The Independent Regulatory Board for Auditors (Irba) has called for comment on its proposed rules relating to investigations into disciplinary matters. It’s part of an effort to beef up the regulator, which has long been regarded as having too cosy a relationship with the firms it is supposed to hold to account.
The rules also tie in with amendments to the Auditing Profession Act, which came into effect in April.
At this early stage, not everyone is persuaded that either change will make much difference to the regulator’s apparent inability to rein in its charges. Simon Mantell of Mantelli’s Biscuits, whose drawn-out battle with PwC over its auditing of SAA means he may have done more to hold the big audit firms accountable than Irba, is not too optimistic. He reckons Irba doesn’t have nearly enough resources to do its job properly, and notes there’s been no provision to boost its budget.
Without a hefty injection of resources, the much-touted new powers to undertake search and seizures and subpoena individuals are likely to wilt in the face of the inevitable opposition that comes when any of the "big four" (Deloitte, EY, KPMG and PwC) are under scrutiny.
One leading legal academic goes as far as describing the search-and-seizure power as catnip for the big legal firms that act for their audit counterparts.
The good news is that Irba, which told parliament’s select committee on finance a few months ago that it was investigating 237 cases, now has eight investigators, up from four previously.
But the situation might be worse than Mantell suggests. Accountant, academic and activist Khaya Sithole tells the FM it’s not just a resource issue; Irba has capacity constraints that would prevent it from making effective use of any increase in resources. At its most basic, this is evident in the prolonged failure to appoint a CEO.
Sithole believes these constraints will render the new powers ineffective. "Search-and-seizure exercises require substantial capacity if they are to be done effectively," he says.
He also queries why Irba didn’t apply a forensic mindset to drawing up the rules, which could have eliminated the need for something as potentially clumsy as subpoena and search-and-seizure powers. "Rules could have been introduced that require audit firms to store and archive critical audit-related information and [that oblige] this information to be made accessible to the regulator," says Sithole.
The regulator’s problems aren’t with the small firms. Its big challenge is with holding the big four accountable — and it is the failures involving these firms that have caused most damage, in terms of both cost and reputations.
Consider what happened when Irba went flat out on what seemed to be an open-and-shut case of unprofessional conduct: the auditing of African Bank.
In November 2020, it found Mgcinisihlalo Jordan, Deloitte’s engagement partner on the African Bank audit, guilty of five of 10 charges he faced in relation to the collapse of the bank.
Irba said Jordan’s offences had been sufficiently serious to warrant deregistration. But the independent disciplinary committee assembled by Irba thought differently. It announced Jordan’s right to practise as an auditor would be revoked for just two years — and even that would be suspended for three, provided he fulfilled certain conditions. The committee also imposed fines totalling R800,000 on Jordan and said he was liable for R31.2m of Irba’s R60m in case-related costs. Deloitte undertook to pay the R31.2m.
It was probably of little comfort that at least the public had access to the hearings and the outcome was made known. Generally, hearings are held behind tightly closed doors and the findings disclosed in an incomprehensibly dense report in Irba’s quarterly magazine.
Deloitte subsequently launched upon a "self-correcting path" and acknowledged the role it has to play in reforming the profession. But the lack of any signs of progress with Irba’s investigation into two more of Deloitte’s clients — Tongaat Hulett and Steinhoff — suggests the self-correcting path may still be littered with lawyers fending off attempts at holding the powerful firms to account.
There’s an additional concern. Given that the big four are Irba’s main challenge, it’s questionable whether having a former big four partner as chair is appropriate.
Fulvio Tonelli, who was appointed to the post, spent more than 30 years at PwC, the last several of them as COO. He left the firm in 2020 and is no longer a registered auditor.
It could be that Tonelli’s lifetime experience ensures that Irba is better placed to challenge the powerful players. Or, perhaps instinctively, to shelter them. Time will tell.
As can be expected, Irba is confident the amendments and new rules mark the beginning of a tougher era. "The rules implement the amendments to the act, which strengthened the powers of Irba and will improve both the efficiency and the effectiveness of the Irba investigation and disciplinary processes," says acting CEO Imre Nagy.
He adds that the new rules will ensure that Irba "effectively delivers on its public interest mandates to hold auditors charged with improper conduct to account and will contribute to restoring confidence and rebuilding trust in the profession and the regulator".
Sithole says the big four, after years of reputational pummelling, do want a strong regulator to keep them in line. Whether or not the new rules and amendments move them closer to that is another matter.
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