Founder: Turnaround Talk
The proverb discretion is the better part of valour that could have been written with auditors/auditing firms in mind. While companies like to throw caution to the wind and make bold, carefully calculated risk-based decisions, auditors usually carry the tag of conservative assessors who are guided by facts and evidence.
Yet, two of South Africa’s most significant business scandals have come as a result of questionable actions by auditors. So much damage was inflicted on Steinhoff, and possibly Tongaat Hulett, that it is debatable whether these companies can recover.
These scandals raised a few eyebrows about compliance within South Africa. As a result, important questions have been directed towards Government, asking them what punitive actions will be taken against rogue audit firms in the future.
According to Finance Minister Enoch Godongwana, a line has finally been drawn in the sand.
A R25 million statement of intent
The Moneyweb article points out that auditors can now be slapped with fines of up to R25 million if found to be in breach of South Africa’s Auditing Profession Act – a significant increase from historically low levels previously thought of as ineffective in addressing misconduct in the industry.
Finance Minister Enoch Godongwana increased the maximum monetary penalties for both individual auditors and audit firms, which will allow the Independent Regulatory Board for Auditors (Irba) to impose bigger monetary fines than the R200 000 per charge it was previously limited to.
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The article adds that Godongwana gazetted the new limits on 15 June, empowering Irba to impose penalties of R5 million on an individual auditor and R15 million on auditor firms that admit guilt.
The fines will be imposed per charge and are applicable to any improper conduct found to have occurred after 26 April 2021, when the amended Auditing Profession Act 26 of 2005 was promulgated.
The minister also set a maximum fine of R10 million and R25 million that may be imposed on an individual auditor or audit firm respectively if charged and found guilty.
Violations
The article points out that although previous monetary sanctions were viewed as too low to deal with misconduct in the country’s auditing industry, Irba, tasked with regulating the accountancy profession in South Africa, highlighted that the fines are not fixed and that violations will not always attract the maximum charge.
“While the Irba welcomes the publication of the new maximum fines, it is important to note that these are maximum fine limits and not fixed,” Irba CEO Imre Nagy said on Monday.
The Moneyweb article adds that Nagy said that, as in the past, under Irba’s enforcement disciplinary committee rules, a variety of other sanctions may be imposed on delinquent firms and individual auditors. These include non-monetary sanctions.
“The committees also continue to have the power to scale monetary sanctions in line with the seriousness of the charges, therefore not every charge of improper conduct will attract the maximum fine,” said Nagy.
Following the gazetting of the fines, Nagy said Irba will finalise the implementation framework for the new sanction limits.
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He said this “will ensure that relevant considerations” – including proportionality – are considered prior to determining an appropriate fine.
A welcome development
This is a welcome development and a significant statement of intent. If we are to address the concerns of the Financial Action Task Force and break the shackles of our greylisting, compliance with the law needs to take place at every level.
There is a reason why these laws exist. Their objective is to protect the public who may be invested in these companies (if they trade publicly) and employees who may be facing the prospect of seeking employment in a market where the unemployment rate is above 30%.
Economists believe that Africa will drive the next global economic boom and that the continent will be home to the next economic superpower. South Africa is competent (and worthy) enough to carry this mantle, provided that compliance with the law is sacristan. Government needs to bare its teeth, and South African companies need to know there is no room for creativity in the audit profession.
