CASE 8.4
REGISTERED AUDITORS, SOUTH AFRICA
Synopsis
The past two decades have been an extremely turbulent period for the Republic of South Africa.
In 1991, the South African government lifted the decades-long ban on the African National Congress
(ANC), the political party that had led the effort to repeal the nation’s apartheid laws. Three years
later, the ANC took control of the federal government after the first truly multi-racial elections in
South Africa’s history. South Africa’s economy in the post-apartheid era has been characterized by
uncertainty and volatility. Widespread corruption in the business community and a series of high-
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Registered Auditors, South Africa—Key Facts
Case 8.4 Registered Auditors, South Africa 321
1. In the post-apartheid era, corrupt business practices and a series of high-profile financial
reporting scandals have undermined the credibility of the South African economy and capital
markets within the international business community.
3. In August 2005, Brett Kebble, Randgold’s chief executive, was forced to resign his position
4. Among the parties targeted by investigations of the Randgold scandal was PwC, which had
5. Throughout its history, the South African accounting profession has been dominated by white
6. The leading accounting professional organization in South Africa is the South African Institute
of Chartered Accountants (SAICA), which issues the Chartered Accountant (CA) designation.
7. In 2006, the South African Parliament passed the Auditing Profession Act (APA) in an effort to
8. The APA established the Independent Regulatory Board for Auditors (IRBA), a new federal
regulatory agency that would oversee South Africa’s independent audit function.
9. The APA also established a new professional designation for independent auditors, Registered
Auditor (RA).
10. To become an RA, a South African accountant must successfully pass the CA examination
11. The most controversial feature of the APA is a requirement that RAs disclose “reportable
12. The RI disclosure rule has apparently created tension between auditors and management
personnel of their clients.
Instructional Objectives
322 Case 8.4 Registered Auditors, South Africa
2. To demonstrate how political and social factors influence the development and evolution of a
nation’s accounting profession and independent audit function.
Suggestions for Use
The principal focus of this case is the controversial “reportable irregularities” disclosure rule
included in South Africa’s Auditing Profession Act (APA) that went into effect in 2006. That rule
Suggested Solutions to Case Questions
1. Consider assigning individual student groups specific issues or topics to investigate and report
on in class. For example, you might have one group of students research developments related to the
2. I believe that it is important for students to understand the origins of the independent audit
function and the key factors that influence the development and evolution of that function. In the
United States, political forces clearly have had and will likely continue to have a significant impact
on the independent audit function. Independent audits were being performed prior to the passage of
in 1929.
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From the 1930s through the early 1990s, there was little in the way of direct intervention in the
independent audit function by the U.S. Congress or other political bodies. Lobbying by the major
accounting firms was a key factor that prompted Congress to pass the Private Securities Litigation
Reform Act of 1995. That federal law mitigated, to some extent, the legal liability of the “Big”
accounting firms by making it more difficult for third-party plaintiffs to file class-action lawsuits
The series of high profile financial reporting scandals around the turn of the century that was
capped off by the Enron and WorldCom debacles resulted in Congress intervening directly in the
independent audit function. Criticism of independent auditors, particularly by the business press,
effectively forced Congress to take explicit measures to improve the quality of independent audits.
3. Here are some apparent advantages and disadvantages of having separate professional
credentials or designations for independent auditors and accountants:
Advantages:
—A separate professional credential for independent auditors would result in enhanced efforts to
develop and refine audit skills—in college curricula as well as within the CPE “cottage industry.”
Such efforts would almost certainly lead to higher quality audits in the long run.
Disadvantages:
—The addition of a professional credential for independent auditors could potentially result in more
confusion, at least in the short term, regarding the roles and responsibilities of accountants and
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4. Listed next are apparent “impacts” that would likely be produced by the adoption in the U.S. of
a rule similar to South Africa’s reportable irregularities disclosure rule:
(1) Impact on the independent audit function
a. Although not mentioned in the case, the RI rule in South Africa has resulted in a
significant increase in audit fees. The harsh sanctions for failing to comply with that
rule have apparently prompted auditors to do a more thorough job of searching for
(2) Impact on the capital markets
a. Most likely, an RI disclosure rule would discourage malfeasance by corporate
5. Not being a South African and thus being generally unfamiliar with that nation’s “social
dynamics,” it is somewhat presumptuous and naïve on my part to suggest strategies for increasing
the number of blacks in that nation’s accounting profession. Nevertheless, the United States
accounting profession has faced a similar dilemma throughout its history, although not as severe.
Following is a list of specific strategies or tactics that any nation’s accounting profession could
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employ to persuade individuals from underrepresented groups to consider pursuing accounting
careers:
a. The most obvious solution is to use a nationwide marketing campaign targeting the