Auditing Profession Amendment Bill: National Treasury & IRBA response to public submissions

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Finance Standing Committee

13 November 2020
Chairperson: Acting: Ms P Abraham (ANC)
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Meeting Summary

14 Oct 2020

Auditing Profession Amendment Bill: public hearings

In this virtual meeting, the Committee heard input from National Treasury and the Independent Regulatory Board for Auditors (IRBA) on their responses to public input on the Auditing Profession Amendment Bill.

Concerns had been raised over the constitutionality of the search and seizure powers provided to IRBA. Treasury submitted that provisions were constitutionally sound and in line with existing legislation handling search and seizure. Some areas of refinement had been included in proposed amendments regarding the qualification of persons authorised to execute search and seizures, enhanced legal protection for subjects, and clarity on the criteria for warrants.
 
Stakeholders had commented that the Bill did not provide for a right to internal or external appeal against disciplinary decisions. Treasury responded that, although the bill did not provide for internal appeal, it did not remove the right to go to court, and grounds for legal review embedded in the Promotion of Administrative Justice Act were sufficiently extensive to protect rights of those affected by IRBA decisions.
 
Stakeholders had proposed determining a maximum fine set by the Minister in the Act, and the inclusion of a number of factors to be considered before imposing sanctions. Treasury responded that, to allow for flexibility, it was not desirable to set a maximum amount and that amounts could become irrelevant due to inflation. However, it was proposed that the Minister determine a maximum fine on the recommendation of the board. Mitigating factors could already be submitted for consideration in determining sanctions.

Discussion centred on transparency of IRBA action outcomes, the extent of its search and seizure powers, and the composition and operation of the disciplinary committee and panels, as well as whether PAJA covered appeals to IRBA decisions via the courts.
 

Meeting report

Apologies were tendered by Dr D George (DA).

Mr J Maswanganyi (ANC) requested Ms P Abraham (ANC) to act as Acting Chairperson.
 
National Treasury Chairperson
Adv Empie van Schoor, Chief Director: Legislation, National Treasury, explained that Treasury had submitted a comment matrix of stakeholder submissions with responses from Treasury and IRBA. Treasury and IRBA had consulted SAICA, Deloitte and EY on certain key issues. Some comments from the public were beyond the scope of the current Amendment Bill. Treasury encouraged the Committee to consider proposed areas of amendment in the Bill to strengthen governance at IRBA.
 
Treasury had identified some key issues raised in public submissions: governance matters at IRBA, disciplinary committees and panels, referral of non-audit matters to professional bodies, search and seizure powers, sanctions, reconsideration of disciplinary decisions, and the protection and disclosure of information.
 
Adv Ailwei Mulaudzi, Director: Fiscal and Intergovernmental Legislation, National Treasury, dealt with these key issues systematically:
 
IRBA composition
Stakeholders had commented that IRBA should include currently registered auditors and increase its legal representation. Treasury responded that including currently registered auditors may impede IRBA’s independence and also result in IRBA’s IFRA membership being withdrawn. The amendment proposed increasing the number of formerly registered auditors from 1 to 2.
 
Related Persons
Stakeholders had commented that persons should be prohibited from being an IRBA member if they were related to a registered auditor. This was supported by Treasury.
 
Policy framework
The Bill provided for IRBA determining a policy framework for its functions with Ministerial approval, but without a timeline. Stakeholders had proposed including a timeline for this in legislation. This was supported by Treasury.
 
Number of committee meetings
Stakeholders proposed keeping the number of IRBA meetings at a minimum of four per year, which was supported by Treasury.
 
Disciplinary committee and panel composition
Stakeholders requested clarity regarding the composition of the disciplinary committee in addition to auditors and legally qualified persons, and suggested making disciplinary panels a minimum of three people. Treasury supported the proposal to clarify that other committee members should be “suitably qualified” and agreed with the three-person minimum for panels.
 
Chairperson of disciplinary committee and panels
Stakeholders had proposed a minimum seniority for the chairperson of the disciplinary committee, requiring them to be a retired judge of senior advocate with at least 20 years’ experience. The chairperson of the disciplinary panel was recommended to be selected from the legally qualified members of the committee. Both interventions were supported.
 
Referral of non-audit matters to professional bodies
Stakeholders had requested the act clarify what “non-audit matters” were. Since “audit” was already defined, Treasury saw this as unnecessary.
 
