Transcript Slide 1

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Information Sessions 2007
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• Welcome
• Overview of the implementation of Auditing Profession Act
• Department reports:
– Education, Training and professional development
• CPD
• Accreditation
– Standards
• Ethics
• Auditing
• Reportable Irregularities
– Practice Review
• Firm reviews
• Engagement reviews
– Legal and Registry
• New processes
– Operations
• Finance
• Resources
• Companies Bill – High level comments
• Questions and Answers
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Our Vision
Our vision is to be an internationally recognised and
respected regulator of the auditing profession,
relevant to the South African environment.
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Our Mission
Our mission is to endeavour to protect the financial
interests
of the South African public and international investors
in South Africa
through the effective and appropriate regulation of
audits conducted by registered auditors,
in accordance with internationally recognised
standards and processes.
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Our Objectives and Goals
In line with our legislative mandate, the IRBA objectives
are to create
the framework and principles to contribute to the
protection of the public
who rely on the services of registered auditors and
to support registered auditors who carry out their
duties competently, fearlessly and in good faith.
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Our Objectives and Goals (continued)
The goal is to help create an ethical, value-driven
financial sector that encourages investment, confidence
and promotes sound business practices. This is done by:
•Developing and maintaining auditing standards which are internationally
comparable;
•Developing and maintaining ethical standards which are internationally
comparable;
•Providing an appropriate framework for the education and training of
properly qualified auditors as well as their ongoing competence
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Our Objectives and Goals (continued)
• Inspecting and reviewing the work of registered auditors and their
practices to monitor their compliance with the professional standards;
• Investigating and taking appropriate action against registered
auditors in respect of non-compliance with standards and improper
conduct;
• Conducting our business in an economically efficient and effective manner,
in accordance with the relevant regulatory frameworks;
• Working to ensure the sustainability of the profession.
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Our Values
As overall custodians of the Auditing Profession in South
Africa, the IRBA acknowledges the importance of the
mandate assigned to it by Parliament and all its members
and staff ascribe to the following core values:
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Independence
Integrity
Objectivity
Commitment
Transparency
Accountability
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Our Key Success Factors
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Good Governance
Effective communication
Continuous learning
Knowledge sharing
Good management practices
Adherence to quality principles
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Our Regulatory Philosophy
Our philosophy is to regulate the auditing profession in the best interest of the
public and the local and international investor community,
at the same time recognising the importance of a sustainable and viable
auditing profession in South Africa.
We adopt a “Prudential Approach” to regulation which implies having an agreed
set of principles and values supported by, well developed and internationally
recognised standards and clear laws and regulations.
Enforcement is considered the last option, when all other reasonable corrective
measures have failed.
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IRBA 2007/8 Board Members
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Dines Gihwala (Chairman)
Linda De Vries (Deputy Chairman)
Wynand Du Plessis
Deepak Nagar
Cathryn Emslie
Gill Marcus
Jacob Modise
Themba Zakuza
Grathel Motau
Sipho Sono
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Education, Training & Professional
Development Department (ETP)
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Continuing Professional Development (CPD)
CPD Policy
• Objectives of CPD
• Prescriptions
– Audit relevant, verifiable
– Minimum hours
– Interim arrangement
Reporting
Monitoring of CPD
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Accreditation
Institutional and programme accreditation
Institutional accreditation requirements:
• CPD;
• Discipline & ethical conduct of members;
• Financial & operational viability;
• Register of members;
• Representivity in the profession; and
• Technical support & guidance.
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Accreditation
Programme accreditation requirements:
• Recognised academic programme;
• Recognised core assessment programme;
• Recognised education programme; and
• Recognised training programme.
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Standards
Committee for Auditor Ethics
(CFAE)
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Background
The Auditing Profession Act, Act 26 of 2005 establishes the
CFAE
In terms of section 21(2), the CFAE must assist the Board
in:
(a) determining what constitutes improper conduct by
developing rules & guidelines for ethics, incl. a code of
conduct;
(b) interacting with professional bodies & other
stakeholders with an interest in the profession; &
(c) providing advice to RA’s on matters of
professional ethics and conduct.
