COSATU Submission Auditing Profession Amendment Bill Select Committee

COSATU Submission: Auditing Profession Amendment Bill Select Committee: Finance National Council of Provinces 09/02/2021 1

Introduction • Context of state capture & impact on state, economy & society; • Role of auditors in state capture; • Gaps in existing legislation & oversight; • COSATU support for Bill’s progressive provisions; • Worrying weaknesses in the Bill; • Two key COSATU proposed amendments; & • Need to amend, fast track & pass Bill. 2

Impact of State Capture & Corruption & Role of Auditors • Loss of 10% or R 150 billion to corruption & wasteful expenditure; • Collapse of good governance in SOEs; • Collapse of SOEs, municipalities & departments; • Impact upon economy, service delivery, fiscus & public & private sector workers; • Complicity of auditors; & • Consequences for auditors? 3

COSATU Support for Key Progressive Provisions in the Bill • Criteria to serve on IRBA and its investigative and disciplinary committees; – Previously registered auditors allowed; – Practising or registered auditors excluded to avoid conflicts of interest; & – Prohibiting holding shares in & receiving payments from auditing companies. 4

COSATU Support for Key Progressive Provisions in the Bill • Empower IRBA to conduct search & seizure of suspected auditors; – Bold & needed to tackle complicit auditors; – Need to retain these provisions; & – Need to resist pressure from a conflicted industry that wants to remove them to allow the status quo e. g. corruption & cover ups to continue at expense of fiscus, workers, public & economy. 5

COSATU Support for Key Progressive Provisions in the Bill • IRBA disciplinary procedures and provisions; – – Bold & needed to tackle complicit auditors; May help to reduce lengthy delays in proceedings; Opening disciplinary to public scrutiny; & Need for regulations to tighten timeframes. 6

COSATU Support for Key Progressive Provisions in the Bill • IRBA sanctions provisions; – Bold & needed to tackle complicit auditors; – Need for Minister for Finance and Treasury to increase fines to avoid repetition of recent slaps on the wrists, more so when comparing the size of the fine to the profits auditors have made & losses cost due to corruption to the public and fiscus; & – Need to look at additional sanctions. 7

COSATU’s Concerns & Proposed Amendments to the Bill • Delete Clause 5 (5) on page 3 which reduces required number of meetings of IRBA & its committees from 4 to 2 a year. – Tasks of IRBA & its committees critical to dealing with corruption & state capture; – Reducing required number of meetings sends a wrong message, will significantly weaken it & in fact downgrade its critical work; & – Extremely reckless in era of state capture where auditors were complicit in the capture & collapse of the state. 8

COSATU’s Concerns & Proposed Amendments to the Bill • Insert new section in Bill formalising in law the existing IRBA rule providing for mandatory rotation of auditing firms. – IRBA instituted a rule requiring the mandatory rotation of auditing firms after 10 years; – Need to entrench mandatory auditing firm rotation rule in law; – Otherwise IRBA can simply delete that rule in face of massive resistance from compromised auditors; & – Worrying recent governance signals at IRBA. 9

COSATU’s Concerns & Proposed Amendments to the Bill • Insert new section in Bill formalising in law the existing IRBA rule providing for mandatory rotation of auditing firms. – Rule providing for this to be done every 10 years itself is too broad. It must be reduced to 5 years; – Critical tool to uproot corruption & clean up sector & prevent future complicity; – Raised by COSATU in Parliamentary public hearings in 2019 & 2020; & – Should not be delayed by Treasury to another Amendment Bill due to lengthy legislative processes. 10

Related Matters • Need to ensure IRBA is adequately resourced in midst of austerity cuts given the costs of incapacitating it at the cost of uprooting corruption; & • Need to look at expanding legislative oversight mechanisms to include auditing committees in the public and private sector. 11

Conclusion • Context of auditors’ complicity in state capture; • Impact on state, economy, workers & society; • Progressive & long overdue Bill: – Need to defend search & seizure powers. • Need to strengthen Bill to deal with glaring weaknesses: – Frequency of IRBA meetings; & – Legislate compulsory automatic rotation of auditing firms every 5 years. • Need to amend, prioritise & enact Bill. 12