WHO MAKES THE RULES - WHO INTERPRETS THE RULES - THAT IS THE QUESTION?
There is a defintion of the term “rule” in the Auditing Profession Act 2005 (APA). Section 1 of the APA defines a rule as one that “means a rule prescribed by the Regulatory Board under section 10”. Section 10 provides that the Regulatory Board may, by notice in the Gazette, prescribe rules with regard to any matter that is required or permitted to be prescribed in terms of the APA; and any other matter for the better execution of the APA or a function or power provided for in the APA. Section 42 of the APA states that all registered auditors must comply with rules prescribed by the Regulatory Board. One must determine the intention of the legislature in this regard in order to interpret what is meant by the term “rule”. Rule may mean in this context to be a set of explicit instructions describing or prescribing what is possible or allowable. This defintion can be supplemented by the intention for IRBA to exercise ultimate power or authority over such rules. Therefore it may be perceived that the IRBA has the unbridled ability to make the rules and then interpret the rules in a manner the IRBA deem appropriate and the registered auditor has no ability or power to consider his or her own indpendent thought on the matter specially where it is different to that of the IRBA. For example where the IRBA has obtained legal opinion as to the interpretation of a statutory provision and then prescribes that opinion as rule the question arises as to whether the registered auditor has a legal obligation to follow such a rule? It is submitted that the auditor has no legal obligation to follow such a rule as while the defintion of the term rule above is acceptable; any guidance or interpretations as issued by the IRBA cannot be made into a rule as the APA is very clear in a very direct manner on what must or may not be complied with by the registered auditor when conducting an audit. This emenates from s 44 of the APA which clearly places the responsibility for the interpretation of standards, laws and regulations on the shoulders of the registered auditor. It is submitted that the auditor has only a legal obligation to consider the view of the IRBA; once this has been done then the auditor has a legal obligation to consider his or her own view one that a reasonable auditor would consider. Under no circumstances can the IRBA be considered to be a reasonable auditor as the IRBA do not practice as registered auditors and the determination of whether an auditor has acted reasonably is dependent soley of the facts and circumstances of a practcal situation which clearly all such situtations cannot be covered by the guidance or auditing standards. Section 44 of the APA provides that the registered auditor may not, without such qualifications as may be appropriate in the circumstances, express an opinion to the effect that any financial statement ….. unless a registered auditor who is conducting the audit of an entity is satisfied. Clearly there is no obligation for the auditor to strictly adhere or comply. The current formulation allows the auditor's use of his or hers own judgement of whether or not he or she has met the standards of the reasonable auditor and therefore complied. Therefore when the APA mentions the term rule it cannot mean as previously stated explicit instructions describing or prescribing what is possible or allowable and the intention for IRBA to exercise ultimate power or authority over such rules specifically in the conduct of an audit or any other engagement that the auditor undertakes. The IRBA therefore cannot make rules as to what situations are compulsory for an auditor to report a reportable irregualrity, what wording to include in a modified audit report or what consitutes the correct interpretation of the auditing standards. It is submitted that the IRBA has the power to make a rule that the registered auditor uses such as the ISAs when conducting an audit; but they cannot make any rules that prescribe the manner of such use as the auditor must use those standards as a reasonable auditor would and therefore follow a apply or explain why he or she is not complying.
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