The big disciplinary stick was waved at the accounting profession worldwide last year, but corporate scandals persisted and the "big four" accounting firms had to work hard on public relations. One thing is clear: corporate governance problems are unlikely to be solved by stricter regulation of the accounting profession alone. The net needs to be thrown much wider.
The co-operative effort to clamp down on errant executives, boards and auditors through legislation such as the Sarbanes-Oxley Act in the US has closed many loopholes and improved corporate governance. Now SA is looking to jack up its regulatory systems too.
"We are crying out for the process of setting accounting standards to be enacted," says SA Institute of Chartered Accountants (Saica) executive president Ignatius Sehoole. "Not only do we need legal backing for accounting standards, but the Companies Act and related legislation are out of date."
Private-sector efforts, such as the Gaap monitoring panel at the JSE Securities Exchange, have had some success. The panel has investigated 16 companies since its launch in September 2002, and two companies have had to restate their financial statements. "But it covers only listed companies. There need to be controls for all companies where there is public interest," says Sehoole.
An examination of the profession's role was undertaken by a ministerial panel established to review the draft Accountancy Profession Bill. Its report, released in December last year, called for the overhaul of regulation of the auditing profession and a revamp of disciplinary procedures.
Largely supported by practitioners, the bill will probably be enacted later this year, though there has not been a decision on whether auditor rotation will become compulsory.
"Auditor rotation is not in the interests of capital markets or of clients," says Deloitte chairman Vassi Naidoo. Apart from questions of whether rotation of auditors would improve quality - Parmalat's collapse took place in Italy, where auditor rotation is required - it is likely to add to already increasing audit costs.
"The time and preparation involved in continually pitching to new clients would do little to enhance the quality of audits and would hugely increase the costs," says Public Accountants' & Auditors' Board (PAAB) chair Ruth Benjamin-Swales.
With only 413 listed companies, the pool of clients in SA is limited. KPMG audits recently listed Telkom, but on the whole auditors continue to audit the clients they have had for the past few years.
The ministerial panel also called for a new regulatory body composed of a range of professionals - not just auditors - to be appointed by the minister of finance.
"It's important that the body neither acts nor is perceived to act as self-regulatory," says PAAB CEO Claude O'Flaherty.
Other recommendations by the panel include ensuring that fraud is a statutory offence not just for auditors, but for executive management, too, and introducing legislation that would require companies to have independent audit committees.
An initiative to set consistent financial reporting standards globally is due to be implemented next year by the International Accounting Board. Though welcomed by most, the setting of international standards created conflict between the board and European banks and insurers. They have been at loggerheads over accounting for derivatives and insurance for the past year.
But while some European companies are in a fluster over international standards, SA is on track. "We have been compliant with the 40 international standards for a number of years and though there are about five new standards, there won't be as big an impact on local companies as there will be on overseas companies that need to start from scratch," says Linda de Beer, Saica senior executive: standards.
Technical issues aside, the biggest challenge for the profession over the coming year will be black economic empowerment. A charter setting targets for the industry is likely to be out by the end of the year, though the big four have had programmes to fast-track transformation for some time.
Saica has started the Thuthuka initiative to help black school students prepare for university-level qualifications. But the profession has a long way to go: only 403 of 21 856 chartered accountants are black.
