Towards the establishment of public interest in the auditing profession in South Africa

Ayob, Azeema
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The recent audit failures in the South African auditing profession have resulted in a confidence crisis in the ability of the auditor to fulfil their ‘public interest’ objective. The researcher questions what the role of the audit model is in fulfilling the ‘public interest’ objective of the external auditor. This research firstly aims to uncover the challenges associated with the audit model in its current form, and secondly, to establish what the perceptions amongst industry specialists are of an alternative proposed structure, wherein auditors are regulated by a SAI. Based on the outcomes of the first two objectives, the third aim of this study was to use the participant feedback to design a possible future audit model for South Africa. The researcher followed a qualitative research approach, conducting semi-structured interviews with research participants and analysing the resultant data using thematic analysis. This research explores whether the concept of ‘public interest’ is sufficiently well defined in the existing South African legislation and finds it lacking. The researcher therefore derives a working definition of ‘public interest’ for the purposes of this research. The researcher further explores alternative audit models available both globally and in existing literature. Based on this, the researcher derived a suggested audit model for consideration in the South African environment, as a manner of allowing the external auditor to better address the ‘public interest’ objective. The proposed audit model incorporates the Independent Regulatory Board for Auditors (“IRBA”) as a Supreme Audit Institution (“SAI”). As a SAI, IRBA has the ability to allocate auditors to audit clients and determine the audit fees which auditors will be paid. Audit firm rotation would be compulsory on a periodic basis. Audit committees and audit clients would not have a say in who their auditors are. Auditors would be prohibited from providing non-audit services to their audit clients. The proposed audit model aims to achieve enhanced auditor independence, which is expected to result in improved audit quality, and therefore, better address the ‘public interest’ objective of auditors. Research participants identified a range of challenges in the current audit model that could prevent the auditor from achieving the ‘public interest’ objective of the audit. These primarily included threats to auditor independence and how this could negatively impact audit quality, the role of the audit committee and management in ensuring that the auditor is provided with high quality financial information and the challenges faced by IRBA in being an effective regulator of the profession. Research participants also provided some recommendations as to how the current audit model could better address the interest of the public. For the most part, research participants agreed that the proposed audit framework would result in enhanced auditor independence, which should have a positive impact on audit quality and therefore, ‘public interest’. A lot of research participants expressed concern about the gaps in the proposed framework, in terms of there not being detailed processes and procedures for every possible eventuality. As this is an exploratory study which considers the proposed audit framework for the first time, it is expected that the proposed audit framework would not be fleshed out in considerable detail. It was also expected that research participants would experience some degree of anxiousness by the proposed audit framework, as the suggestion of change is often accompanied by uncertainty . Other concerns noted by research participants included the diminished role of audit committees under the proposed audit framework, the ability of IRBA to implement such a model, the risk of corruption in a SAI and the likely havoc that would have on the South African economy. As this is an exploratory study, it is expected that research participants would have a lot of concerns around the proposed audit framework. Research participants also made recommendations as to how both the current and proposed audit models could be enhanced so as to better address the ‘public interest’. The findings of the research allowed the researcher to derive what a future audit model could look like in South Africa, taking into consideration its role in addressing ‘public interest’
A research report submitted to the School of Accountancy, Faculty of Commerce, Law and Management at the University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements of the degree of Masters of Commerce in Accounting, 2020