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In her address at the National Prosecuting Authority's Stakeholder Conference held in March 2007, the then Minister for Justice and Constitutional Development reminded the authence that one of the targets of the department was to reduce crime by between 7% - 70% per annum. Recognising the need for all stakeholders to join forces in order to meet this objective, she emphasised their commitment to 'find solutions that talk to each other in order to leverage efficiencies that otherwise would not be available but for co-ordination.'
Section 45 of the Auditing Profession Act, Act 26 of 2005 (APA), creates one such mechanism whereby government could rely on audit regulation to contribute towards the reduction in white collar crime. The promulgation of the APA, together with proposed amendments to South African Corporate Legislation and the King Report on Corporate Governance at the time, have sparked renewed interest in the role of auditors in the accountability chain and the quest for improved governance in business.
Section 45, which deals with the auditor's responsibility to report reportable irregularities to the Independent Regulatory Board for Auditors (IRBA), has certainly been the subject of much controversy and misinterpretation, including a perception that auditor-client relationships have been jeopardised by the obligations imposed on the auditor in terms of the APA. In this article, I will attempt to address these perceptions and provide clarity regarding uncertainties that may have been created by this section.
What does section 45 require?
Section 45 of the Act defines a reportable irregularity as 'any unlawful act or omission committed by any person responsible for the management of an entity, which,
a. has caused or is likely to cause material financial loss to the entity or to any partner, member, shareholder, creditor or investor of the entity in respect of his or her or its dealings with that entity; or
b. is fraudulent or amounts to theft; or
c. represents a material breach of any fiduciary duty owed by such person to the entity or any partner, member, shareholder, creditor or investor of the entity under any law applying to the entity or the conduct or management thereof.'
It should be appreciated that, while it is the auditor's duty to report irregularities to the IRBA, management remains responsible...