The legal regulation of the external company auditor in Post-Enron South Africa
Date
2009-03
Authors
Drake, Hannine
Journal Title
Journal ISSN
Volume Title
Publisher
Stellenbosch : University of Stellenbosch
Abstract
The worldwide increase of corporate failures on the scale of Enron and WorldCom has
sparked a renewed international trend of corporate governance review. With the external
company auditor blamed at least in part for many corporate failures, corporate governance
reform also necessitates a review of the statutory regulation of the company auditor. In
particular, the lack of auditor independence when auditing clients has been under the
legislator’s spotlight. The problems associated with unregulated or poorly regulated auditors
are well illustrated by the activities of auditing giant Arthur Andersen.
In the US, the Sarbanes-Oxley Act has been promulgated in reaction to corporate failures,
imposing many new legislative restrictions on the auditor. The UK has a more tempered, selfregulatory
approach. South Africa, following international trends with its recently
promulgated Auditing Profession Act and Corporate Laws Amendment Act, has also greatly
increased the regulation of auditor independence.
The question is now whether these new restrictions in the wake of corporate failures have
been the right approach with which to prevent future failures and to provide adequate
protection to shareholders. Although the general legislative increase in auditor awareness is
welcomed, the efficacy of several provisions in South African legislation can be questioned.
Widespread reform has taken place in the appointment and remuneration of the auditor,
which now has to be independently determined by the audit committee. In particular, South
Africa’s new regulation of non-audit services, and the lack of refined regulation on
compulsory auditor rotation as well as the cross-employment of auditors by clients, needs a
critical discussion.
It is submitted that the discretion of a well-regulated audit committee, combined with
increased disclosure and transparency, should be enough to regulate most of the key aspects
of auditor independence. Care should be taken to not overlegislate in haste to reform. South
Africa needs a flexible and customised approach in this regard.
Description
Thesis (LLM (Mercantile Law))--University of Stellenbosch, 2009.
Keywords
Corporate governance, Auditor independence, Corporate law, Corporate governance reform, Theses -- Law, Dissertations -- Law