Last weekend, the auditing profession breathed a sigh of relief when finance minister Tito Mboweni announced a new board for the turbulent regulator, the Independent Regulatory Board for Auditors (Irba).
This new board will be chaired by an auditing heavyweight in Fulvio Tonelli, a former top executive of PwC Africa, but many of his new colleagues also have impressive track records. They include former Alexander Forbes finance director Naidene Ford-Hoon, the auditor-general’s Eugene Zungu, former SA Revenue Services lawyer Nalini Maharaj and Ruth Benjamin-Swales, who chaired the regulator some years ago.
It’s a testament to the sharp job done by Nonkululeko Gobodo and Roy Andersen, the "caretakers" hired by Mboweni in February for a 90-day period, after the previous board was dissolved.
Gobodo and Andersen didn’t mess about. In short order, they finalised 41 disciplinary cases, recommended new board members and addressed the "issue" of Jenitha John, whose presence as Irba’s CEO had cleaved the previous board in half.
It wasn’t that John was ill-equipped — with a 25-year career, including at FirstRand, she had one of the best résumés out there. But the problem was that John had been the audit committee chair of Tongaat Hulett, which was hit by a reputation-battering auditing scandal in 2019.
Within three weeks of Gobodo and Andersen’s arrival, John resigned — after a bruising eight months in the role. In announcing this, Irba said it was "unfortunate that negative perceptions about John persist and this has unfortunately impacted her role at Irba".
No surprise then, that one of the first orders of business for Tonelli’s board is to appoint John’s successor. And that’s before they get to the small matter of fixing the reputation of the entire profession.
Two weeks ago, Deloitte SA CEO Lwazi Bam hosted a "fireside chat" with Donald Brydon, the man who spent months investigating what had gone wrong with the UK’s auditing profession.
It was a fascinating discussion, partly because the UK and SA have many similarities — including some rather recent auditing wounds. Think of Steinhoff, VBS Mutual Bank and EOH locally; and the Thomas Cook group, construction group Carillon and department store BHS in Brydon’s home country.
Brydon’s 138-page report came out in December 2019, and recommended that "urgent reforms" be implemented — including a greater (but not total) responsibility to detect corporate fraud.
Speaking to Bam, Brydon said his review began at the legitimate question: where were the auditors in the collapse of Carillion? "The root problem we were troubled about was companies going bust without any warning and, looking back at audit reports, finding nothing there [to warn us]," he said.
This cuts to the heart of the gulf between what the public expects, and what auditors believe they can do. Clearly, many members of the public hold auditors, like Deloitte and KPMG, responsible for not detecting fraud at companies like Steinhoff. Yet the way auditors see it, they have no responsibility to detect fraud.
Brydon squeezes the door open marginally. The way he sees it, auditors would have a greater responsibility to use "all of their very best endeavours", reasonably, to uncover the sources of major fraud.
"No-one can expect a zero failure approach to this," he said. "There will be some frauds that are too clever and difficult to detect … but it is [important] to put yourself in the position where if there’s a major fraud going on, you’d spot it. Which is different to saying you’ve got an obligation to detect all fraud."
In this view, much turns on whether auditors behaved "reasonably", and whether they focused on substance rather than a series of easy-to-game rules.
It sounds like a slight tweak, but actually, it would be a quantum leap. Had there been a greater onus to ask more probing questions at EOH, Steinhoff and Tongaat, who knows if it would have ended differently?
But to bring it all back to Irba, Brydon was clear that for an audit profession to work properly, it needs an adept, alert regulator. "The regulator has to play a part. I used fraud as the example: there needs to be a mechanism to say, not everyone can find everything — you know, very clever people can hide things. In those circumstances, there has to be a confidence in the regulator," he said.
Which illustrates just how critical a role Tonelli’s new board has to find John’s replacement, and to restore that kind of confidence in the regulator.
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