South Africa’s auditing industry had became “too comfortable” with being ranked number one in the world, according to former Finance Minister Trevor Manuel.
He was speaking in his capacity as chairperson of Old Mutual Emerging Markets during a panel discussion hosted by the South African Institute of Chartered Accountants in Illovo, Johannesburg, on Tuesday night.
South Africa’s auditing profession had been ranked first in the World Economic Forum’s Competitive Index for six years, said Manuel. “Everyone was comfortable … but when we fell from there, we fell to the bottom,” he said.
Manuel said that SA was lulled into a false sense of security by the WEF league tables. “We were feeling too comfortable about ourselves and in that environment no one wanted to call out what they were seeing.”
Manuel is one of four investment envoys tasked by President Cyril Ramaphosa with selling SA Inc. to raise billions in new investments.
He said is was challenging to convince potential investors that audited reports can be trusted, in the wake of a numerous scandals.
“We (investment envoys) need to speak to people outside of the country and convince them to invest here and the first issue they put on the table is: ‘We can’t trust the results we read.’ That is the problem,” he said.
Manuel spoke about the case of the Sunninghill office of audit firm Nkonki Inc, which faced liquidation following revelations that its former CEO Mitesh Patel led a management buyout funded by Gupta business associate Salim Essa.
“As an outsider to the profession, what happened with the sale of Nkonki is actually shameful,” said Manuel.
“The fact that an individual who is funded by a corrupt entity, who is then funded by an even more corrupt family can purchase and audit company – and through the firm undertake audits and suggests to investors that it is all okay, suggests there is something exceedingly rotten.
“We have to deal with issues for what they are. We have to call them out and take a stand for what has happened.”
Following the Enron crisis in the US the audit profession in SA created the Independent Regulatory Board for Auditors (IRBA).
“… I think IRBA also slipped into comfort zone. Like Saica, IRBA has disciplinary issues dating back seven years which they are incapable of concluding, he lamented. “If justice is delayed, it is denied.”
Lwazi Bam, Deloitte CEO and vice chair of the Saica board defended the industry, saying it was making efforts to move towards more transparency.
“I think we are getting there,” said Bam.
Trusting a pilot
Manuel likened auditors to pilots. “None of us would fly on a plane where the pilot within the past six months did not go for refresher training.
The training of auditing professionals should be like servicing of a car. “It does not matter if it’s a (Ford) Figo or a (Ford) Mustang – if it is not called in for service and attention regularly, it won’t do what it is meant to do.”
He said that auditors are trained, write board examinations, and then are released to the economy “for life”.
“There’s got to be something wrong in the equation.”
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