An Expert Insight by Alex Watson – Richard Sonnenberg Professor of Accounting, College of Accounting, University of Cape Town*
Close to three quarters of CFOs of listed South African companies are South African Chartered Accountants (SAICA research published October 2014). November 2014 sees a major shift in the focus and form of the final assessment written to qualify as a chartered accountant. Is this good news or bad news for current and future CFOs and the staff that they employ?
In my opinion, this is significantly good news for those in commerce and industry but perhaps less so for those managing audit firms. I also believe that this is great news for those of us who are concerned about the quality of the CA(SA) designation, particularly if we endorse SAICA's stated role of developing chartered accountants to be leaders. Perhaps its unsettling news for some to know that the future generation of chartered accountants will have more exposure to real business issues, strategy and risk management in their training contracts. Will this give them the edge to move up the ladder faster?
Prior to 2014, SAICA trainees had the choice of doing their training contract with an audit firm and writing the Public Practice Examination (PPE) administered by the Independent Regulatory Body of Auditors (IRBA) as their "Board Part 2", or doing their training contract outside public practice and writing the SAICA administered examination on Financial Management. More than 90% of the potential chartered accountants wrote the PPE in 2013, i.e. an examination about public practice, whereas less than one third of the more than 30 000 SAICA members registered in South Africa in 2014 are in public practice. This suggests a disconnect between the direction of the final assessment and the subsequent careers of newly qualified chartered accountants.
With effect from November 2014, there is only one option for "Board Part 2", and that is a case study assessment offered by SAICA. All potential chartered accountants will write exactly the same case study, irrespective of whether they are doing their training contract with an audit firm, at SARS, in commerce and industry or with the Auditor General. So what is this case study approach about and why is it going to give newly qualified CAs the edge in careers in commerce and industry?
The Case Study Assessment:
The first multidisciplinary case study will be written by candidates in November 2014. To be eligible to write that, candidates must have passed 'Board Part 1', now known as the Initial Test of Competence (ITC), completed at least 20 months of a training contract and completed a professional programme that focuses on developing professional competence while preparing them for the case study assessment.
The focus of both the final assessment and the professional programme that candidates are required to complete is on developing and assessing the candidate's ability to use their technical knowledge and skills acquired in a real life situation. Candidates have to demonstrate the ability to problem solve, distinguish relevant from irrelevant information, and understand, apply and communicate the more technical material assessed in the ITC.
Five days before the case study exam, a scenario is released to the candidates. That scenario will identify the relevant industry, explain the circumstances in which the company is operating and the type of transactions and issues that it is facing. Candidates are expected to identify the triggers from the information and refresh their technical knowledge on issues that are relevant, learn more about the industry involved and prepare detailed calculations that may be required e.g. a valuation of a potential acquisition. For example, information about a company making significant losses would suggest that the candidate should research business rescue and/or liquidation requirements, IFRS requirements in respect of asset impairment and/or restructuring, going concern issues etc.
During that five day period candidates are encouraged to work in teams and share research but are not permitted to consult anyone other than fellow candidates (and will be required to sign a declaration to confirm that they have complied with the requirements.) Each candidate may take a lever-arch file to the exam venue with their research findings plus reference material such as IFRS, Tax Act, Companies' Act etc. On the day of the assessment, they are given some additional information (probably including an ethical issue) as well as the tasks that they are required to complete in the next eight hours. At this stage no SAICA case study exam has been written, but our expectation is that the case study will have approximately 6 or 7 tasks which may include anything from an interpretation of some form of financial analysis, interrogation of a proposed strategy, identification of risks arising from a potential transaction, to the design of suitable controls for a particular situation.
The tasks are intended to assess the professional competence expected of a newly qualified chartered accountant with the focus on the strategic and managerial aspects of accountancy. Tasks are designed in a way that they will test the candidate's ability to apply their technical knowledge, communicate effectively and demonstrate the sort of skills and values expected of a chartered accountant. Responses will be graded on a range from highly competent to not competent, with an overall grade of highly competent or competent required to pass. The advantage of this grading is that the quality of the overall presentation is considered as opposed to the previous approach of awarding marks for correct information irrespective of how much waffle and incorrect information accompanied it.
Why will this assist those in commerce and industry?
Instead of doing a programme that develops audit competence, candidates are required to complete a professional programme that develops their professional competence and helps prepare them for the case study exam. The UCT programme (a predominately online course and one of the two currently SAICA accredited programme providers) reinforces technical competence and develops professional competence using extracts from the best integrated reports of listed companies as well as parastatals. Candidates develop understanding of South African business while improving their communication and other professional skills.
On successful completion of the professional programme and the APC exam, candidates will have demonstrated the ability to research an industry or technical issue, identify problems and propose solutions, communicate succinctly and efficiently and integrate and apply their technical knowledge. Inclusion of Strategy, Risk Management and Governance as one of the six areas of technical competence assessed in the ITC has also helped give candidates a more business-focussed approach to their academic knowledge.
What is the impact on audit firms?
Whereas in the past 90% of trainees did a programme that developed their audit knowledge and prepared them for the Public Practice Examination, now the audit focus of the professional programme is likely to be a much smaller component of the programme and the case study assessment. While the universities are required to ensure that the entire audit syllabus is covered, realistically this will be at a lower and less practical level than was possible in a programme aimed at trainees in the second year of the training contract.
Those who want to become registered auditors will have to first qualify as a CA(SA), and then complete a further 18 months with a minimum of 155 billable hours of direct audit work in accordance with the Audit Development Programme prescribed by IRBA. At present this programme does not involve any additional assessments, but it does involve a carefully structured programme to develop the skills required of an audit engagement partner. While this may be perceived as making the route to becoming a registered auditor long and arduous, it does put the necessary focus on the particular skills and experience required of an audit engagement partner and is therefore in the interest of the accounting profession.
Conclusion
The changes to the CA(SA) qualification are much needed ones to give the profession the business and strategic focus that has been lacking. While the technical competence of South African qualified Chartered Accountants has never been in doubt, there have been some rumblings about whether the qualification was sufficiently focussed on real world business. These developments have addressed those concerns and should go a long way to ensuring the CA(SA) retains its rightful place as the qualification of choice of financial directors in South Africa.
*Prof. Watson is also editor of various Financial Reporting textbooks, member of national and international reporting work groups and independent director and audit committee chair of two listed companies. As part of SAICA's Competency Framework Part 1 Working Group she was involved in the latest CA examination changes.
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