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PARLIAMENTARY BRIEFING

DRAFT AUDITING PROFESSION BILL. PARLIAMENTARY BRIEFING. National Treasury: Republic of South Africa 16 August 2005. Contents. Background Overview of the DAPB. Background. Background. Corporate Failures Independence of the Regulatory Board Government funding – Independence

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PARLIAMENTARY BRIEFING

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  1. 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 BOARD 8

  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 • 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 • Funding • 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. 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. 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. 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; 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

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