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PARLIAMENT NCOP HEARING

DRAFT AUDITING PROFESSION BILL. PARLIAMENT NCOP HEARING. National Treasury: Republic of South Africa 15 November 2005. Contents. Background History of the Profession Role of auditors Overview of the Bill Conclusion. Background (1). PAAA enacted in 1951

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PARLIAMENT NCOP HEARING

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  1. DRAFT AUDITING PROFESSION BILL PARLIAMENTNCOP HEARING National Treasury: Republic of South Africa 15 November 2005 1

  2. Contents • Background • History of the Profession • Role of auditors • Overview of the Bill • Conclusion 2

  3. Background (1) • PAAA enacted in 1951 • Protecting public interest main object of that Act • Minister handed the regulation to the profession – de facto self regulation • Amended 40 years since, in 1991 • Discussions on improving it since early nineties 3

  4. Background (2) • Corporate Failures • Independence of the Regulatory Board • Government funding – Independence • Complexities in corporates • Companies Act 4

  5. History (1) • Great depression impact on the profession • Oil price crisis in early seventies • US authorities question – self regulation practices • Increase competition, increase of non-audit services • Audit overtaken by non-audit services in contributing to revenues of firms • Authorities warn of impact to independence of auditors 5

  6. History (2) • Firms compete on prices for audit work and solicitation of clients intensifies • Low-balling develops into practice • Firms consolidate from “big 8” to “big 4” • Emergence of globalisation • Standards of accounting & auditing harmonised • Culture & character of profession changes 6

  7. Role of Auditors • Expression of opinion – on AFS • Provides users with assurance that AFS fairly present financial health of entities • Shareholders including pension funds • Workers in client companies • Creditors and other investors • Governments 7

  8. Focus of this Bill • Enhance integrity of the profession • Protection of the Public interest • Enhance independence & effectiveness of the regulator • Enhance independence of auditors • Ensure the RB is accountable • Hold auditors accountable • Ensure equitable access to profession 8

  9. Overview of the DABP 9

  10. DABP Overview • Interpretation & Object of the Bill (clauses 1 – 2) • Independent Regulatory Board for Auditors (clauses 3 – 31) • Accreditation and Registration (clauses 32 – 40) • Conduct and Liability of RA (clauses 41 – 46) • Accountability of RA (clauses 47 – 51) • Offences (clauses 52 – 54) • General Matters (clauses 55 – 60) 10

  11. Objects of the Act • Protection of public interest • Provide for establishment of Independent Regulatory Board • Prescribe ethical & auditing standards • Provide for competency requirements • Provide for procedures for disciplinary action in respect of proper conduct 11

  12. INDEPENDENT REGULATORY BOARD 12

  13. Independent Regulatory Board • Establishment and status (clause 3) • Functions (clauses 4 – 8) • Powers (clauses 9 – 10) • Governance (clauses 11 – 19) • Committees (20 – 24) • Funding and financial management (25 – 27) • National government oversight and executive authority (28 – 31) 13

  14. Establishment and Status • Juristic person • Exercise functions ito of this Act • PFMA • Constitution • Other laws 14

  15. Functions • General functions • Accreditation of professional bodies • Registration of auditors • Charging of fees • Education, Training and Professional Development 15

  16. General Functions • Promote the integrity of the profession • Investigate improper conduct & conduct disciplinary hearing • Impose sanctions for transgressions/ improper conduct • Protect public interest • Prescribe standards for qualifications, competence, ethics and conduct of auditors • Encourage education icw, & research into matters affecting the profession • Participate in international professional activities 16

  17. Accreditation of professional bodies • Prescribe minimum requirements for accreditation • Consider & decide on applications • Prescribe period for the validity of accreditation • Keep register of accredited professional bodies • Terminate accreditation of professional bodies 17

  18. Registration of auditors • Prescribe minimum requirements for registration • Consider & decide on applications • Prescribe period for the validity of registration • Keep register of registered auditors • Terminate registration of auditors 18

  19. Education, Training & Development (1) • Conditionally or unconditionally recognise educational institution iro educational qualifications & programs • Recognise or withdraw recognition for professional body iro FQE per section 38 • Prescribe requirements & conditions for continued education, training & professional development • Prescribe period for training and form of training contracts 19

  20. Education, Training & Development (2) • Recognise or withdraw recognition for firms as training officers • Reciprocal international professional recognition • Advise or consult relevant bodies wrt education, training & development of RAs • Approve & register training contracts • May establish an education fund 20

  21. Fees • Prescribe: • Accreditation & registration fees • Annual fees or part thereof • Examination fees ito section 38 • Fees iro education fund • Inspection or practice review fees ito clause 47 • Fees for services rendered • Due dates for all the fees 21

  22. Powers • IRBA may • Determine staff & related issues • Determine reimbursable fees for the board • Collect fees & invest funds • Borrow money ito PFMA • Grant bursaries or loans • IRBA may prescribe rules regarding • Any matter as per this Act • Any matter allowing it to function effectively 22

  23. Governance • Appointment of the Regulatory Board • Term of office • Who does not qualify? • Chairperson and Deputy Chairperson • Meetings • Decisions • Duties of members • CEO • Delegations 23

  24. Appointment of IRBA • Appoint not more than 10 non-executive members • Must be suitable qualified & experienced • Transparency & representativity • RA should not be more than 40% but must have RA • Appoint alternate members 24

  25. Term of board membership • Not more than two years • Reappoint may not exceed two consecutive terms • Minister may override – but may only do so twice • Minister may terminate period of office early • Appoint interim board in the event 25

