Information Sessions 2007

1. Information Sessions 2007

2. Welcome • Overview of the implementation of Auditing Profession Act • Department reports: • Education, Training and professional development • CPD • Accreditation • Standards • Ethics • Auditing • Reportable Irregularities • Practice Review • Firm reviews • Engagement reviews • Legal and Registry • New processes • Operations • Finance • Resources • Companies Bill – High level comments • Questions and Answers

3. Our Vision Our vision is to be an internationally recognised and respected regulator of the auditing profession, relevant to the South African environment.

4. Our Mission Our mission is to endeavour to protect the financial interests of the South African public and international investors in South Africa through the effective and appropriate regulation of audits conducted by registered auditors, in accordance with internationally recognised standards and processes.

5. Our Objectives and Goals In line with our legislative mandate, the IRBA objectives are to create the framework and principles to contribute to the protection of the public who rely on the services of registered auditors and to support registered auditors who carry out their duties competently, fearlessly and in good faith.

6. Our Objectives and Goals (continued) The goal is to help create an ethical, value-driven financial sector that encourages investment, confidence and promotes sound business practices. This is done by: • Developing and maintaining auditing standardswhich are internationally comparable; • Developing and maintaining ethical standardswhich are internationally comparable; • Providing an appropriate framework for the education and trainingof properly qualified auditors as well as their ongoing competence

7. Our Objectives and Goals (continued) • Inspecting and reviewingthe work of registered auditors and their practices to monitor their compliance with the professional standards; • Investigating and taking appropriateaction against registered auditors in respect of non-compliance with standards and improper conduct; • Conducting our business in an economically efficient and effectivemanner, in accordance with the relevant regulatory frameworks; • Working to ensure the sustainability of the profession.

8. Our Values As overall custodians of the Auditing Profession in South Africa, the IRBA acknowledges the importance of the mandate assigned to it by Parliament and all its members and staff ascribe to the following core values: • Independence • Integrity • Objectivity • Commitment • Transparency • Accountability

9. Our Key Success Factors • Good Governance • Effective communication • Continuous learning • Knowledge sharing • Good management practices • Adherence to quality principles

10. Our Regulatory Philosophy Our philosophy is to regulate the auditing profession in the best interest of the public and the local and international investor community, at the same time recognising the importance of a sustainable and viable auditing profession in South Africa. We adopt a “Prudential Approach”to regulation which implies having an agreed set of principles and values supported by, well developed and internationally recognised standards and clear laws and regulations. Enforcement is considered the last option, when all other reasonable corrective measures have failed.

11. IRBA 2007/8 Board Members • Dines Gihwala (Chairman) • Linda De Vries (Deputy Chairman) • Wynand Du Plessis • Deepak Nagar • Cathryn Emslie • Gill Marcus • Jacob Modise • Themba Zakuza • Grathel Motau • Sipho Sono

12. Education, Training & Professional Development Department (ETP)

13. Continuing Professional Development (CPD) CPD Policy • Objectives of CPD • Prescriptions • Audit relevant, verifiable • Minimum hours • Interim arrangement Reporting Monitoring of CPD Comparison: SAICA and IRBA CPD

14. Accreditation Institutional and programme accreditation Institutional accreditation requirements: • CPD; • Discipline & ethical conduct of members; • Financial & operational viability; • Register of members; • Representivity in the profession; and • Technical support & guidance.

15. Accreditation Programme accreditation requirements: • Recognised academic programme; • Recognised core assessment programme; • Recognised education programme; and • Recognised training programme.

16. StandardsCommittee for Auditor Ethics(CFAE)

17. Background The Auditing Profession Act, Act 26 of 2005 establishes the CFAE In terms of section 21(2), the CFAE must assist the Board in: (a) determining what constitutes improper conduct by developing rules & guidelines for ethics, incl. a code of conduct; (b) interacting with professional bodies & other stakeholders with an interest in the profession; & • providing advice to RA’s on matters of professional ethics and conduct.

18. Objective To approve the development and maintenance of internationally comparable ethics standards for auditors that promote investment and as a consequence employment in the republic.

19. Composition • Three (3) persons registered as auditors with the Board; (U. Schackerman, F. Ntombela & G. Paris), • Three (3) persons representing users of audits; (N. van Graan, V. Jack, E. Kieswetter & J. Kuzwayo), • One (1) person representing an exchange which is the holder of a stock exchange licence issued under the Securities Services Act, 36 of 2004; (S. Davies), and • One advocate or attorney with at least 10 years’ experience in the practice of law (Vacant).

