03 Apr 2023

The number of citizen certified auditors in the multinational firms in Botswana is expected to increase, Parliament has heard.

Answering a question recently, Minister of Finance, Ms Peggy Serame said that followed a decision by the Botswana Accountancy Oversight Authority (BAOA) in 2016, to encourage local audit firms, which were mostly multinationals, to increase the proportion of citizen certified auditors in the country through training and mentoring.

Ms Serame told Parliament that there were no 100 per cent citizen-owned audit firms of public interest entities in Botswana.

She indicated that there were few citizen certified auditors as they made only 16 per cent of certified auditors of both public interest entities and non-public interest entities.

The minister said the Economic Inclusion Act as well as the Public Procurement Act were to empower citizens and wholly-owned citizen audit firms, which were given priority when awarding tenders for statutory audit work.

“However, citizens have not taken the advantage of this policy by opening their own firms but instead opted to join international networked firms,” she said.

She explained that the requirements of the Act were not insurmountable as some small firms owned by non-citizens had satisfied the requirements and had now graduated to being auditors of public interest entities.

“It is a matter of citizen certified auditors at the lower levels of non-public interest entities auditors re-organising themselves to take advantage of the window of opportunity. This would require working hard to make the necessary improvements to meet the standards or alternatively by merging to leverage economies of scale so that they meet the quality control requirement of at least two certified auditors,” she said.

Regarding legal public interest entities, Ms Serame said there were those that did not meet the required size thresholds but were nonetheless regarded as risky by law, such as Bureau de Change and Micro lenders and were still required to be audited by public interest entities auditors.

The minister told Parliament that there were 44 certified auditors of public interest entities, out of which only nine were citizens, 29 certified auditors of non-public interest entities and only three were citizens. 

“Out of nine citizen certified auditors of public interest entities in Botswana, all of them had opted to join multinational audit firms with international networks and six of them are actually managing partners in those firms,” Ms Serame said.

She added that despite favourable citizen empowerment provisions in statutes for citizen auditors and audit firms, citizens opted not to form their own citizen-owned audit firms.

In relation to three non-public interest entities citizen auditors, Ms Serame said performance of two fell short of the expected standards for auditors at that level, while the remaining auditor was fairly new and was yet to be reviewed.

Parliament was further told that there were two sets of auditors in Botswana which included those who audited small companies referred to as non-public interest entities and those for big ones known as public interest entities as per the Financial Reporting (Amendment) Act of 2020.

Ms Serame explained that due to the complexity of operations of public interest entities, audit firm of such entities were therefore required to have at least two certified auditors who included the engagement partner as well as the engagement quality control reviewer.

She explained that the engagement quality control reviewer checked the work of the engagement partner in order to minimise the risk of an inappropriate audit opinion being issued.

“The Act does not make reference to neither citizen nor non-citizen in this regard, but the overriding factor is the risk involved and the protection of public interest,” she said.

In addition, she said certified auditors of public interest entities should have performed satisfactorily at the lower level of non-public interest entities audit operation.

She further said while they were strong proponents of citizen economic empowerment, the policies put in place to implement such initiatives should not result in undue risk to the public.

She said she was not aware that the Financial Reporting (Amendment) Act of 2020 had resulted in the exclusion of 100 per cent citizen-owned audit firms.

“However, based on the audit practice reviews conducted since 2015, I am aware that citizen-owned audit firms were struggling to meet the minimum requirements for certified auditors of public interest entities. This was because they were mostly sole practitioners and therefore were unable to satisfy the requirements of an engagement quality control reviewer,” she explained.

Further, Ms Serame pointed out that the audit firms reviewed were given detailed feedback on what areas to improve and with a time frame to have rectified the gaps.

Deregistration of an audit practitioner or firm, she said, was the last resort as it happened only when the practitioner had failed three consecutive reviews and there were little prospects of improving in the short-term.

Kgalagadi South MP, Mr Sam Brooks had asked the minister to provide a list of 100 per cent citizen owned audit firms of public interest entity auditors against non-citizen local based audit firms.

Mr Brooks also asked the minister to share a list of public interest entities and explain why it was necessary for a firm to have two certified auditors for it to operate or be given a job.

The legislator had opined that the Financial Reporting (Amendment) Act of 2020 requirements on the registration of certified auditors of public interest entity auditors had resulted in the exclusion of 100 per cent citizen-owned audit firms. 

He also wanted to understand how the Economic Inclusion Act and the Public Procurement Act, which were part of citizen empowerment efforts applied to certified auditors of public interest entity auditors of public interest entities.

Again, he asked the minister to share the gaps, if any, in the current Financial Reporting Act which excluded 100 per cent citizen-owned auditor firms and explain what the ministry intended to do and timelines, in order to rectify the abnormalities. ends