1. National Treasury: Republic of South Africa
DRAFT AUDITING
PROFESSION BILL
DELIBERATIONS
National Treasury: Republic of South Africa
17 October 2005 1

2. Contents Background & History of the Profession Role of auditors
Interested Parties
Common issues raised in public hearings
Treasury’s view
Main areas of disagreement
Conclusion 2

3. Background 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. 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 4

5. 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”
Fall of the Soviet union & emergence of globalisation
Standards of accounting & auditing harmonised
Culture & character of profession changes 5

6. Role of Auditors (1)
Corporate failures world wide infuse urgency in SA legislative reform
Public interest the focal issue
Auditor independence & some practices questioned
Profession admits consulting impairs independence
Increased focus on risk management- but often skewed perspective 6

7. Interested Parties Expression of opinion – on AFS
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. Common Issues (1) Definition of Audit Reportable irregularity
Education & training
Character of the RB
Section 44
Disciplinary procedure
Limitation of liability 9

10. Common Issues (2) Disciplinary procedure Other issues
Multi Disciplinary Partnerships 10

11. Definition of Audit Not in accordance with IFAC
Part b of the definition
Use of audit services somewhat confusing
Act should focus on regulating external auditing only 11

12. Reportable irregularity
Definition too wide – any unlawful act
Reporting process cumbersome
Materiality preferably should refer to entity
Otherwise dishonest
Revert to S20(5) of PAAA
Penalty is harsh
Overlapping reporting with other legislations
PAIA 12

13. Education & Training Referee & a player - exams
Withdrawing of recognition of educational institutions on students
Alternative supervisory arrangement on training contracts
Partial accreditation
Accreditation every five years
New syllabus required 13

14. Character of RB No guarantee RA will be in the RB
4 + 1 representation of RA’s
Funding of RB – independence & reciprocity
Minimum representation of RA’s in DC
No room made for academics in the standards and ethics
Powers of RB to issue rules
Standard setting & ethics committee > separate bodies 14

15. Section 44 Fair representation not the same as fair presentation
Provisions archaic
Drop section or mention all audit procedures
Truthfulness and correctness
Materiality on testing existence of A&L
Conflict of interest – two year rule, ethics code
Including annexure
Term “without any restriction” 15

16. Limitation of Liability
Align with audit only
Allow for limitation non-audit engagements
Proportionate liability 16

17. Disciplinary Procedure
Make it a regulation
Allow for simpler process for minor cases
Consent orders
Decisions of DC not to be revoked by RB
Right of appeal
Self incriminating evidence
Right to remain silent
Subpoena powers for investigation committee 17

18. Other issues Renewal of registration
Consent to employ people refused registration
Public interest company - inspection
Confidentiality of information - inspections
Nominated auditor vs engagement partner
Erosion of audit profession
Transitional provisions – limit to one year
Section 41 – potentially confusing terms 18

19. Multi Disciplinary Practice
Partnership
Sharing of profits 19

20. Conclusion
Thanks to all the presenters and hoping the committee will ensure the intention of the policy is carried out in the resultant legislation 20

21. THANK YOU ANY QUESTIONS?21