Establishing the reporting duties of the auditor in terms of corruption and cross–border anti–corruption legislation

Abstract

This study revolves around the reporting duties of an auditor in terms of national and international anti-corruption legislation, in the event that the auditor discovers or uncovers proof of irregularities regarding corruption. The research method used in this dissertation is a literature study or literature review. Firstly, this dissertation analyses the history and development of International Conventions, PRECCA (Act 12 of 2004), the FCPA (1977) and the UK Bribery Act (2010). The aforementioned analysis determines that it is imperative that a global solution for corruption as well as international cooperation has to be obtained. Subsequently, the dissertation establishes what corruption entails and a comparison is drawn between South African anti-corruption legislation and similar worldwide legislation and conventions. Applicability; jurisdiction; investigation and enforcement; penalties and exceptions prescribed by applicable legislation; the UNCAC (2003); and OECD are compared. Furthermore, an analysis and comparison is done on the way in which FCPA (1977), PRECCA (Act 12 of 2004) and the UK Bribery Act (2010) follow these prescriptions. The dissertation finds that the APA (Act 26 of 2005) is the most relevant South African law in regulating the reporting duty of an auditor according to section 45. The APA (Act 26 of 2005) provides for a systematic response upon the discovery of a reportable irregularity, which also includes corruption. The auditor’s duties are analysed in terms of ISA 240. The study finds that, although this standard does not specifically address corruption, the regulations of this standard provide that an auditor should communicate findings regarding fraud “as soon as practicable” (paragraph A60) to management (paragraph 40). Furthermore, the study verifies that the FCPA (1977) and UK Bribery Act (2010) both have limited regulations regarding the auditor and his reporting duties. The Companies Act (Act 71 of 2008) itself provides little regulation on an auditor’s reporting duty in terms of corruption; therefore the Companies Regulations were issued in 2011. Said Regulations reflect that an independent reviewer, that becomes aware of a reportable irregularity, should send a written report to the Companies Commission in terms of Regulation 29(6)(a). PRECCA (Act 12 of 2004) regulates reporting duties in section 34, but only of a person holding a “position of authority”. A definition of said person does not specifically include an auditor, as an auditor is considered independent of the entity. Despite this reason, the lack of regulations regarding an auditor’s reporting duties in terms of corruption may be a limitation in terms of PRECCA (Act 12 of 2004). Despite this, it is a requirement for an auditor, under alternative laws such as the APA (Act 26 of 2005), to report corrupt actions in violation of PRECCA (Act 12 of 2004). The study further finds that, according to the IRBA Code (2010) of professional conduct, the duty of confidentiality is outweighed by disclosures required by law, especially disclosures of irregularities under the APA (Act 26 of 2005). Finally, it is the auditor’s responsibility to act in an open and accountable manner (according to the King III report (2010)) and to disclose and report corrupt activities to third parties.