Freeman Nomvalo, CEO of the South African Institute of Chartered Accountants (Saica) has given guarded approval to last week’s announcement by the Treasury that it is determined to push for search and seizure powers for the body that regulates the audit profession.
“We’re not opposed in principle,” he says.
The Independent Regulatory Board for Auditors (Irba) claims that the refusal of audit firms to hand over crucial files makes it hard for the board to hold the audit profession accountable.
But there has been resistance from the industry on the grounds that such powers will infringe on client confidentiality.
“The policy of assigning search and seizure powers to civil authorities remains questionable at best,” Nomvalo told parliamentary hearings into the proposed Auditing Profession Amendment Bill last month.
He concedes that after a spate of corporate scandals in the private and public sector the accounting profession is facing a massive reputational crisis.
Audit firms, whose executives sit on the Saica board, need to be held to account more swiftly and effectively, he says.
“The point for us has always been ensuring that the search and seizure powers do not fail constitutional muster.”
The Treasury’s legal advisers told parliament they believe the search and seizure provision in the bill is constitutional.
The Estate Agency Affairs Act, which has similar powers, was tested in the constitutional court and it failed, says Nomvalo.
“We want to make sure the regulator is not inadvertently weakened by a provision that can be challenged. We need an effective regulator.”
So why has Saica allowed its members to impede and obstruct the regulator in its investigations?
Assigning search and seizure powers to civil authorities remains questionable at best.
— Freeman Nomvalo, CEO, Institute of Chartered Accountants
“It would be a stretch to say we’ve allowed them,” he says. “If a registered auditor has violated the code of ethical conduct it is Irba’s job to discipline them.”
But he agrees the two bodies “need to figure out ways in which we collaborate with each other in dealing with these matters because they're important for our capital markets”.
He believes it’s unfair to target audit firms for corporate scandals.
“Auditors get framed for not picking up wrongdoing but when an auditor comes to audit the activities of an organisation it is too late.”
The real culprits are CEOs, management and audit committees and the board of directors they report to.
“You’ve got structures within the company that are supposed to safeguard the interests of shareholders.”
Aren’t auditors supposed to provide assurance that what’s done is in accordance with the law and that there is proper transparency and accountability?
“If the people running the company are intent on doing something that is wrong, the first point of call where that should be picked up is within the organisation,” he says.
“By the time the auditor arrives, the activities have happened. If the intention was to conceal then auditing may not pick up that issue.”
Is he absolving auditors of their duty to be sceptical and challenge the evidence?
“Not at all. To the extent auditors are failing in their duties we need to hold them accountable. But ultimately the fault lies within the companies themselves.”
Nomvalo, 54, was the accountant-general in the Treasury for nine years, interrogating internal audits and governance across all government departments.
So why did audit committees and governance structures fail so disastrously at the likes of Eskom, Transnet and SAA, not to mention Steinhoff, Tongaat Hulett and VBS Bank?
The number of chartered accountants who have been deregistered in SA in the past two years. One of them, former Transnet and Eskom chief financial officer Anoj Singh, was stripped of his Saica membership in August.
— 2
“We’re doing a study at Saica to try to get behind some of these failures,” he says.
Has Saica been too slow to investigate?
“When you’re an outsider it’s very difficult to access the information that will enable us to determine what has been done wrong.”
He says Saica has proposed a provision in the bill requiring Irba to give it access to the information it gets through its search and seizure powers.
“The credibility of this profession is so critical for the functioning of capital markets that we need to do everything in our power to restore that credibility. Having access to information that helps us to understand what went wrong is an important ingredient in ensuring that happens.”
Some argue that Saica has left it too late to show this sense of urgency. Has the profession been irreparably damaged?
“Time will tell,” Nomvalo says.
But lack of access to information is a small part of the problem, he believes.
“Vested interests have made it very difficult for change to happen.”
By this he means the practice of audit firms offering auditing and consulting
services to the same companies.
“This has been a large part of the problem. Twenty years ago there was conversation about shouldn’t we consider a model that separates the two? We haven’t moved an inch.”
Saica has been criticised for being too close to the accounting profession, which is why it hasn’t acted more urgently against individuals and audit firms that flout its code of ethics.
He says they’ve remedied this by bringing non-chartered accountants onto the board.
“Yes, you can say ‘too little too late’ but the profession is doing something to respond.”
The non-CAs are a minority on the board but the board has no say over Saica’s disciplinary processes, which are chaired by people independent of the profession, he says.
A characteristic of these processes is the glacial pace at which they move.
“Unfortunately, when you’ve got to discipline people our laws require that you have evidence, put a case that is solid and grant those people an opportunity to respond. This then brings lawyers into the equation and it can take years.”
Delays in holding those in the profession to account have contributed “greatly” to its reputational damage, he says.
Two CAs have been deregistered in the past two years.
One of them, former Transnet and Eskom CFO Anoj Singh, was only stripped of his Saica membership in August.
Nomvalo won’t say if they’re investigating former South African Airways board member and chair of SAA Technical Yakhe Kwinana, a registered CA whose jaw-dropping evidence at the Zondo commission won’t have done much to restore faith in the local accounting profession.
“But we follow up any evidence that comes to light that raises concerns about a member’s competence or ethics.”
