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March 25, 2015

Disciplinary oversight of aspiring auditors vested in South Africa’s IRBA

By Vincent Huck

The South African parliament has passed the Auditing Profession Amendment Bill, enabling changes in the way chartered accountants (CAs) can register as auditors and giving the Independent Regulatory Board for Auditors (IRBA) disciplinary oversight of candidate registered auditors.

To qualify as a CA in South Africa, candidates can go through one of the five qualification routes offered by the South African Institute of Chartered Accountants (SAICA): audit, financial management, financial accounting, tax or cost and management accounting.

Previously, SAICA used to set all the exams a candidate had to seat, in all the qualification routes to the exception of the audit route. In the audit route candidates had to write a test of initial competence which was dispensed by SAICA, but then had to seat a second exam, a test of professional competence, which was set by IRBA.

Once candidates had qualified as CAs, they were eligible to register as auditors with IRBA provided that they had also done three years as articled clerks (known as trainees in other jurisdictions) with firms under a training contract, known as the articles of clerkship.

Under South African law, while CAs can work on audit assignments, only registered auditors (RAs) can sign the audit report. IRBA CEO Bernard Peter Agulhas told The Accountant that contrarily to what had been reported in the press, the new bill did not change the South African CA qualification but rather the way CAs register as RAs.

"The change is that we have now SAICA taking back the second exam to become a CA in the audit route, so that now whichever route you take to become a CA you will write SAICA’s exams," he said adding that IRBA will however retain the oversight over the second audit paper.

This little change carries a number of implications. "The bill wants to achieve two things," Agulhas explained. "It introduces the Audit Development Programme (ADP) and also very importantly it gives IRBA jurisdiction over candidate RAs."

The ADP is an 18 months period where freshly qualified CAs gain additional competences and skills, building a portfolio of evidence to, in a way, prove their worth and being able to register with IRBA.

The ADP will not be designed by IRBA, but will be a practical training that candidates will get through the firms they are writing their articles with. The training will provide candidates with experience at senior level as well as soft skills, such as ethics, leadership and people management.

Agulhas revealed that IRBA was in the process of appointing an ADP inspector who will be charged to visit the firms and ensure that candidate RAs receive the appropriate training.

"We don’t have training materials but we know what the requirements and expectations are, so we will have a check list to ensure that candidates are getting the training they need in leadership, ethics, and so on," Agulhas said.

"And if they don’t or if we see that there are differences in training standards across firms we will speak to the firm and the oversight RA, which is the partner the candidate is working for."

In the past, IRBA didn’t really have contacts with articled clerks, as the contract of clerkship was with SAICA. "With the ADP the IRBA steps in and deal directly with the firm and it becomes a three ways partnership between the IRBA, the candidate RA and the oversight RA," Agulhas explained.

As a consequence, candidates will now fall under IRBA jurisdiction and the regulatory body will have the disciplinary power over candidates who behave unethically or against the professional standards during their clerkship.

Black Economic EmpowermentAgulhas believes the amendments will go a long way in helping the government initiative of economic transformation. Since 1994 and the end of the Apartheid regime, South Africa has embarked in a series of reform to open the economy to black professionals. However less than 10% of auditors in today’s South Africa are blacks.

Agulhas said that some initiatives exist to attract young black talent to the profession but challenges remain in retaining those talents. "If IRBA is going to be directly involved with the firms and with the candidates we will be in a position to identify where we think the firms should make improvements in order to retain black auditors," he said.

Ultimately Agulhas believed that the new bill demonstrates how seriously IRBA takes its responsibilities. South Africa has been ranked number one for auditing standards for the last five years by the World Economic Forum, he said, and this proved the confidence that stakeholders and investors have in IRBA and South African auditors.

"If that confidence fails us it means that investors both locally and internationally will be reluctant to invest in South Africa and stimulate the economy," he said.

IRBA’s responsibility is to promote not only a credible financial market in South Africa but also to create employment, Agulhas added.

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