Importance of regulation, and challenges in regulating professional services

1. Importance of regulation, and challenges in regulating professional services Bernard Peter Agulhas

2. Synopsis • Context • Legislative Mandate • Importance of Regulation • The role of IRBA as a Supervisory Body in terms of FICA • Responsibilities of auditors when conducting an audit • Challenges in Regulation • Conclusion

3. Context • Regulation – Global trends • Audit regulation – Global trends • Independence from profession • Independent funding • Independent boards and structures • Role of the auditor • Misperceptions in respect of the role of the auditor • Role of the auditor in respect of fraud and corruption

4. Legislative Mandate IRBA is established in terms of section 3 of the Auditing Profession Act, 2005, (Act No. 26 of 2005), which had an effective date of 1 April 2006. The objects of the Act as set out in section 2 of the Act are as follows: • To provide for the establishment of an Independent Regulatory Board for Auditors; • To protect the public in the Republic by regulating audits performed by registered auditors; • To improve the development and maintenance of internationally comparable ethical standards and auditing standards for auditors that promote investment and as a consequence employment in South Africa; • To set out measures to advance the implementation of appropriate standards of competence and good ethics in the auditing profession, and • To provide for procedures for disciplinary action in respect of improper conduct.

5. Importance of Regulation • Protection of the public • Ensures highest quality and highest standards of auditing and ethics • Importance of harmonisation • Stimulates investment and economy • Creates employment • Provides for disciplinary action • Examples

6. Importance of Regulation (cont.) • International Forum of Independent Audit Regulators – Founded in 2008 • EU Green Paper on Audit Policy • Spirit of the Paper • Concentration in the market • Independence • Communication from auditors • Appointment of auditors • The role of audit committees

7. EU Green Paper “Robust audit is key to re-establishing trust and market confidence; it contributes to investor protection and reduces the cost of capital for companies … it is important to stress that auditors have an important role to play and are entrusted by law to conduct statutory audits”

8. The role of IRBA as Supervisory Body • IRBA is a Supervisory Body for auditors engaged in any activity listed in Schedule 1 of FICA • Accountable Institutions • Auditors who are not accountable institutions • Amendment Act provides for joint supervisory duties with the FIC

9. The role of IRBA as a supervisory body (cont.) • Key elements of supervisory duties • Provide guidance to auditors to comply with FICA, POCA, POCDATARA and PRECCA • Inspect auditors’ compliance during S47 inspections • Request information from auditors regarding their compliance • Investigate any matter regarding possible non compliance

10. Responsibilities of RAs when conducting an audit • General Responsibilities • Conduct of the audit • Reporting RIs in terms of the APA • Reporting in terms of FICA, POCDATARA and PRECCA

11. General Responsibilities • Comply with ethical requirements • Obtain assurance that AFS are free of misstatement, whether caused by fraud or error • Evaluate appropriateness of accounting policies and estimates made by management • Evaluate overall presentation of AFS • Issue audit report

12. Conduct of the audit • Risk Based Audit Approach • Acceptance of appointment as auditor • Understand the entity and its environment and assess risk of material misstatement • Going Concern • Fraud and Fraud Risk Factors • Laws and Regulations • Procedures where possible ML is discovered • Reporting suspicions of ML as required by statute

13. Fraud Risk Factors • Relating to Misstatements arising from fraudulent financial reporting • Relating to Misstatements arising from misappropriation of assets • Results from: • Incentives/Pressures • Opportunities • Attitudes/Rationalisations

14. Reporting RI in terms of the APA • Section 45 of APA • An individual RA of an entity that is satisfied or has reason to believe that a RI has taken place or is taking place must without delay send a written report to the IRBA • The report must give particulars of the RI and must include other information and particulars as the RA considers appropriate • Penalties for not reporting an RI includes 10 years imprisonment, a R10 million fine or both

15. Reporting in terms of FICA, POCDATARA and PRECCA • Section 29 of FICA • Section 28A of FICA • Section 12 of POCDATARA • Section 34 of PRECCA • The auditor’s report on the financial statements • Internal reporting and training

16. Challenges in Regulation • Independent funding • Education of the public and stakeholders • Influencing international standards • IFIAR Standards Coordination Working Group • IFAC Oversight Bodies • Responding to investors’ needs • Responding to auditors’ needs

17. Conclusion SA rated number 1 in the World by the World Economic Forum for its auditing standards

18. Contact Details Chief Executive Officer Office 087 940 8797 Email bagulhas@irba.co.za

19. THANK YOU