20. Constituencies of CFAE Members • Ulrich Schäckermann – Partner: Grant Thornton • Funeka Ntombela – Partner: PricewaterhouseCoopers • Gerard Paris – Partner: Alpha Milliard Chartered Accountants • Nasiema van Graan – Executive Assistant: Old Mutual Investment Group (Pty) Ltd • Vuyo Jack – CEO: Empowerdex • Edward Kieswetter – Chief Operations Officer: South African Revenue Service • Jabu Kuzwayo – Head of Regulation: South African Reserve Bank • Shaun Davies – General Manager – Surveillance: JSE Limited

21. Developing a Code of Ethics To: • Raise awareness of ethical behaviour. • Promote ethical behaviour and discourage unethical behaviour. • Facilitate social integration. • Provide guidance on ethical decision-making. • Reduce interventions from government. • Minimise legal action. • Preserve the integrity of the profession. • Protect stakeholders and public interests The IRBA Code will serve as a reference for enforcement where there is a breach of its provisions.

22. Either an Aspirational format Or a Directional format • Values based • High discretion • Vague • Not easily enforceable • Integrity approach • Internal commitment • Promote ethical behaviour • Rules based • Low discretion • Specific • Enforceable • Compliance approach • External enforcement • Prevent unethical conduct

23. Tone of the Code • Relational – best suited where there is an environment of trust. • Transformational – When the objective is to change behaviour. • Informational – Mostly applicable to professional environments. • Instructional - When prompt action is needed.

24. Other projects • Guidance on Network Firms • Preparation of Comment letters to IESBA of IFAC • Research on the establishment of an Ethics hotline • Participation in Clarity project for Ethics Standards

25. Communication through education Ethics will be communicated in the following ways: • Awareness programmes • Through the media • Ethics helpline and technical support • Technical Newsletters (IRBA News)

26. International Liaison • The IRBA CEO serves on the International Ethics Standards Board for Auditors (IESBA) of IFAC. • This representation will provide a valuable link to provide comments into the international standard setting process. • The CFAE will comment on all EDs issued by the IESBA through the comment process as outlined in the Working Procedures.

27. Challenges • Whether the Code should be principles based or rules based. Suggestion: Principles based with additional guidance. • Whether the CFAE should rather adopt the IFAC Code instead of developing an entirely new one. Suggestion: Develop a new Code taking into consideration the IFAC Code and what other countries have done. • How to communicate ethics to RAs.

28. Challenges (continued) • How to ensure compliance with the Standards. • The view on multiple registration. • How to include Ethics into curricula of HEIs. • The format in which pronouncements on ethics will be issued. • The status of pronouncements on ethics.

29. Challenges (continued) • Determining the stakeholders which should be involved in the process to develop the Code. • How to draft the code using a principle – based approach. • Whether to include or exclude safeguards (to be considered with decision on whether the Code should be principles or rules – based).

30. StandardsCommittee for Auditing Standards (CFAS)

31. Background • The Auditing Profession Act, Act 26 of 2005 establishes the CFAS. • In terms of section 22(2), the CFAS must assist the Board to: • develop, maintain, adopt, issue or prescribe auditing pronouncements; • monitor developments by international standard-setting bodies; • promote and ensure the relevance of auditing pronouncements; • Prepare comment on international exposure drafts; • Nominate representatives to international committees.

32. Composition • 5 persons registered as auditors with the Board • 1 person with experience of business • The incumbent of the OAG, or nominated by incumbent • The incumbent of the Executive Officer of the FSB, or a person nominated by that incumbent • 1 person with experience in teaching auditing at a HEI • 1 person nominated by any stock exchange which is the holder of a stock exchange licence issued under the Securities Services Act, 36 of 2004; • The Commissioner of SARS or a person nominated by the Commissioner • The incumbent of the Registrar of Banks or a person nominated by that incumbent

33. Constituencies of CFAS Members Michael Bourne Ernst & Young Frank Timmins Grant Thornton (Chairman) Phillip Austin Deloitte Sandy van Esch KPMG Keith Bowman BDO Spencer Steward Michiel Engelbrecht PricewaterhouseCoopers Derek Spavins KPMG Henk Heymans Probeta Ed Southey Webber Wentzel Bowens Jan van Schalkwyk The Office of the Auditor-General Willemien de Jager FSB Frans Prinsloo Nelson Mandela Metropolitan University Jonas Makwakwa SARS Madoda Petros S.A. Reserve Bank Freda Evans JSE Ltd

34. Current CFAS projects • Clarity Project • RISC • Other • Guidance recently issued • Second Opinions • Reportable Irregularities • Donor Funding • Illustrative Auditors’ Reports • Access to auditors’ working papers

35. Challenges • Managing the RI work load • Recruiting suitable personnel • Increase in projects • Increase in RISC work programme • Speed of change in standards and legislation • Time commitment required from members

36. StandardsConsultative Advisory Group (CAG) to the CFAS

37. Background The CAG is established as an independent advisory group to the CFAS, the auditing standard setting committee of the IRBA.

