During his address at the launch of the Independent Regulatory Board for Auditors (IRBA) on Wednesday, Minister of Finance Trevor Manuel highlighted the need for a better life, free of fraud and corruption for men and women and the role a truly independent auditor’s board will play in this regard.
”As we celebrate this seminal moment [the minister was referring to August as Women’s Month], let us not dare forget the sacrifice that the women made to lead to a just society in South Africa.
”But even more importantly, let us continue to pick up the gauntlet that the women threw on that historic day. This struggle by the women was not just for their own sake but for a better society in which all, including men, would enjoy a better life free of fraud and corruption, among others,” he said.
Manuel stated that this posed an important challenge to IRBA, not only to ensure that the auditing profession affirmed women but also to rise to the challenge of its calling, which is to protect the public interest.
”Let us not be shy to seek ways in which we can continue to ensure that this profession does what is necessary to redress the legacy of apartheid discrimination against women.
”Out of 24 308 chartered accountants in South Africa as of January this year, 4 385 are registered auditors of which 3 008 perform the attest function. Of these 4 385 registered auditors, only 618 are women,” the minister noted.
Manuel said that while strides had been made in many professions since August 9 1956, the IRBA has a long way to go to ensure representivity not only in terms of race but also in terms of gender.
”Much ground still needs to be covered as the statistics show that the profession seriously lags behind in ensuring a fair representation of the citizens of our country.
”We owe it to all those women, men and children who gave up what they had to ensure that we today taste the sweet fruits of our liberation,” he said.
He added that everyone was now mindful of the challenges facing the auditing profession, which Professor William Allen, chairperson of the USA Independent Standard Board, referred to in 1998 as being in ”mortal danger”.
”Subsequent to this telling comment the world experienced corporate failures that our President, Thabo Mbeki, described as ‘spectacular’.
”These corporate scandals put the profession into an increased spotlight. While these corporate failures are not new, they bring to the fore the debate that has dogged the regulators and the profession for more than 75 years, and that is whether self-regulation is appropriate or not. Increasingly the realisation is that self-regulation has failed,” he said.
”I do not need to convince you that it has been a long way for the profession since the invention of record-keeping in about 4000BC, to the discovery of the double entry system by about 1200AD, and to the emergence of auditing and accounting as a profession in the late 1880s.
”During this period auditors used to be independent. Alex Berenson, in his book The Number says ‘the British auditors auditing American companies were paid by, and answered to, their countrymen, not the companies whose books they were auditing’,” Manuel said.
”This was because of the American companies’ dependence on the British capital markets, which frittered away as the capital markets developed in the United States. The auditors’ independence has since been severely compromised.
”Authorities around the world have wrestled with the question of regulating the auditing profession since the times of the great depression to the late seventies when the US authorities questioned the anti-competitive practices of the self-regulated profession.
”The changes in the regulatory regime, however, were minimal and had limited impact. The authorities succumbed to relentless lobbying against legislating the regulation of the auditing profession mainly by the big auditing firms,” he said.
Manuel noted that while many of those in the profession were inspired by ideals of upright ethical conduct, sadly the same could not be said of everybody.
”But, we must accept that the temptations are both strong and real, and their pressure so overwhelming because wrongdoing could become so pervasive that it might be difficult to distinguish from appropriate conduct.
”This state of affairs prompted the economist Professor Paul Krugman to write, ‘The same holds true of corporate malfeasance, whether or not it actually involves breaking the law.’
”Executives who devote their time to creating innovative ways to divert shareholder money into their own pockets probably aren’t running the real business very well [think Enron, WorldCom, Tyco, Global Crossing, Adelphia]. Investments are chosen because they create the illusion of profitability while insiders [who] cash in their stock options are a waste of scarce resources.
”And if the supply of funds from lenders and shareholders dries up because of a lack of trust, the economy as a whole suffers,” Manuel said.
Manuel added it was expected that the new regulatory board and the profession would work closely to rid the profession of the albatross it now carried around its neck since the corporate failures.
”I pledge my support and that of the National Treasury in strengthening this body so that it will accomplish the mammoth task set for it,” Manuel concluded. — I-Net Bridge