Audit in the time of coronavirus: a tale of two regulators

Audit in the time of coronavirus: a tale of two regulators

• 24 March 2020
• Accounting
• Ciaran Ryan

While the Independent Regulatory Board for Auditors (IRBA) is tightening regulations on auditors (we'll need to see if this can hold), the Securities and Exchange Commission (SEC) in the US is not letting the Covid-19 crisis go to waste by lowering audit standards for smaller companies.

The Securities Exchange Commission in the US has bowed to pressure from companies, some of them already experiencing “accounting problems” to ease audit requirements for smaller companies. Those pushing for the change say it could allow smaller firms to cut costs and invest in new products and technology. The rule was recently approved and applies to companies with less than $700 million in annual revenue. They will no longer need to have an auditor examine their internal controls, a rule that has been in place since the days of Enron and WorldCom.

As Zerohedge recently reported, the easing in audit requirements will allow bio-technology firms to use the money saved on internal audit controls to, say, develop vaccines. Which is pretty convenient in the age of coronaviruses.

Link: https://accountingweekly.com/sec-uses-coronavirus-as-excuse-to-abandon-audit-requirement-rules-for-small-companies/

Proposed audit reforms should rebuild trust in the profession

Contrast this with the approach of the Independent Regulatory Board for Auditors (IRBA) in South Africa, which is involved in more than 40 projects aimed at restoring public trust in the audit profession. A key proposed reform will be to bring the entire accounting profession under IRBA’s regulatory remit (currently, only auditors – accounting for about 4,500 of an estimated 200,000 accountants) are subject to professional legislation.

The UK government has further recognised that it is not only the auditors who should be regulated but also directors and audit committees. The proposed Auditing Reporting Governance Authority (ARGA) will have a broad mandate to have oversight over the broader financial reporting chain.

Locally, the Auditing Profession Act amendments process is underway. While this only addresses regulation of auditors, it provides the IRBA with increased powers at the investigation stage which will help to speed up investigations into improper conduct. The amendments also simplify the requirements for the disciplinary hearing process, which will increase the pool of members on which to draw to establish hearing panels, and reduce the hearing panel from six to three members. This will ensure the IRBA can set down more matters and run hearings concurrently with multiple panels, far more cost effectively and quickly. These improved and simplified processes will ultimately lead to better investor and public protection.

Not every business failure is an audit failure, and auditors are not trained to detect fraud. Part of the regulatory response is to review the fraud risk standards to see whether auditors should be expected to do more work around fraud. It will therefore be important for the IRBA to review auditor competencies in respect of public expectations, says IRBA CEO Bernard Agulhas.

Link: https://www.irba.co.za/news-headlines/press-releases/irba-foresees-audit-reforms-will-regain-confidence-in-profession-if-audit-firms-follow-suit

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