  26. Who does not qualify? • Any person who is: • A Non RSA citizen and non residents; • An Unrehabilitated insolvent; • Convicted of offence; • Removed from office of trust due to improper conduct; • Guilty of improper conduct ito this Act 26

  27. Membership ceases when: • A person: • is disqualified ito the Act; • resigns; • Is of an unsound mind or mentally disordered; • Is absent for more than two consecutive mtgs; • Ceases to be permanently resident 27

  28. Chairperson & Deputy • IRBA must appoint a chairperson • Hold office for two years from date of appointment • Deputy assumes all powers of the chairperson in his/her absence • Board members may elect an acting chair 28

  29. Meetings • At least twice a year • Chairperson may convene a special meeting • At least three board members may request a special meeting in writing • All board members have one vote • Chairperson has a casting vote 29

  30. Duties of Members • Provide effective, transparent, accountable and coherent corporate governance • Provide effective oversight • Comply with all applicable legislation • Communicate openly and promptly with the Minister • Deal with Minister in good faith • Act in accordance with the code of conduct for board members 30

  31. Delegations • IRBA may delegate its powers other than prescribing rules • Assign any employee to perform any of its duties • Delegation is subject to limitations by the IRBA • May authorise sub-delegation • Delegation does not divest board of responsibility • IRBA may confirm, vary or revoke decision taken by committee, CEO or member 31

  32. Committees • IRBA must appoint the ff permanent committees: • Ethics committee; • Standard setting committee; • Education, training and professional development committee; • Investigating committee; and • Disciplinary committee • IRBA must consider transparency & representativity 32

  33. Ethics committee • Ethics committee shall be composed of; • Three registered auditors; • Three persons representing users of audit services; • One person representing a stock exchange; and • One advocate or an attorney with at least ten years experience • Must assist IRBA in determining improper conduct • Advise RAs on matters of professional ethics 33

  34. Standard setting committee • This committee shall be composed of; • Five registered auditors; • One person with experience of business; • The Auditor-General or his/her nominee; • The CEO of FSB or his/her nominee; • An experienced university lecturer in auditing; • A stock exchange nominee; • The commissioner of SARS or his/her nominee; and • The registrar of banks • Develop, maintain, adopt, issue or prescribe auditing pronouncements 34

  35. Disciplinary committees • A disciplinary committee must: • Be chaired by a judge or senior advocate; • Consist of the a majority of non-RAs; • Consist of other suitably qualified persons not associated with auditing profession 35

  36. Funding & Financial Management • Funding • Collection of prescribed fees; • Other monies that may accrue to the Board; and • Annual appropriations. • Annual Budgets and strategic plan ito PFMA • Financial management must be in accordance with PFMA 36

  37. National government oversight and executive authority • Powers of the Minister • Ministerial representatives • Investigations and directives • Information 37

  38. Powers of the Minister • Executive authority • Ensure the IRBA complies with the PFMA and other legislation • Ensure IRBA is managed responsibly and transparently • Establish clear channels of communication • Monitor and review performance 38

  39. Ministerial rep • Official from National Treasury • Act as a participating observer • May call or convene a meeting • Must represent the Minister faithfully • Act in accordance with Minister’s instruction 39

  40. Investigations and directives • Minister may instruct the Board to undertake specific functions • Instruct the Board to stop or desist from acting against the interest of the auditing profession • May investigate the affairs of the Board at any time 40

  41. Accreditation & Registration • Accreditation of professional bodies (clause 32 – 36) • Registration of individual auditors and firms (clauses 37 – 40) 41

  42. Requirements for Accreditation • Compliance with prescribed requirements of professional development • Ensure continued professional development for members • Disciplinary framework • Financially & operationally viable • Transparency and representivity 42

  43. Termination of Accreditation • Accreditation lapses automatically if: • PB ceases to exist • Fails to pay prescribed fees • IRBA must cancel Accreditation: • On non-compliance with requirements or • Suspend accreditation to protect public interest or auditing profession 43

  44. Effect of termination of ACC • Termination does not affect registration of RAs • RAs must satisfy the Board of suitability to continue registration 44

  45. Registration of Auditors • Must comply with prescribed education, training and competency requirements for a RA; • Serve under a registered training contract for the prescribed period; • Pass prescribed final qualifying examinations; • Have access to continued professional development; • Fit to practice the profession; and • Has the necessary competence to practice. 45

  46. Registration of Auditors • Board may not register an individual: • Was removed from an office of trust due misconduct; • Was convicted of fraud, theft, forgery or an offence ito PRECCA; • Is of unsound mind; and • Disqualified under this Act. 46

  47. Termination of Registration • Board must cancel registration: • Disqualification subsequent to registration; • If registration was made in error; and • Individual is guilty of improper conduct. • Board may cancel registration: • Sequestration or compromise with creditors • Fails to satisfy CPD requirements after ceasing to be a member of a professional body. 47

  48. Registration of Firms • Only firms that may be registered are: - • Partnerships where all partners are themselves registered auditors • Sole proprietor owned by an RA; • Companies if; • Registered ito of Companies Act; and • Only RA are shareholders; 48

  49. Conduct and liability of registered auditors • Practice (clause 41) • Compliance with rules (clause 42) • Information to be furnished (clause 43) • Duties in relation to audit (clause 44) • Duty to report irregularities (clause 45) • Limitation to liability (clause 46) 49

  50. Practice • Only registered auditors may practice or call themselves auditors; • A person not registered as RA may not; • Perform audit services; • Pretend to be, or in any manner hold out as an auditor; • Use any name per subsection (1) or any misleading name; • Make people believe he/she is an audtitor. 50

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