1. PARLIAMENTARY BRIEFING National Treasury: Republic of South Africa
DRAFT AUDITING
PROFESSION BILL
PARLIAMENTARY BRIEFING
National Treasury: Republic of South Africa
16 August 2005 1

2. Contents
Background
Overview of the DAPB 2

3. Background 3

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

5. Overview of the DABP 5

6. DABP Overview Object of the Bill
Independent Regulatory Board for Auditors (IRBA)
Accreditation and Registration
Conduct and Liability of Registered Auditors
Accountability of Registered Auditors
Offences
General Matters 6

7. 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 7

8. INDEPENDENT REGULATORY BOARD8

9. Independent Regulatory Board
Establishment and status
Functions
Powers
Governance
Committees
Funding and financial management
National government oversight and executive authority 9

10. Establishment and Status
Juristic person
Exercise functions ito of this Act
Other laws
Constitution
Ministerial directives 10

11. Functions General functions Accreditation of professional bodies
Registration of auditors
Charging of fees
Education, Training and Professional Development 11

12. 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 12

13. 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 13

14. 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 14

15. Fees Prescribe: Accreditation & registration fees
Annual fees or part thereof
Examination fees ito section 38
Fees iro education fund
Inspection or practice review fees
Fees for services rendered
Due dates for all the fees 15

16. 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 16

17. 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 17

18. Powers IRBA may IRBA may prescribe rules regarding
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 18

19. Governance Appointment of the Regulatory Board Term of office
Who does not qualify?
Chairperson and Deputy Chairperson
Meetings
Decisions
Duties of members
CEO
Delegations 19

20. 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%
Appoint alternate members 20

21. Term of board membership
Not more than two years
Reappoint may not exceed two consecutive terms
Minister may override – but may only twice
Minister may terminate period of office early 21

22. 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 22

23. 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 23

24. 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 24

25. 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 25

26. 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 26

27. 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 27

28. 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 28

29. 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 29

30. 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 30

31. 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 31

32. Funding & Financial Management
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 32

33. National government oversight and executive authority
Powers of the Minister
Ministerial representatives
Investigations and directives
Information 33

34. 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 34

35. 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 35

36. 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 36

37. Requirements for Accreditation
Compliance with prescribed requirements of professional development
Ensure continued professional development for members
Disciplinary framework
Financially & operationally viable
Transparency and representivity 37

38. 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 38

39. Effect of termination of ACC
Termination does not affect registration of RAs
RAs must satisfy the Board of suitability to continue registration 39

40. 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.
What happened to the section on recognition of institutions? 40

41. 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.
What happened to the section on recognition of institutions? 41

42. 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.
What happened to the section on recognition of institutions? 42

43. 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;
What happened to the section on recognition of institutions? 43

44. Conduct and liability of registered auditors
Practice
Compliance with rules
Information to be furnished
General services in relation to audit services
Duty to report irregularities
Limitation to liability 44

45. 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. 45

46. General obligations A RA may not issue an unqualified opinion unless;
He/she carried out the audit free from restrictions;
He/she is satisfied of the existence all assets and liabilities reported;
Proper accounting records are kept by the client;
He/she obtained all information, vouchers necessary for the conclusion of the audit; and
Satisfied as to the fairness or truth or correctness of the financial statements 46

47. Duty to report on irregularities
RA satisfied or has reason to believe a reportable irregularity is taking place must report to the Board without delay
Must notify the board of the entity with 3 days in writing
Within 30 days discuss with management, allow them representations iro the report and send another report to IRBA.
The IRBA must notify the appropriate regulator in writing
To conduct investigations an RA must have to all info from whatever source
Reporting when an entity is sequestrated or liquidated 47

48. Limitation of liability
A RA does not incur liability unless he/she is negligent
A RA incur liability if:
He/she knew the report would be used by the client to induce third party act or refrain to act in some way or
That the party would rely on the opinion
Represented subsequent to the opinion being issued to the third party that the opinion was correct
Having performed audit services is not sufficient proof for liability
A RA may incur a liability if he/she fails to report a reportable irregularity 48

49. Accountability of registered auditors
Inspections
Investigation of charge of improper conduct
Charge of improper conduct
Disciplinary hearing
Proceedings after the hearing 49

50. Inspections/ practice review
IRBA or its appointee may conduct practice reviews
At annually for public interest company audits
IRBA may recover costs of the review from an RA
An RA must supply all info required by the IRBA or its appointee
An RA submitting info in good faith may not be criminally liable for producing the info 50

51. Investigating improper conduct (1)
IRBA must refer matters to the IC if;
It suspects RA may guilty of improper conduct
The charge appears to be justified
Court may direct that a copy of its record be sent to board
At the request of IRBA the IC must:
Investigate the matter; and
Determine if the RA concerned may be charged 51

52. Investigating improper conduct (2)
IC may not question an RA unless;
The RA is informed of the right to representation; and
The RA is informed of the right to silence.
In investigating the IC may;
Require an RA to produce any necessary information
Inspect and retain the information; and
Make copies of extracts of the information.
Professional bodies may still discipline its members
IC must submit recommendations to IRBA 52

53. Charge of improper conduct
IRBA must charge the RA if IC so recommends on sufficient grounds
IRBA must furnish the charge sheet to the RA by hand or registered mail
An RA must be informed of details and nature of the charge and that he/she must respond in writing
If an RA admits a penalty may be impose ito sec 51(3)
Acquital by a court of law does not bar IRBA from charging an RA 53

54. Disciplinary hearing (1)
Must be conducted by a DC
The DC may appoint a person to assist in proceeding
Open to public unless the chair otherwise rules
DC may subpoena any person considered useful
DC may retain info obtained during the hearing
Chairperson may solicit sworn statements ex witnesses 54

55. Disciplinary hearing (2)
Charged RA has certain rights sec 50(7) & (8)
Subpoenaed witnesses should act ito sec 50(9)
IC’s evidence is sufficient if accompanied by a certification of its lawfulness by the chair
Conviction in court is sufficient evidence of commission of offence 55

56. Proceedings after the hearing
Decision in 30 days
If RA is found guilty, committee may one or more of the ff:
Caution or reprimand
Impose a fine
Suspend registration or
Cancel registration 56

57. Offences
Reportable irregularities and false statements in connection with audits
Offences relating to disciplinary hearing
Offences relating to public practice 57

58. General matters Powers of the Minister Indemnity
Administrative matters
Repeal and amendments of laws
Transitional provisions
Short title and commencement 58

59. THANK YOU ANY QUESTIONS?59