Imre Nagy, appointed this week as the permanent CEO of audit regulator Irba, doesn’t plan on messing about. While many new CEOs patronisingly declare they will do nothing for months but “listen” (or, more likely, size up the corporate politics), Nagy knows precisely what his battle plan is.
Then again, he has been acting in the role for 18 months, since the unceremonious departure of Jenitha John amid an uproar over her role as chair of the audit committee of Tongaat Hulett during a bone-crushing accounting scandal.
Nagy carries no such baggage. A registered auditor himself, he worked at PwC before joining Gobodo (today known as SNG Grant Thornton), before joining Irba in 2013.
“In the past 18 months, while I’ve been acting CEO, we’ve pretty much just got on with business,” he told the FM this week. “We’ve stabilised the regulator and refocused on restoring confidence in the profession.”
That’s no small task. The profession has been in the eye of the storm, as crooked auditors (KPMG at VBS Mutual Bank), epic errors (Deloitte at Tongaat Hulett and Steinhoff) and amateur blunders (PwC at SAA) chipped away at its credibility.
Nor was it just a local phenomenon. Accounting scandals at high-profile firms like Germany’s Wirecard (where EY was the auditor), Malaysia’s 1MDB (audited by KPMG, EY and Deloitte) and Asia’s largest commodities trader, the Noble Group (again, EY), painted an unflattering picture.
The fact is, the vast majority of boards and auditors acted with integrity, so it wasn’t endemic. But it was still a hard lesson that we needed to beef up our systems and awareness
— Imre Nagy
But, says Nagy, SA’s profession is in a far better place than it was five years ago, when it was wrong-footed by a cascade of audit failures.
“We were caught off-guard. At the regulator, we’d had signals that all was not right, through warnings in our inspections and complaints we’d got. But when it hit, it was a big eye-opener that there were so many people in business without integrity. Our financial reporting lines of defence weren’t geared for such a systemic failure. We’d just assumed that auditors would act with integrity and due care. We’d become complacent,” he says.
That naiveté has gone. A renewed focus on professional scepticism, and greater sensitivity to what could go wrong, as well as a bigger stick — in higher fines for errant auditors — has led to an era of what Nagy believes will be “much greater accountability, and responsibility”.
He says: “The fact is, the vast majority of boards and auditors acted with integrity, so it wasn’t endemic. But it was still a hard lesson that we needed to beef up our systems and awareness.”
Of course, it’s fine to talk of accountability, but part of that is dealing quickly with failures — and Irba doesn’t exactly have a sterling track record on that score.
Famously, it took until 2018 for the case against Deloitte over transgressions at African Bank to make its way to a disciplinary hearing, even though the lender had collapsed five years earlier.
Nagy admits this was too slow. But he is targeting completing investigations into high-profile audit failures at Steinhoff and Tongaat Hulett within the next six months so that disciplinary action can be instituted.
“We’ve set ourselves the goal that by the end of March next year we’ll have completed the initial investigations into Tongaat and Steinhoff and progressed with the hearing into Sharemax. Then, if these go to a disciplinary hearing, that has its own time frame,” he says.
The regulator is already acting with unprecedented urgency, after changes to the Auditing Profession Act in April last year. Two weeks ago, for the first time, Irba was able to hold two disciplinary inquiries simultaneously.
“This shows that we’re serious,” says Nagy. “We have much stronger regulatory powers now.”
In the past year 42 old cases were investigated, leaving a backlog of 165 matters. Nagy says this backlog “will be significantly reduced in the coming year”.
Sanctions have also been ratcheted up. Until now, the maximum fine that could be levied against an auditor was R200,000, which Nagy says “is a drop in the ocean”.
Irba has now asked finance minister Enoch Godongwana to raise this. While Nagy won’t say what the new limit will be, he says it could be “millions of rands per charge”.
But cracking down on errant auditors is only one side of the equation; the other is enticing people into the profession.
Those might seem like two contradictory goals, but this isn’t so, says Nagy. “If we restore public trust in the profession, and auditors are able to feel confident that their profession acts with integrity and professionalism, we’ll make it more attractive again to be an auditor.”
That’s critical, as the number of auditors registered with Irba has fallen from 4,000 a few years ago to 3,650. Of those, only 2,800 or so are registered to sign audit opinions.
Emigration has been a factor. Says Nagy: “Even at Irba, we’ve lost our fair share of inspectors [who emigrated]. It’s an accolade that our professionals are sought after, but we’ve got to be careful this doesn’t affect our audit quality.”
But while he has his work cut out for him, Nagy says it’s no accident he’s in the role now.
“When I met my wife 25 years ago, I told her that one day I plan to work at the regulator. Doing this work — and not losing sight of the fact that this role serves the public — I see as a calling,” he says.
Which is unusual: there aren’t many people in the public service, it seems, who share that sentiment.
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