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CASE 8.4 REGISTERED AUDITORS, SOUTH AFRICA Synopsis The past two decades have been an extremely turbulent period for the Republic of South Africa. In 1991, the South African government lifted the decades-long ban on the African National Congress (ANC), the political party that had led the effort to repeal the nation’s apartheid laws. Three years later, the ANC took control of the federal government after the first truly multi-racial elections in South Africa’s history. South Africa’s economy in the post- apartheid era has been characterized by uncertainty and volatility. Widespread corruption in the business community and a series of high-profile financial scandals have limited the amount of foreign direct investment in the nation and, as a result, deprived South Africa of capital needed to promote economic development and raise the standard of living of its citizens. In an effort to restore the credibility of the nation’s capital markets, the South African Parliament passed a controversial new law in 2006. The Auditing Profession Act (APA) has had far-reaching implications for South Africa’s accounting profession, in particular, its independent audit function. The APA created a new regulatory agency to oversee the independent audit function, established a new professional credential in the accounting profession for independent auditors, and, most important, mandated that independent auditors disclose so-called “reportable irregularities” to the new auditing regulatory agency. Reportable irregularities are generally fraudulent acts or other illegal activities that have important economic consequences for the given entity being audited. Under the APA, South African auditors must disclose reportable irregularities “without delay” to the federal audit agency, meaning that these items cannot first be discussed with client management. As one might expect, this new responsibility imposed on auditors has been extremely controversial within South Africa’s financial reporting domain and its accounting profession.
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59 Case 8.4 Registered Auditors, South Africa Registered Auditors, South Africa—Key Facts 1. In the post-apartheid era, corrupt business practices and a series of high-profile financial reporting scandals have undermined the credibility of the South African economy and capital markets within the international business community. 2. The most notable financial reporting scandal in South Africa in recent years involved Randgold & Exploration Company Limited, a leading company in the nation’s crucial mining industry. 3. In August 2005, Brett Kebble, Randgold’s chief executive, was forced to resign his position after the company reported a large amount of missing funds; Kebble was murdered one month later in what police characterized as a planned “hit.” 4. Among the parties targeted by investigations of the Randgold scandal was PwC, which had issued unqualified opinions on the company’s financial statements during the time frame when
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