General Guidance for CFOs and Audit Committees

General Guidance for CFOs and Audit Committees

• 04 October 2024
• Auditing and Assurance
• South African Accounting Academy

Summary:

IRBA has published some general guidance on possible threats to independence as it specifically relates to CFOs and audit committee members.

Article:

Independence serves as the cornerstone of the auditing profession and remains front of mind for the IRBA.

Threats to independence arise when there is a close relationship between the external auditor and the management of a client. The Chief Financial Officer (CFO) or Financial Director (FD) of a client is usually in a position to exert significant influence over the preparation of the client’s accounting records or the financial statements on which the audit firm will express an opinion. A threat to independence may arise when the CFO or FD of a company has previously been employed by the firm that is currently appointed as the auditor of that company.

Another situation that creates a threat to independence is where a former partner or member of the audit team joins the board of an audit client, for example as a member or chair of the audit committee.

A study was performed to determine the percentage of companies listed on the JSE whose audit committee chairman was previously employed by the audit firm appointed as the external auditors of that company, as well as to determine the percentage of companies whose CFO/FD was previously employed by the audit firm appointed as the external auditors of that company.

The findings suggest a threat to independence, the significance of the threat may be influenced by a number of factors, including the duration of employment of the CFO or Audit Chair at the audit firm, the level of seniority held by the CFO or Audit Chair at the audit firm, as well as the length of time that has passed since the CFO or Audit Chair left the audit firm prior to joining the company.

Section 290 of the IRBA Code of Professional Conduct examines these and other areas of familiarity which auditors should consider when reviewing independence on an audit. Audit committees of companies should also refer to Section 290 when conducting independence assessments.

Click here to access more detail:

https://www.irba.co.za/guidance-for-ras/general-guidance/mandatory-audit-firm-rotation/cfos-and-audit-committees

Relevance to Auditors, Independent Reviewers & Accountants:

• Members of IRBA should stay up-to-date with the latest developments and guides that affect registered auditors.
• Practitioners must be aware of the content of any guidance issued by IRBA.
• It is very important to always consider independence, and adhere to the IRBA Code of Professional Conduct.

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