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July 14, 2008

Regulatory burdens amplify skills shortage

Regulatory burdens have the potential to further amplify the South Africa audit profession’s crushing skills shortage, according to two industry leaders.

Speaking to The Accountant for the South Africa survey (see Bearing the burden of legislation), South African Institute of Chartered Accountants president Ignatius Sehoole said there is a danger of small- and medium-sized firms being pushed out of audit due to the costs associated with quality control reviews.

In South Africa, all audit firms must be reviewed by the Independent Regulatory Board for Auditors (IRBA). But where in other jurisdictions costs are shared by government and other stakeholders, in South Africa they are paid for in full by the firm.

Sehoole said this is, in some cases, an unmanageable burden: “While it is still a significant cost for the Big Four, one can argue that because of the size of the firms they are better able to absorb those costs. But our medium to small firms… some I understand have actually closed shop.

“This is not because they wouldn’t want to be reviewed, a lot of them are quite optimistic that if they were to be reviewed they would pass with flying colours. But because of the nature of their clientele and the size of the firm, they just can’t afford it.

“I think in a country like ours where skills shortage is a problem, it is a pity to be losing skills in an area where it is needed simply because the costs are prohibitive.”

The IRBA is currently reviewing its funding structure with the hope that government and other stakeholders will contribute to the costs.

Legal threats

IRBA acting chief executive Bernard Agulhas said another regulatory burden threatening to push people out of the profession and into business is the threat of up to ten years imprisonment and a ZAR10 million ($1.3 million) fine for an auditor who does not report a client’s reporting irregularity. “It is difficult because financially it is more feasible for them to go out into industry, because the risks are less,” he said.

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