Bringing clarity to the audit profession and growth in a post-covid world
27 October 2020
BDO’s second CLARITY session was a conversation about the future of the audit profession, why our regulators need more funding, and the task of cultivating a business environment that enhances compliance without strangling growth, writes Mark Stewart, CEO of BDO South Africa.
This week, BDO hosted its second CLARITY session, a time dedicated to having frank conversations about the most pressing issues facing our profession and the broader business environment in South Africa. Of course, no discussion about 2020 could ignore the far-reaching impact of the Covid-19 crisis on our health, economy and society. But at this mid-point in the pandemic, we must also include other urgent conversations as South Africa plans its future for a post-Covid world.
On winning back trust for the audit profession
Let’s start with the audit profession, which has faced some real reputation failures over the last few years. Despite the thousands of audit successes, when a failure happens it’s often highly visible and under intense scrutiny from the media and the public. We must remember that our stakeholders are also our customers, and winning their trust is essential to our legitimacy. And while it’s easy to call out other corporates for internal governance errors and omissions, these firms also share research insights and information that help take the profession forward. When a series of scandals happen, it is a moment to reflect on what could be done differently. In my view, this is an opportunity to open up for more funding for the regulator to enhance compliance, rather than create more regulations. Dr Leila Fourie, CEO of the Johannesburg Stock Exchange (JSE) pointed out that South Africa is often lauded for its detailed and transparent reporting requirements by the World Economic Forum. But we all agreed that actually enforcing these requirements is what counts, and this needs more resources from Government. While we all know the fiscus is under particular pressure to deal with Covid-19, we shouldn’t underestimate the value of maintaining a trustworthy and credible financial environment and how this encourages foreign direct investment. We already have strong regulatory frameworks in place like the Twin Peaks model, said Dr Yacoob Abba Omar, Head of Strategy and Communication at the Banking Association of South Africa (BASA). And while there will always be some malfeasance, our accountability checks can keep the system on track if properly enforced.
On encouraging both growth and compliance
Speaking about the JSE listings requirements and giving smaller businesses access to funding so they can scale and list in the future, Dr Fourie reminded us that any financial exchange has to be grounded in the economy it operates in. While regulation and compliance are critical, we can’t strangle opportunities for growth either. The real change, acknowledged Hemeel Bhaga-Muljee, BDO’s National Head of Audit, will be when all stakeholders take accountability for good governance – not just the auditor or the board of directors. Imagine, Bhaga-Muljee says, if all audit firms refused a client of questionable reputation because it would taint the whole profession? That’s the kind of clarity the profession needs, where everyone is committed to transparency and accountability.
We know, of course, there are many challenges here. For one thing, any business is naturally drawn to doing the most profitable work available, and it’s all too tempting for many companies to do what is easy instead of what is right. But if we can all incentivise long-term value creation and hold ourselves accountable to complying with the letter and spirit of the regulations, we will have gained the trust of even our fiercest critics.