The South African Institute of Chartered Accountants (SAICA) has reminded auditors that they have duty to report any reportable irregularities that they might encounter when conducting audits, this time with emphasis to clients in the estate agency sector.
The warnings comes as the 30 September 2012 deadline granted by the Estate Agency Affairs Board (EAAB) for Estate Agents to file their audit reports draws closer.
SAICA Project Director: Assurance Ashley Vandiar said SAICA warns that failure for the Estate Agent to have both trust and business accounts audited would result in a contravention of Sec 29 of the Estate Agents Act.
“The Act simply states that both the business and trust accounts of an Estate Agent need to be audited. Yet, for an unknown reason, this is not being practiced. Estate Agents only submitted their trust accounts to be audited and not their business accounts. The EAAB is now enforcing this legislative requirement.”
It is important to note that this is not new and the legislation did not change. The requirement has always been there but it has unknowingly been overlooked by both Estate Agents and their respective auditors. This wrong doing would constitute to a malpractice which could mean a reportable irregularity has taken place.
Auditors are regulated by the Auditing Professions Act (APA) who define reportable irregularities as “any unlawful act or omission committed by any person responsible for the management of an entity, which has caused or is likely to cause material financial loss to the entity or to any partner, member, shareholder, creditor or investor of the entity in respect of his, her or its dealings with that entity; or is fraudulent or amounts to theft; or represents a material breach of any fiduciary duty owed by such person to the entity or any partner, member, shareholder, creditor or investor of the entity under any law applying to the entity or the conduct or management thereof”.
Vandiar confirms that the decision not to have the business account audited would mean that it is an unlawful act committed by management. The auditor must apply professional judgement and evaluate if a reportable irregularity needs to be reported.
“I would like to caution auditors who are aware that their Estate Agent clients only have their trust accounts audited and not their business accounts, to carefully consider whether or not a reportable irregularity has occurred and if so, to follow the duties placed on them in terms of the APA.
“I would like to bring their attention to Section 52 of the APA that states that any auditor who fails to report a reportable irregularity would be guilty of an offence and that under this section, he/she could face a fine, imprisonment not exceeding 10 years or both.”
When conducting an audit, auditors are required to constantly consider and evaluate management’s integrity as this would increase the risk involved in the audit and will affect the reliance that can be placed on management. Knowing of management’s decision to not comply with Section 29 of the Estate Agents Act should be factored into the assessment of management’s integrity as the management f the client is knowingly choosing to not comply with legislation.
Vandiar observes that many Estate Agents are also getting confused with the requirements of the Companies Act because, while under the provision of the Companies Act, some of these Estate Agents may qualify for an independent review, the Estate Agents Act requires an audit. As such, Estate Agents who are defined as companies would need to comply with requirements of both the Companies Act and the Estate Agents Act.
While Section 5(4) of the Companies Act addresses clashes with the provisions of the Companies Act and any national legislation, “I would like to confirm to Estate Agents and auditors that the audit requirement in terms of the Estate Agents Act is not in conflict with the Companies Act. It just places a more onerous requirement on such companies,” advises Vandiar. As such, by having trust and business accounts audited, Estate Agent companies would be able to comply with both the Companies Act and the Estate Agents Act.
“Should Estate Agencies not lodge the 2012 audited business and trust account financial statements, the EAAB will not renew estate agencies and principals Fidelity Fund Certificates for 2013, which are essential to conduct business. On the other hand, auditors who fail to report reportable irregularities could be guilty of an offence and punished accordingly.” concludes Vandiar.