature of their clientele and the size of the firm, they just can’t afford it. I think in a country like ours where a skills shortage is a problem, it is a pity losing skills in an area where it is needed simply because the costs are prohibitive.”

IRBA acting chief executive Bernard Agulhas said another regulatory burden threatening to push people out of the profession and into business is the punishment of up to ten years imprisonment and a ZAR10 million ($1.3 million) fine for an auditor who does not report a client’s reporting irregularity. Carolyn Canham

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