Search and seizure powers
Concerns had been raised over the constitutionality of the search and seizure powers provided to IRBA. Treasury submitted that provisions were constitutionally sound and in line with existing legislation handling search and seizure. Some areas of refinement had been included in proposed amendments regarding the qualification of persons authorised to execute search and seizures, enhanced legal protection for subjects, and clarity on the criteria for warrants.
 
Reconsideration of disciplinary decisions
Stakeholders had commented that the Bill did not provide for a right to internal or external appeal against disciplinary decisions. Treasury responded that, although the bill did not provide for internal appeal, it did not remove the right to go to court, and grounds for legal review embedded in the Promotion of Administrative Justice Act were sufficiently extensive to protect rights of those affected by IRBA decisions.
 
Sanctions
Stakeholders had proposed determining a maximum fine set by the Minister in the Act, and the inclusion of a number of factors to be considered before imposing sanctions. Treasury responded that, to allow for flexibility, it was not desirable to set a maximum amount and that amounts could become irrelevant due to inflation. However, it was proposed that the Minister determine a maximum fine on the recommendation of the board. Mitigating factors could already be submitted for consideration in determining sanctions.
 
Protection and disclosure of information
Stakeholder comments on information had included a provision for disclosure of information if in the public interest to combat unethical or unlawful conduct, ensuring appropriate protection of personal information, and allowing for the sharing of information with professional bodies in respect of referral of non-audit matters. Treasury responded that IRBA already published the names of guilty parties where in the public interest or in case of repeat offenders. IRBA was also bound by the Protection of Personal Information Act to protect personal information. Treasury concurred with suggestions of information sharing in case of referral of non-audit matters.
 
Ms Jenitha John, Chief Executive Officer, IRBA, noted that IRBA’s input was covered by Treasury
 
Discussion
The Acting Chairperson commented that the responses from Treasury and IRBA were thorough and indicated that the public submission process had been effective. She asked for clarity on the question of the disciplinary committee chairperson, especially as to whether the Bill would require a retired judge or just someone with appropriate legal qualifications. She commended Treasury for being consistent on the matter of search and seizure given its constitutionality.
 
Adv Van Schoor replied that the disciplinary committee chairperson was intended to be a retired judge or senior advocate (due to difficulties finding judges), and when it came to the panel, the chairperson should be legally qualified and have at least 10 years of legal experience.
 
The Acting Chairperson proposed that the Amendment Bill was not a controversial Bill in itself.
 
Mr Michael Marchant, Open Secrets, requested clarity on the publishing of information by IRBA in case of the public interest and how a “public interest entity” would be defined.
 
Mr Matthew Parks, COSATU, welcomed Treasury’s response on minimum IRBA meetings. He asked for clarity on whether IRBA’s search and seizure powers extended past office hours. He also restated COSATU’s view that mandatory audit rotation should be included in the Bill and be reduced from 10 years to 5 years.
 
Ms Carla Budricks, Deloitte, asked for clarity on the composition and chairpersonship for the disciplinary committee and panels. She agreed with Treasury that PAJA provided for appeals to IRBA decisions, but was not sure that it provided for fines due to incorrect merit.
 
Ms Jillian Bailey, Director: Investigations, IRBA, responded to Open Secrets. She said that any matter that went through a disciplinary hearing would result in the involved party’s name being published. Where settlements were reached, there was discretion over publication, as the degree of seriousness and impact of auditor errors had to be weighed in terms of whether publication was in the public interest. Involved parties would be named if they were repeat offenders or public interest entities. Publication of names was a serious step and was not always warranted by the offence.
 
Adv Mulaudzi noted that IRBA was allowed to execute search and seizure at night if the person authorised to conduct the operation had included this as a request in the warrant application.
 
Adv Van Schoor replied to COSATU that mandatory rotation was not a matter being proposed for amendment in this Bill and needed further public consultation. She proposed that this rule could be considered for inclusion in the next round of amendments to the APA. She replied to Ms Budricks that PAJA was broad enough to cover all forms of procedural error at IRBA, and that the bill did not limit administrative justice.
 
Ms Rebecca Motsepe, Legal Director, IRBA, replied that the disciplinary panel was currently composed of one-third people with 10 years of legal experience, one-third of people with 10 years of audit/accounting experience and one-third others. The disciplinary committee chairperson would be responsible for appointing panels for every hearing, thus removing this power from IRBA members which was good for independence of processes. IRBA had had issues securing senior counsel or retired judges for every disciplinary panel, and so had proposed relaxing requirements for chairpersons of panels to have 10yrs of legal experience, which they saw as sufficient.
 
The Acting Chairperson thanked the members, stakeholders and officials.
 
The meeting was adjourned. 

 

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