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Objective
To approve the development and maintenance of
internationally comparable ethics standards for auditors
that promote investment and as a consequence
employment in the republic.
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Composition
• Three (3) persons registered as auditors with the Board; (U.
Schackerman, F. Ntombela & G. Paris),
• Three (3) persons representing users of audits; (N. van Graan,
V. Jack, E. Kieswetter & J. Kuzwayo),
• One (1) person representing an exchange which is the holder
of a stock exchange licence issued under the Securities
Services Act, 36 of 2004; (S. Davies), and
• One advocate or attorney with at least 10 years’ experience
in the practice of law (Vacant).
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Constituencies of CFAE Members
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Ulrich Schäckermann – Partner: Grant Thornton
Funeka Ntombela – Partner: PricewaterhouseCoopers
Gerard Paris – Partner: Alpha Milliard Chartered Accountants
Nasiema van Graan – Executive Assistant: Old Mutual
Investment Group (Pty) Ltd
Vuyo Jack – CEO: Empowerdex
Edward Kieswetter – Chief Operations Officer: South African
Revenue Service
Jabu Kuzwayo – Head of Regulation: South African Reserve
Bank
Shaun Davies – General Manager – Surveillance: JSE Limited
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Developing a Code of Ethics
To:
– Raise awareness of ethical behaviour.
– Promote ethical behaviour and discourage unethical
behaviour.
– Facilitate social integration.
– Provide guidance on ethical decision-making.
– Reduce interventions from government.
– Minimise legal action.
– Preserve the integrity of the profession.
– Protect stakeholders and public interests
The IRBA Code will serve as a reference for enforcement where
there is a breach of its provisions.
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Either an Aspirational
format
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Values based
High discretion
Vague
Not easily enforceable
Integrity approach
Internal commitment
Promote ethical
behaviour
Or a Directional
format
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Rules based
Low discretion
Specific
Enforceable
Compliance approach
External enforcement
Prevent unethical
conduct
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Tone of the Code
• Relational – best suited where there is an
environment of trust.
• Transformational – When the objective is to change
behaviour.
• Informational – Mostly applicable to professional
environments.
• Instructional - When prompt action is needed.
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Other projects
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Guidance on Network Firms
Preparation of Comment letters to IESBA of IFAC
Research on the establishment of an Ethics hotline
Participation in Clarity project for Ethics Standards
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Communication through education
Ethics will be communicated in the following ways:
• Awareness programmes
• Through the media
• Ethics helpline and technical support
• Technical Newsletters (IRBA News)
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International Liaison
• The IRBA CEO serves on the International Ethics
Standards Board for Auditors (IESBA) of IFAC.
• This representation will provide a valuable link to
provide comments into the international standard
setting process.
• The CFAE will comment on all EDs issued by the
IESBA through the comment process as outlined in
the Working Procedures.
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Challenges
• Whether the Code should be principles based or
rules based. Suggestion: Principles based with
additional guidance.
• Whether the CFAE should rather adopt the IFAC
Code instead of developing an entirely new one.
Suggestion: Develop a new Code taking into
consideration the IFAC Code and what other
countries have done.
• How to communicate ethics to RAs.
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Challenges (continued)
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How to ensure compliance with the Standards.
The view on multiple registration.
How to include Ethics into curricula of HEIs.
The format in which pronouncements on ethics will
be issued.
• The status of pronouncements on ethics.
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Challenges (continued)
• Determining the stakeholders which should be
involved in the process to develop the Code.
• How to draft the code using a principle – based
approach.
• Whether to include or exclude safeguards (to be
considered with decision on whether the Code
should be principles or rules – based).
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Standards
Committee for Auditing Standards
(CFAS)
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Background
• The Auditing Profession Act, Act 26 of 2005
establishes the CFAS.
• In terms of section 22(2), the CFAS must assist the
Board to:
– develop, maintain, adopt, issue or prescribe auditing
pronouncements;
– monitor developments by international standard-setting
bodies;
– promote and ensure the relevance of auditing
pronouncements;
– Prepare comment on international exposure drafts;
– Nominate representatives to international
committees.
