IRBA reports an improvement in shareholder governance and the strength of auditing and accounting standards.
On Tuesday, 8 October, the World Economic Forum’s Global Competitiveness Report was published, revealing a slight improvement in the perception of shareholder governance and the strength of auditing and accounting standards.
The report showed that the strength of auditing and accounting standards increased its score from 64.6 to 67.5 and South Africa’s ranking improved six points from 55 in 2018 to 49 out of 141 countries surveyed. Shareholder governance also improved from a score of 60 to 67 and the country is now ranked 37, up from 56 in 2018.
Independent Regulatory Board of Auditors (IRBA) CEO Bernard Agulhas said that this can be attributed to a number of factors.
“The collapse of some high profile companies highlighted the lack of regulation and oversight of the broader financial reporting chain and emphasised the importance of the contribution of those charged with governance to prevent business failures through appropriate and effective controls,” he said. “While we may continue to see high profile business collapses, there is nevertheless some hope that we are moving in the right direction.
He said that the public conversations in the last year have refocused the broader accounting profession’s attention on the combined assurance model, a need for comprehensive regulation of the financial reporting chain and the importance of educating investors on the roles of each function in the financial reporting process. “Investors are therefore more informed and taking greater interest in governance processes, which is a positive development,” he said.
“We have also seen visible initiatives and collaboration from the profession which focuses shareholders and audit committees’ attention on concerns around the independence of external auditors and audit quality, as well as on measures to strengthen the financial reporting chain.”
According to Bernard, IRBA has been clear in stressing that the external auditor comes in at the end of a process in which there are various role-players, each with responsibilities to implement controls and measures to prevent fraud, corruption and malfeasance. “That said, we have also identified a need for the auditor to increase the amount of work on the audit as it relates to the identification of fraud.”
“There are many factors and initiatives underway which will continue to improve sentiment and change perceptions. Without a doubt, the profession had another Enron moment in 2017 and it has suffered significant reputational damage, however, as we can see it is slowly starting to change. We need to continue to pursue renewed commitment to both quality and the public interest, in order to continue in this direction. I am pleased with the level of collaboration from stakeholders and professional bodies on developing solutions with the regulator. It is clear that there is a recognition that all stakeholders must work together in order to restore the auditing and accounting profession to its former stature.”