- BAOA, NBFIRA clash over regulations - NBFIRA clients might close shops - BAOA wants NBFIRA clients audited by PIEs’ certified Auditors - SMMEs faces brink of collapse due to exorbitant PIEs’ Auditors’ fees - We are engaging BAOA on the matter for alignment - NBFIRA

There is a brewing war within the Auditing industry, as small citizen owned firms accuse big firms especially those owned by foreigners of capturing the industry, Botswana Guardian has learnt.

The deficiency uncovered by this publication is the contradicting pieces of legislation governing Botswana Accountancy Oversight Authority (BAOA) and the Non-Bank Financial Institutions Regulatory Authority (NBFIRA).

Sources have revealed that some directors at NBFIRA are not happy with the decision taken by BAOA that NBFIRA clients who are Small Micro Medium Enterprises (SMMEs) have to use Public Interest Entities (PIEs) approved Auditors for the financial reports. There are fears that this development will results in most of the close to 900 clients of NBFIRA closing shop.

“This will drive the small man out of business because of the exorbitant prices that the PIE auditors charge as compared to Non-PIE Auditors. This is also taking business from the Non-PIE Auditors who are mostly Batswana. When you want to open a micro-lending business it will be impossible because BAOA wants you to use PIE certified Auditor,” said a source within the Micro-lending sector.

Botswana Guardian has established that NBFIRA tried to engage BAOA on the matter but the latter seem to be sticking to their guns for the status core to remain. The two government entities have been at loggerheads for some time over the issue. Investigation by this publication has revealed that some of the Non-PIE auditors are also losing business due to this development. It has also been established that while BAOA demands that NBFIRA

clients should have financials prepared by PIE Auditors, NBFIRA has no qualms with accepting reports prepared by Non – PIE auditors .

“SMMEs regulated by NBFIRA will be pushed out of business. When BAOA does reviews for auditors they use the same standard/template for PIEs and Non-PIEs Auditors. It is all about reviews. One can ask as to how some of these big firms with scandals pass the reviews. You can only come to the conclusion that BAOA is captured . What BAOA could be doing is to come up with a structure which stipulates that if you want to audit PIE this are the requirements who have to meet, not what is currently happening,” said a source within the auditing sector.

NBFIRA Communications Officer, Augustine Sepoe said the NBFIRA Act 2023 defines a Non-Bank Financial Institutions (NBFI) but does not differentiate between a Public Interest Entity (PIE) and a non-PIE. The Financial Reporting Act section 22 (c) in relation to NBFIRA regulated entities states: For purposes of this Act “public interest entity means any insurance company, pension and provident fund, collective investment undertaking and any other institution that is subject to supervision by the Non-Bank Financial Institutions Regulatory Authority”.

He said NBFIRA is aware that BAOA requires PIEs and auditors to comply with the Financial Reporting Act. Section 24 (6) of the Act states that: “Notwithstanding anything contained in the Regulations, rules or any other law, a person shall not practice as a certified auditor of PIE in a partnership with another person or in a registered firm, unless such person has passed the most recent quality assurance reviews and external audit practice reviews and the firm has satisfied the requirement of ISQC 1 or its successor quality control standard as assessed by an external reviewer.”

“NBFIRA upholds the rule of law and the integrity of BAOA’s oversight mandate as a regulator and duly encourages NBFIs to comply with the prevailing requirements. Firstly, within the corporate sector, there are entities that fall with section 22 definition of PIEs as per the Financial Reporting Act, and there are other entities which do not meet the definition. The restriction not to audit PIEs only relates to the former entities, but registered non-PIE auditors have every right to audit the latter. Secondly, non-PIE auditors can pass the reviews as per section 24 (6) and set up audit partnerships that meet the requirements of the law and would then be able to audit PIEs. There is no other stumbling requirement other than that an auditor must perform well in the review,” said Sepoe.

He further revealed that NBFIRA has been in talks with BAOA to ensure alignment and continued synergies and engagement are still ongoing.

“In our engagements with BAOA, they have never indicated to have received any query/complaint on this matter from the auditors. NBFIRA continually engages with the regulated entities as well as its fellow regulators on the laws and regulations that cut across the different regulatory spaces,” he said.

For his part BAOA Public Relations Officer, Aupa Gaofise said the Financial Reporting Act requires that no person/firm shall hold any appointment or offer audit services as a certified auditor/audit firm unless registered with the Authority.

He said there are specific registration requirements, as per the Financial Reporting Regulations, 2021, that individuals/firms are required to meet before they can be registered with the Authority. He stated that one of the requirements to register as a certified auditor is that, before or after admission to membership of the Botswana Institute of Chartered Accountants (BICA), the individual should have completed a period of at least 30 months of accountancy and auditing experience in an Audit practice under the supervision of a Certified Auditor of an audit Firm.

“For one to become a Certified Auditor/Audit Firm of PIE, the Act requires that no person/audit firm shall practice as a Certified Auditor/Audit Firm of PIE unless such person/audit firm has passed the most recent audit practice review, and the audit firm has at least two Certified Auditors. Two Certified Auditors cater for the Engagement Quality Review, which is a requirement on all audit engagements on PIEs. The role of the Engagement Quality Reviewer is to review the work of the Engagement Partner in order to minimise the risk of an inappropriate audit opinion being issued. This is international best practice. The overriding factor is the risk involved and the protection of public interest,” Gaofisi said.

He explained that Certified Auditors/Audit Firms should, therefore, have performed satisfactorily at the lower level of non-PIEs audit operation before they can be considered for registration as Certified Auditors/Audit Firms of PIEs. All Certified Auditors/Audit Firms registered with the Authority are allowed to audit non-PIEs. These registration requirements are standard and are applied consistently across all who apply for registration as Certified Auditor/Audit Firm. There is no reference to citizen or non-citizen in this regard.

He further indicated that the audit practice reviews are performed to ensure compliance with the International Standards on Quality Management and the relevant assurance Standards.

According to Gaofise, the Authority prepares reports on Audit Practice Reviews on annual basis which highlights the areas of audit quality that were identified as being deficient during the firm-wide and individual assurance engagement reviews.

“The reports also highlight the performance results of certified firms and auditors of PIEs and Non PIEs. There is no 100 percent citizen PIE audit firm, but there are some 100 percent citizen non-PIE audit firms. There are, however, qualified citizen PIE auditors spread across the PIE audit firms. The Authority undertakes all its reviews in a consistent manner in accordance with the adopted international standards,” he revealed