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Composition
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5 persons registered as auditors with the Board
1 person with experience of business
The incumbent of the OAG, or nominated by incumbent
The incumbent of the Executive Officer of the FSB, or a
person nominated by that incumbent
1 person with experience in teaching auditing at a HEI
1 person nominated by any stock exchange which is the
holder of a stock exchange licence issued under the
Securities Services Act, 36 of 2004;
The Commissioner of SARS or a person nominated by the
Commissioner
The incumbent of the Registrar of Banks or a person
nominated by that incumbent
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Constituencies of CFAS Members
Michael Bourne
Frank Timmins
Phillip Austin
Sandy van Esch
Keith Bowman
Michiel Engelbrecht
Derek Spavins
Henk Heymans
Ed Southey
Jan van Schalkwyk
Willemien de Jager
Frans Prinsloo
Jonas Makwakwa
Madoda Petros
Freda Evans
Ernst & Young
Grant Thornton (Chairman)
Deloitte
KPMG
BDO Spencer Steward
PricewaterhouseCoopers
KPMG
Probeta
Webber Wentzel Bowens
The Office of the Auditor-General
FSB
Nelson Mandela Metropolitan University
SARS
S.A. Reserve Bank
JSE Ltd
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Current CFAS projects
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Clarity Project
RISC
Other
Guidance recently issued
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Second Opinions
Reportable Irregularities
Donor Funding
Illustrative Auditors’ Reports
Access to auditors’ working papers
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Challenges
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Managing the RI work load
Recruiting suitable personnel
Increase in projects
Increase in RISC work programme
Speed of change in standards and legislation
Time commitment required from members
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Standards
Consultative Advisory Group
(CAG) to the CFAS
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Background
The CAG is established as an independent advisory
group to the CFAS, the auditing standard setting
committee of the IRBA.
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Objective
To consult with the CFAS on matters relating to
auditing pronouncements,
ensure harmonisation with the activities of the IAASB
of IFAC,
proactively identify matters for the attention of the
CFAS and
enhance the transparency and accountability of the
auditing standard setting function
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Terms of Reference
To consult with the CFAS regarding:
• The CFAS work programme and agenda.
• Prioritisation of CFAS projects.
• Major technical issues.
• CAG members’ view regarding other matters of
relevance to the activities of the CFAS.
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Composition
• The CAG is broadly constituted,
• comprising of members representative of those preparing
audited financial statements,
• regulators of various industries as well as people otherwise
interested in audit issues.
• Membership can be extended to an individual or an
organisation
• Members serve for a renewable period of three
years. There is no limitation on the number of years
for which a member may serve.
• Membership is not limited to a specific number of
organisations or individuals.
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CAG Members
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Rick Cottrell: Director of Companies and Chairperson
Suresh Kana: CFAS
André Bezuidenhout: South African Reserve Bank (SARB)
Bill Urmson: JSE Limited (JSE)
Simpiwe Cele: Office of the Auditor General (OAG)
Rob Barrow: Financial Services Board (FSB)
Stephen Handler: Actuarial Society of South Africa (ASSA)
Tony Dixon: Institute of Directors (IOD)
Phil Sinnett: Institute for Public Finance and Auditing (IPFA)
Veronica du Preez: Institute of Internal Auditors (IIA)
Charl Kocks: Accounting Practices Board (APB)
Linda de Beer (International CAG)
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Challenges
• Maintaining the balance between technical detail
and strategic issues
• Influencing international audit standard setting
through international CAG
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Practice Review
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Inspection Committee
• Comprises 11 people who serve on a voluntary basis
for a maximum period of 6 years.
• 4 Attest practitioners from big firms,
• 3 attest practitioners from smaller firms,
• 3 non-attest people and
• 1 IRBA Board member.
• Country wide representation. Their responsibilities
include:
– assessing the quality and consistency of review reports
– determining the outcome of review findings on an
anonymous basis
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Review process
• Schedule review date 8 weeks in advance.
