ATC201118: Report of the Standing Committee on Finance on the Auditing Profession Act Amendment Bill [B2-- 2020], Dated 17 November 2020
REPORT OF THE STANDING COMMITTEE ON FINANCE ON THE AUDITING PROFESSION ACT AMENDMENT BILL [B2-- 2020], DATED 17 NOVEMBER 2020
The Standing Committee on Finance, having considered the Auditing Profession Act Amendment Bill [B2 - 2020] (National Assembly- section 75), referred to it, reports the Bill with amendments [B2A – 2020] as follows:
- INTRODUCTION AND BACKGROUND
- The Auditing Professions Act Amendment Bill (the Bill) seeks to amend the Auditing Profession Act, 2005 to address challenges and limitations that the Independent Regulatory Board for Auditors (IRBA) faces in discharging its regulatory and oversight responsibilities. This is in light of a number of auditing scandals in the auditing and accounting professions in recent years.
- The amendments proposed in the Bill were contained in Financial Matters Amendment Bill (already an Act, i.e. Financial Matters Amendment Act 18 of 2019) when it was introduced in Parliament. During processing of Financial Matters Amendment Bill, Standing Committee on Finance in the Fifth Parliament, National Assembly, decided on 7 March 2019 not to proceed with the amendments to the Auditing Profession Act since it was not possible to process amendments in view of very limited time available before the 5th term of Parliament ended. The amendments proposed in this Bill are the same as those contained in the Financial Matters Amendment Bill and were subjected to public comments as part of Financial Matters Amendment Bill.
- PUBLIC PARTICIPATION
- After receiving the initial briefing from NT and IRBA on 26 August 2020, the Committee called for public comments and received submissions from the Congress of South Africa Trade Unions (COSATU), Open Secrets, Ernst and Young, Deloitte, the South African Institute of Chartered Accountants, Mr Bernard Agulhas and Mr Dumisani Mahlangu.
- On 14 October 2020, the Committee held public hearings from the organisations and individuals mentioned above. On Friday, 13 November 2020, the National Treasury responded formally to the submissions, clarifying further questions and comments from Members and stakeholders.
- OVERVIEW OF PROPOSED AMENDMENTS
- The Bill proposes amendments to the Auditing Profession Act, 2005, in order to: strengthen governance of IRBA and its investigations and disciplinary processes; provide for power to enter and search premises and to subpoena persons with information required for investigation or disciplinary process; provide for power to issue warrant for purposes of entering and searching of premises; provide for processes following investigations; provide for duty to disclose information; provide for sanctions in the admission of guilt process and following a disciplinary hearing; provide for criminal offences relating to investigation and disciplinary process and; provide for the protection personal information.
- On measures to strengthen governance, Clause 2 of the Amendment Bill requires IRBA to determine a policy framework, subject to Ministers’ approval, within which it will perform its functions.
- Clause 3 is aimed at strengthening IRBAs independence and address issues of conflict of interest of Board members by excluding registered and candidate auditors from appointment as Board members. It also proposes a prohibition on Board members from sharing, directly or indirectly, in profits of registered or candidate auditors and on receiving any payments.
- Clauses 4 proposes an extension for a further period of three months for Board members while IRBA fills vacancies in order to avoid a situation where the Board does not quorate and therefore affecting the performance of its functions.
- Clause 5 deals with the minimum number of Board meetings that must be held in a year.
- Clause 6 of the Amendment Billproposes that the Board comprise of persons of high integrity and makes provisions to regulate their conduct.
- To alleviate the burden of the disciplinary committee, as a result of a high number of disciplinary cases of auditors, the Amendment Bill proposes a provision that would allow IRBA to appoint more members of the disciplinary committee and constitute panels from these members in order to deal adequately with disciplinary cases. It also deals with issues of regulating the conduct of disciplinary committee members. It also proposes the establishment of an enforcement committee with powers to deal certain categories of disciplinary matters of improper conduct. (Clause 7),
- Clause 8 seeks to make stricter the requirements for the registration of auditors or candidates by prohibiting anyone who has been convicted of particular offences regardless of the penalty from becoming an auditor or candidate.
- Clause 9 provides fora prohibition on the removal of registered auditors before they can finish the process of reporting irregularities to IRBA.
- Clause 10 governs the processes on the referral of non-audit matters against auditors for investigation and discipline by other professional bodies. In this regard, powers of the investigating committee to subpoena evidence from the charged auditors or anyone else are proposed.
- Clause 11 further proposes the powers of search and seizure either through consent or on the strength of a warrant issued by a judge or magistrate, detailing procedures to be followed in order to ensure that such search and seizure operations are conducted with decency and strict regard to constitutional rights.
- Clause 12 proposes powers for the disciplinary panel to subpoena a person to appear before it.
- The remaining clauses propose sanctions, penalties, protection of information and transitional arrangements of the Amendment Bill (clauses 13 to 17).
- KEY ISSUES RAISED DURING THE PUBLIC HEARINGS
- The key issues raised in the public hearings concerned Board matters, the disciplinary committee and panels, the referral of non-audit matters to professional bodies, search and seizure powers, sanctions and the determination of maximum fine, reconsideration of disciplinary decisions, and protection and disclosure of information.
- On the composition of the Board, it was suggested during the public hearings that registered auditors should be included on the Board. However, IRBA and National Treasury pointed out that this could affect the independence of the Board and affect IRBA’s membership with international regulatory bodies. It was instead proposed that formerly registered auditors and legally qualified persons’ numbers be increased on the Board from one to two.
- While the Amendment Bill had proposed the reduction of the minimum number of committees’ meetings from four to two per annum, it was agreed after deliberations that the number of meetings be kept at a minimum of four per annum.
- On disciplinary committee and panels, an issue was raised during the public hearings that they must be chaired by a retired judge. However, it was highlighted during deliberations that there must be some flexibility regarding the chairpersons of the disciplinary committee and the panels. It was proposed that the disciplinary committee be chaired by a retired judge or senior counsel while each panel must be chaired by a legally qualified member of the panel to ensure functionality of the committees and panels.
- On search and seizure, concerns were raised by stakeholders on the constitutionality of the clause. National Treasury and IRBA assured the Committee that the provisions on search and seizure were constitutionally sound. Some refinements and protections were however included in the Amendment Bill to ensure that search and seizure is conducted by qualified persons e and the proper use of information obtained during the search and seizure operations.
- With regards to the proposal to make provision for a right to appeal against the decisions of the disciplinary committee, National Treasury indicated that the auditors affected by disciplinary decisions have a right to approach the courts for a review of the decisions and further that the grounds for review provided for in the Promotion of Administrative Justice Act are sufficiently extensive.
- In addition to the above, the Committee agreed to a number of amendments to clarify and refine certain provisions.
- Other key proposals which were not part of the Amendment Bill proposals were suggested by stakeholders. These proposals included expanding the scope of the Auditing Profession Act to also include the regulation of accountants, instead of only auditors. Another proposal was on the legislation of the Mandatory Auditing Firm Rotation rules. The Committee recommends a comprehensive review of the legislation of the accounting and auditing professions in order to accommodate these and other relevant issues.
- The Committee adopts the Bill with amendments.
Report to be considered.
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