Bernard Agulhas, CEO of the Independent Regulatory Board for Auditors (Irba), says the regulator needs powers of search and seizure because of the "noncooperation" of local audit firms.
Proposed changes to the Auditing Profession Act to give Irba powers of search and seizure have caused howls of protest from the auditing profession, which says they're "extreme" and "unconstitutional".
Agulhas says the crisis of public faith in the auditing profession makes quicker and more effective investigations by Irba essential.
The body has come under pressure from the public and parliament to speed up the process.
"We've been asked by the standing committee on finance about the speed of our investigations. We told them about the non-cooperation of the audit firms, and the difficulty to obtain information from them when we perform an investigation."
The need for sharper teeth was highlighted by Irba's release this week of its 2018 "Public Inspections Report", which shows that local audit firms are lagging behind the world in terms of audit quality, governance, ethics and leadership.
Of 622 audits inspected between 2016 and 2018, 262 were "unsatisfactory" and 71 had to be referred for investigation.
262
The number of auditors inspected between 2016 and 2018 — out of 622 — that were found to be unsatisfactory
This is higher than the global average and "unacceptable", Agulhas says.
Audit firms say that Irba already has sufficient powers to request and obtain documentation.
But, says Agulhas, "although the act says auditors must supply us with information when requested, practically, in our experience, it is a very difficult process to obtain the information from the auditors".
"We've been criticised for the length of time it takes to complete an investigation, and this is because we cannot get information when we request it."
Audit firms argue that search and seizure will undermine client confidentiality.
Agulhas says the law already empowers Irba to inspect audit files, which means having access to client information.
"When we do our investigation we can't and don't use the information of the client, we simply look at whether the auditor has performed his or her duties and behaved ethically."
Audit firms use confidentiality to make it as difficult as possible for Irba to get its hands on the audit files.
"They provide us with all kinds of reasons why we cannot have access to the information we need. Eventually we obtain the information, but it can take weeks.
"It makes it very difficult to get through the process in a planned and efficient manner when we are constantly having to communicate with the audit firm and their lawyers."
By stalling the process, audit firms are not only failing the public, they're also - assuming they have nothing to hide - damaging themselves.
"It really does not look good for the profession to be resisting the measures we are trying to introduce.
"This is not just to protect the public, but to help the firms regain the confidence of the public in their profession. They're operating under a huge cloud and this is not the time for them to be objecting to these changes."
The longer investigations take because of the delaying tactics of audit firms, the higher the risk to the public, he says.
"While we're doing an investigation the auditor is still out there auditing and giving opinions on which the public relies. It exposes the public to more risk. So if the auditor is guilty, the sooner we can prove it, the quicker we can take action against the auditor and alert the public to that risk."
He says search and seizure must mean being able to enter an audit firm without a warrant. Experience suggests that having to obtain one would allow firms using expensive teams of lawyers to use the same stalling tactics which make these powers necessary.
"We need to be able to act quickly also to prevent documents being altered, or working papers being changed. This happens, and so the sooner we can get our hands on the information the better."
He says Irba's philosophy is one of "balanced regulation", but it can only apply this if audit firms comply with the standards and code of ethics.
"When we see this type of [noncompliant] behaviour we have to adapt our level of regulation. These new powers are only so that we can respond to what we experience out there.
"The profession has put us in this position."
He says the law governing Irba's powers is no longer fit for purpose.
"Our act is more than 10 years old. Our powers are out of date, the sanctions are out of date. What we're experiencing in the profession is not something we could have expected in 2006."
Since then, audit firms have focused more on the commercial side of their business.
"We understand that they have to operate businesses and have to make profit, but at some stage that incentive overtook the greater, altruistic responsibility of firms in the audit profession to protect the public. That is what the audit profession is meant to do."
Their focus has been more on the commercial side than the public protection side, and this has compromised their independence.
"If the auditor is not independent, or not seen to be independent, then that opinion can never be reliable to the public.
"What we've seen over the years is that auditors have become too close to their clients."
Mandatory audit firm rotation was introduced to try to break up these relationships, which Agulhas says is why the profession has resisted mandatory rotation as fiercely as it is resisting increased powers for the regulator.
"We want audit firms to focus on audit quality and on their responsibility to provide a public service."
When they provide other, non-auditing, services to clients, there's a conflict of interest, he says.
"They're incentivised to protect those relationships, and the public interest suffers.
"When you look at firms that have long relationships with clients, and the income generated from those relationships, then clearly firms must be influenced by the need to protect that income."..