• Request pre-review information from
practitioner/firm
• Perform review of practitioner/firm
• Discuss review findings with practitioner/firm (no
third party attendance allowed)
• Obtain comments from practitioner/firm on review
findings
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Review process (continued)
• Prepare formal review report and make
recommendation on review result in terms of rereview criteria
• Perform review department consistency/quality
control checks
• Bill practitioner/firm for costs of review
• Present formal review report to Inspection
Committee on anonymous basis at quarterly
meeting
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Review process (continued)
• Director Practice Review relays committee decision
to practitioner/firm
• Receive undertaking from practitioner/firm to
implement corrective action
• If practitioner/firm wish to appeal committee
decision they have 45 calendar days from decision
date to lodge written appeal which will be
considered on anonymous basis at next quarterly
committee meeting for final decision
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Firm Reviews
• Applies to audit firms who have listed clients
including subsidiaries, associates, joint ventures.
• 3 year cycle January 2006 – December 2008.
• Review design of firms quality control system and
assess effectiveness of implementation.
• Quality control system elements are leadership
responsibilities, ethical requirements, client
acceptance and continuance, human resources,
engagement performance, and monitoring.
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Firm Reviews (continued)
• 2 teams of four reviewers – 2 CA’s,1 lawyer,1 HR
consultant – schedule 1 team per firm review
• Big four audit firm networks – 9 weeks (R1,2m plus
VAT)
• Mid–tier audit firm networks – 5 weeks (R682k plus
VAT)
• Smaller audit firm networks – 12 days (R327k plus
VAT)
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Firm Reviews (continued)
The firm reviews identified no significant systemic weakness in
the overall systems of quality control operated by the Big Four
audit firms. However, certain areas were identified where
systems need to be improved in order to enhance audit quality.
Key recommendations for improvement based on the principal
findings of the firm reviews include:
• Internal reviews are performed by the firms on a sample of
completed audit engagements. It was found that internal
reviews should emphasise the need for audit documentation;
• Pre-issuance reviews are required on public interest entities
prior to the signing of the audit opinion. It was found that the
documentation of pre-issuance reviews needs to
be improved;
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Firm Reviews (continued)
• Monitoring of gifts and hospitality is required for
independence purposes. It was found that registers to record
the provision and
receipt of gifts and hospitality to and from clients needs
to be addressed;
• In deciding whether to accept a new client or to retain an
existing client, firms are required to consider various factors.
It was found that reportable irregularities were not being
specifically addressed in the documentation on files;
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Firm Reviews (continued)
• Firms are required to have capable and competent staff and
to this end performance appraisals are an important tool. It
was found that performance appraisals of partners and staff
need to be prepared timeously and to indicate both
development needs and corrective action to be taken;
• Firms are required to have sufficient staff with available time.
It was found that training and annual leave was often
cancelled by staff due to work pressure;
• In order to ensure completeness and enable monitoring
thereof, it was recommended that complaint logging systems
need to be maintained.
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Engagement reviews
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Applies to RAs issuing audit opinions.
3 year cycle if category A and/or B and C clients.
6 year cycle if exclusively category C clients.
6 year cycle = desk top reviews: reviewers based at
our Johannesburg office, copy of files couriered to
reviewers, telephonic discussion, cost saving of
R2727 plus VAT per review.
• Review compliance with professional standards in
the performance of the attest function.
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Engagement reviews (continued)
• Review audits of financial statements, attorney trust
accounts, estate agents trust accounts.
• Assess sufficiency and appropriateness of audit
evidence obtained and appropriateness of key audit
judgments made.
• Schedule 1 reviewer (CA) per review.
• 3 year cycle = 2-4 days (R17k - R31k plus VAT).
• 6 year cycle = 1 day (R8k plus VAT).
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Engagement reviews (continued)
• Practitioners have four business days from the date
of the review in which to submit comments on the
findings of the review.
• If the comments refer to specific working papers,
copies of these working papers must be attached to
the comments for the reviewers to refer to.
• Comments received after the deadline will not be
taken in to account.
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Engagement reviews (continued)
• Areas identified on engagement reviews as not having
sufficient and appropriate audit evidence documented were:
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Ethical considerations
Fraud considerations including testing of journal entries
Testing the design and implementation of internal controls
Going concern considerations
Subsequent event considerations
Unadjusted audit difference considerations
Analytical review considerations
Deferred tax considerations
Considerations on the use of the work of experts
Testing of provisions
Testing of impairments
Testing of carrying value.
