AUDIT firms that provide audit and non-audit services to their clients will have to rethink their business models quickly as the section in the Companies Act that prohibits them from providing both services will be applicable from January 2014, says the Independent Regulatory Board for Auditors (IRBA).
The regulatory board is especially concerned about the effect of the changes to small and medium-sized practices in terms of their fee income, ability to appoint article clerks and their client base. Restructuring the firm to separate the audit and non-audit services will not be sufficient to become compliant with the act.
IRBA CEO Bernard Agulhas said this week that many firms, especially the bigger firms, had indicated that they planned to restructure their businesses to separate the units, but that would not be sufficient since IRBA applies the definition of a network firm. “If you have the same policies or the same remuneration structures, we regard you as one firm,” Mr Agulhas said.
The Companies and Intellectual Property Commission (CIPC) has granted the audit profession several extensions and the last one ends on December 31.
One of the provisions of the section 90(2) of the act, is that the prohibition is retrospective for five years, which means that when the act became effective on May 1 2011, audit firms were already not compliant with as they would have had to stop providing audit and non-audit services from May 1 2006. Section 90(2) of the Companies Act refers specifically to accounting, bookkeeping or services relating to secretarial work and not to all non-audit services.
“Clearly from a practical perspective auditors were not aware that this was going to be made a requirement of the Companies Act,” Mr Agulhas said at the IRBA annual information session in Pretoria.
Several extensions were granted since then, with final deadline on December 31 2018, which means that if the five-year retrospective provision is applied, the prohibition is effective from January 1 2014.
Mr Agulhas said IRBA and the South African Institute for Chartered Accountants (Saica) had engaged with CIPC to have the section amended, but had so far been unsuccessful. He said there would be a transitional period for companies with ongoing contracts to make a decision on which service they would offer.
“My personal view is that it (the section) will probably not change, because CIPC has given us the background why they have written the section and the intention was that it should be applicable to the audit firm and not the auditor.”
He said IRBA and Saica would continue with their efforts to have the section changed, but audit firms would in the meantime have to ensure that they were compliant with the act as it stood now.