GLOBAL TRENDS IN REGULATION IN ACCOUNTING AND …...GLOBAL TRENDS IN REGULATION IN ACCOUNTING AND AUDITING 6 October 2016, London 1. Background •Audit failures and global financial

GLOBAL TRENDS IN REGULATION

IN ACCOUNTING AND AUDITING

6 October 2016, London

1

Background

• Audit failures and global financial crises drive focus on the

responsibility of Regulators

• Ultimate responsibility of regulators is investor and public protection

• Increased demands from investors

• Drive for High Audit Quality

• Governments and Regional Trade structures such as the EU are

taking legislative steps and focusing on who is accountable for the

public protection

• Stricter measures are the order of the day

• Aligning to international practice

2

A Changing Environment

• Principle: By promoting integrity in Financial Reporting and

building a basis for providing confidence, auditors reduce

financing costs and contribute to the efficiency of capital

markets, thereby promoting economic growth.

• Impact on the audit industry:

• Perceived value of Audit

• Advances in technology

• Greater access to data

• Commoditisation of Audit

• Opportunities for differentiation

• Quality of resources

• Increase in non-audit services

3

A Changing Environment (cont.)

• Re-tendering and rotation

• Recognition across borders

• IES 8 – Audit a specialist role

• Where audits are done

• Off-shoring

• Outsourcing

• Using data technicians

• Centres of excellence

• Big Data and Data Analytics

• Pyramid Staffing Model

• Governance Structures

4

Regulations

IFRS & other

Increased

complexities

IT

developments

Rotation &

retendering

Audit firms

only Social

responsibility

inputAudit report –

key audit

matters

Off shoring

Increased

competition

Globalisation

Landscape Changes

Creating a Competitive Market Place

• Audit Failures

• Deutsche Bank

• Recent fines payable by audit firms

• Market Concentration and dominance of large firms

• Comprehensive Regulation to address systemic failure

• Measures introduced (e.g. MAFR, Prohibition of Non-audit

Services)

• GAAP

• Reporting, including <IR> and KAM

6

Audit market share for listed companies

- SA

7

Audit tenure for Top 40 companies - SA

Top 40 companies. Audit

tenure > 20 years

Audit tenure Audit fees

Anglo Gold Ashanti 72 years R101 million

Mondi Limited 48 years R49 million

MTN Limited 22 years R107 million

Nedbank Limited 42 years R107 million

Naspers More than 90 years R117 million

Standard Bank Group 53 years R137 million

8

Threats to independence

• Familiarity threat between CFOs and the incumbent auditors

• Familiarity threat between audit committee chairs and incumbent

auditors

• Myburgh Report on African Bank - SA

• Inspection findings relating to ethical requirements - SA

• Audit tenure of audit firm and rotation history of the Top 40 - SA

• Audits performed by the SAI - SA

9

10

11

• LatAm sovereign debt crisis – 1982

• Savings and loans crisis – 1980s

• Stock market crash – 1987

• Junk bond crash – 1989

• Tequila crisis – 1994

• Asia crisis – 1997 to 1998

• Dotcom bubble – 1999 to 2000

• Global financial crisis – 2007 to 2008

40 Years of Crisis – The new normal?

12

Digital vs Regulation

• What does ‘digital’ really mean?

• Too much reliance on IT?

• Data overload

• System and Methodology driven audits – No longer

performing a ‘thinking audit’

• Professional Skepticism

• ‘Right – touch’ regulation

13

Implications

• Industry- and client-specific knowledge

• Complexity of transactions

• Difficulty attracting and retaining talent to service specialised

industries

• Costs to business and of the audit; complexity across various

jurisdictions

• Firms with global infrastructure

14

Expectation Gap

Wider assurance

Not compliance

driven

Value adding

Other assurance providers

15

What Future Competencies Are

Required?

16

Wider assurance – commercial and consulting mind-set

Augmented skills

Relationship

building

Data analytical NegotiationMarketing

Enhanced

problem solving

In-depth industry

knowledge

Business acumen

Forensic skills to

unpick business

Project

management

THANK YOU

17