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Legal
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Key Functions
• The Directorate
• The Investigating Process and the Committees
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Current Legislation
• The Auditing Profession Act 26 of 2005
– Promulgated on 1 April 2006. This year will focus on
promoting possible amendments
• New Disciplinary Rules
– E-mail communication sent on 16 July 2007 and available
on IRBA website.
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Current Trends
• Trend in reported cases
– Attorney Trust Accounts, Body Corporates
• Malicious reporting
– Reporting Irregularity
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Shelf Companies
Independence
Poaching
Holding Out/ Fronting
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Registry
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Renewal of registration for individuals
• Annual Return.
• Fees, Practice Review affidavit, FICA questionnaire.
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Licences to Practise
• Issued annually after cut off date for payment of fees
and submission of documents.
• Attest and non-attest licences.
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Firm Registrations
• Required in terms of APA
• Implemented during second half of 2007
• Firm registration fee
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Common problems
• Paying annual fees, but not submitting
documentation.
• Submitting incorrect Practice Review affidavits.
• Not sending in original documents.
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Operations
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Finance – Funding Model
• In addition to the above S 25 of the new Act also sets out
various possible funding sources for the IRBA.
• During the past year, the IRBA received about 30% funding of
its total budget from National Treasury, specifically to assist
with the implementation of the APA.
• The balance of our funding comes mainly from the profession
by way of registration, licence and practice review fees.
• However, it should be noted that this funding model is not in
line with international best practice, which is to be
substantially independent from the profession with regard to
funding.
• A sustainable long term funding model for the IRBA still needs
to considered and approved by National Treasury.
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Finance – Funding Model (continued)
a) Substantially Government Funded
This is the most common funding model adopted by
Independent Audit Regulators internationally.
Of the 22 Independent Audit Regulators participating at the
IFIAR, the majority are funded mainly by their governments.
Some of them levy registration fees for auditors or firms, but
this comprises 5-10% of their total revenue. The balance is
funded by government.
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Finance – Funding Model (continued)
b) Other models
The US regulator (PCAOB), collects a very small amount of revenue from
Registration fees (less than 5%), and in mainly funded by a regulatory levy
imposed on all listed companies, based on the size of the Market
Capitalisation.
The Canadian regulator (CPAB) is fully funded via a levy which they impose on
the audit fees charged by auditors of listed companies. The audit firm collects
the levy from their client, and pays it over to the regulator.
The UK regulator (FRC) have a shared responsibility model, where budget of
the regulator is funded from a combination of a levy on listed companies
(Business contribution), a contribution by the professional body which they
recover on their own from the auditors (Profession
contribution) and a contribution from their government
(Government contribution).
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Statement of Financial Performance
Figures in rand
Note(s)
Revenue
2007
25,584,332
Sale of goods
281,631
Fees
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25,302,701
Government grants
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10,881,000
Investment income
13
555,263
Other income
10,208
37,030,803
Expenses
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34,093,386
Net Surplus for the year
20
2,937,417
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Statement of Financial Position
Figures in rand
Note(s)
2007
Assets
Non-current assets
Property, plant and equipment
2
5,142,526
Trade receivables
3
2,332,154
Other receivables
4
118,676
Loans receivables
5
61,900
Cash
6
4,870,474
Current assets
7,383,204
Total assests
12,525,730
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Statement of Financial Position (continued)
Figures in rand
Note(s)
2007
Net assets and liabilities
Net Assets
Disciplinary reservers
4,412,580
Education fund
1,935,578
Accumulated fund
3,227,880
9,576,038
Liabilities
Current liabilities
Trade and other payables from exhange transactions
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2,463,622
Provisions
8
486,070
2,949,692
Total net assests and liabilities
12,525,730
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Other Operations Issues
• Finding new accommodation
• What to do with the current Maneo building
• Implement new Information Management System
• Developing EE Strategy for the IRBA
• Developing and implementing an updated Performance
Management System for IRBA staff
• Ongoing PFMA compliance
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Comments on Draft Companies Bill
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THANKS FOR YOUR PARTICIPATION