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December 5, 2014

South Africa to adopt UK FRC model for national accounting regulator

South Africa’s National Treasury wants to import the model and structure of the UK Financial Reporting Council (FRC) for its own future accounting regulator, The Accountant has learnt.

Currently only the audit profession is regulated under the supervision of the Independent Regulatory Board for Auditors (IRBA).

Earlier this year the country’s Minister of Finance, Nhlanhla Musa Nene, endorsed the World Bank’s recommendation that South Africa should pass legislation to create an overarching regulator of the entire accounting profession.

During his inaugural speech in April Nene said he wanted to see implemented within 30 months the World Bank’s recommendation issued in a December 2013 ROSC.

Speaking to TA for the annual South Africa survey, IRBA chief executive Bernard Agulhas said the audit regulator has not yet received formal notification from the Minister to start the process.

However he said: "The National Treasury has indicated that we should start to prepare plans based on the UK Financial Reporting Council (FRC) regulatory model. Once these plans have been submitted to the Minister, funding will be released."

Agulhas told TA that the National Treasury, part of the Ministry of Finance, wants to see the enabling legislation in place by the end of 2015.

"Once the regulatory structure is in place, anyone who wants to deliver accounting services in South Africa would have to be a member of a professional body accredited by IRBA." Agulhas explained.

DisagreementThe South African Institute of Government Auditors executive president Dieter Gloeck, told TA he supports the creation of such a regulator, but as long as the private sector and the public sector are kept separate.

Gloeck said this would revert to the times when the Public Accountants and Auditors Board had the power to regulate both accounting and auditing services in South Africa.

But according to him "it never exercised control over accounting as there was an ‘arrangement’ not to interfere in the affairs of the South African Institute of Chartered Accountants".

Gloeck, who is an accountancy professor at the University of Pretoria, warned however that it would be a mistake to fit another European structure into the scenario of an African country with unique challenges, history and circumstances.

"Even if the FRC had a good track record and even if the UK was an example of perfect regulation, which in both cases it is not. One just has to read reports and the debate by academics and researchers who are not captured by the establishment and the profession and it becomes clear that the FRC’s structures are not fit to be used as a global model."

A spokesman for the FRC told TA: "We think we have a good working model for regulation in the UK and this is shown when other jurisdictions follow our model."

Read the full country survey by Paul Golden here: Ministry of finance gets its claws into South African profession

Related storyUK FRC could inspire South Africa’s accounting regulation2013 South Africa survey: Regulation, regulation, regulation

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