38. Objective To consult with the CFAS on matters relating to auditing pronouncements, ensure harmonisation with the activities of the IAASB of IFAC, proactively identify matters for the attention of the CFAS and enhance the transparency and accountability of the auditing standard setting function

39. Terms of Reference To consult with the CFAS regarding: • The CFAS work programme and agenda. • Prioritisation of CFAS projects. • Major technical issues. • CAG members’ view regarding other matters of relevance to the activities of the CFAS.

40. Composition • The CAG is broadly constituted, • comprising of members representative of those preparing audited financial statements, • regulators of various industries as well as people otherwise interested in audit issues. • Membership can be extended to an individual or an organisation • Members serve for a renewable period of three years. There is no limitation on the number of years for which a member may serve. • Membership is not limited to a specific number of organisations or individuals.

41. CAG Members • Rick Cottrell: Director of Companies and Chairperson • Suresh Kana: CFAS • André Bezuidenhout: South African Reserve Bank (SARB) • Bill Urmson: JSE Limited (JSE) • Simpiwe Cele: Office of the Auditor General (OAG) • Rob Barrow: Financial Services Board (FSB) • Stephen Handler: Actuarial Society of South Africa (ASSA) • Tony Dixon: Institute of Directors (IOD) • Phil Sinnett: Institute for Public Finance and Auditing (IPFA) • Veronica du Preez: Institute of Internal Auditors (IIA) • Charl Kocks: Accounting Practices Board (APB) • Linda de Beer (International CAG)

42. Challenges • Maintaining the balance between technical detail and strategic issues • Influencing international audit standard setting through international CAG

43. Practice Review

44. Inspection Committee • Comprises 11 people who serve on a voluntary basis for a maximum period of 6 years. • 4 Attest practitioners from big firms, • 3 attest practitioners from smaller firms, • 3 non-attest people and • 1 IRBA Board member. • Country wide representation. Their responsibilities include: • assessing the quality and consistency of review reports • determining the outcome of review findings on an anonymous basis

45. Review process • Schedule review date 8 weeks in advance. • Request pre-review information from practitioner/firm • Perform review of practitioner/firm • Discuss review findings with practitioner/firm (no third party attendance allowed) • Obtain comments from practitioner/firm on review findings

46. Review process (continued) • Prepare formal review report and make recommendation on review result in terms of re-review criteria • Perform review department consistency/quality control checks • Bill practitioner/firm for costs of review • Present formal review report to Inspection Committee on anonymous basis at quarterly meeting

47. Review process (continued) • Director Practice Review relays committee decision to practitioner/firm • Receive undertaking from practitioner/firm to implement corrective action • If practitioner/firm wish to appeal committee decision they have 45 calendar days from decision date to lodge written appeal which will be considered on anonymous basis at next quarterly committee meeting for final decision

48. Firm Reviews • Applies to audit firms who have listed clients including subsidiaries, associates, joint ventures. • 3 year cycle January 2006 – December 2008. • Review design of firms quality control system and assess effectiveness of implementation. • Quality control system elements are leadership responsibilities, ethical requirements, client acceptance and continuance, human resources, engagement performance, and monitoring.

49. Firm Reviews (continued) • 2 teams of four reviewers – 2 CA’s,1 lawyer,1 HR consultant – schedule 1 team per firm review • Big four audit firm networks – 9 weeks (R1,2m plus VAT) • Mid–tier audit firm networks – 5 weeks (R682k plus VAT) • Smaller audit firm networks – 12 days (R327k plus VAT)

50. Firm Reviews (continued) The firm reviews identified no significant systemic weakness in the overall systems of quality control operated by the Big Four audit firms. However, certain areas were identified where systems need to be improved in order to enhance audit quality. Key recommendations for improvement based on the principal findings of the firm reviews include: • Internal reviews are performed by the firms on a sample of completed audit engagements. It was found that internal reviews should emphasise the need for audit documentation; • Pre-issuance reviews are required on public interest entities prior to the signing of the audit opinion. It was found that the documentation of pre-issuance reviews needs to be improved;