Bernard Agulhas: Auditing the Auditors

Manichaean /  *adj. of or characterized by dualistic contrast or conflict between light or goodness, and darkness, chaos or evil.*

Bernard Agulhas is no equivocating, ‘shades-of-grey’, accountant or auditor. That is how it should be, the former chief executive officer of South Africa’s Independent Regulatory Board for Auditors (IRBA), tells me right at the beginning of our conversation. 

But something in his tone, in the slightest hesitation as he reflects on his life and career, suggests to me that he laments his inability to see nuance or middle ground; instead always defining the world and his place in it in stark dualisms of black or white, right versus wrong, ‘I and them’.

“I guess one of my difficulties is being too black-and-white. 

“To have this black-white view of the world is not very easy… it impacts on how people see you as a human being – they probably think you are self-righteous and setting a bar or standard that’s too high. It’s difficult to change that [perception].

“Because I’m known to be like that, locally and globally, it does become a challenge, because I believe so strongly in it that I probably don’t see situations where [nuance] might not be a problem.” 

Agulhas has spent most of his professional life over the past 30 years trying to improve education and training, raise professional standards and draft codes of ethics for accountants and auditors. 

“To have this black-white view of the world is not very easy.”

He was also instrumental in putting South Africa’s auditing standard-setter and regulator on the global map, resulting in the country being ranked for seven consecutive years in the Number 1 position by the World Economic Forum for its auditing and reporting standards, an accolade he regards as “a high point in my career”.

He completed his fourth and last contract at the Irba in June 2020, after 15 years with the regulator, of which 11 was as CEO. 

A “high point” of his career was SA’s auditing regulator being ranked for seven consecutive years in the Number 1 position by the World Economic Forum for its auditing and reporting standards.

I last interacted with Agulhas sometime in the 1980s, when we both were students at Rhodes University. In 2021, our alma mater presented him with its distinguished alumni award, in recognition of his contribution to the auditing profession.

Agulhas traces most of his career achievements to formative years in the Eastern Cape – at home and in school in Gqeberha, studying accounting at Rhodes, and working for one of the big accounting firms in Mthatha.

As a youngster at Gelvandale high school in Gqeberha’s northern areas, he had thoughts of studying fine arts. But his father was adamant he would not follow that path.

He had already discovered a knack for accounting at Gelvandale, describing it as “one of those public schools which in those days produced good education. The fact that we had parents who were supportive and encouraged – but mostly pushed – us to do better, contributed to us trying to do better than we might have”.

And so he registered for a BCom at Rhodes University in 1981. Academically, Rhodes had some of the best accounting lecturers of any of the universities, teaching him new skills and preparing him for a world immersed in the technicalities of numbers.

After graduating from Rhodes, he joined PriceWaterhouseCoopers (formerly Coopers & Lybrand) in Port Elizabeth to serve his articles of clerkship, probably the first black professional in the office.

“It was difficult for them as much as for me,” he says.

After three years, he moved to the firm’s Mthatha office. The then Transkei was “more open to diversification” with a greater mix of, and easier acceptance between, black and white people – “very different to South Africa at the time”. Agulhas saw an opportunity to learn about other cultures. 

He eventually spent six years in the Coopers office in Mthatha, relishing the exposure the smaller office gave him, including the opportunity to become a manager, eventually being appointed as one of the firm’s directors for the eastern region.

An opportunity to join the Auditor-General saw him relocate to Pretoria, where a position as centre manager for research and development allowed him to develop his interest in professional standards and the technical world of standard-setting, synchronistically lecturing and tutoring part-time at Rhodes and Walter Sisulu University.

“I realised my passion lies in the technical auditing field, the development of standards.”

“At the AG, I had responsibility for ensuring that the AG’s audit reports complied with the auditing standards, that the staff perform their audits in terms of the standards.

He had a stint with the South African Institute of Chartered Accountants (SAICA), the professional body for chartered accountants, where he was responsible for standards applicable to the public sector, and also subsequently became involved in ensuring SA adopted international auditing standards for the private sector.

Agulhas is unequivocal that the profession in former years was in “a much, much better state than it is today”.

The standards applicable to the auditing profession in SA previously, when the country had its own internal codes of practice, were simpler and much easier to comply with. 

“There was a lot more compliance. Over the years, the financial reporting standards have become a lot more complex. I’d say the profession is not as good as it was when we joined it.”

He is proud of the regulator’s achievements locally and its ability to play a role in global structures, despite resource constraints.

Agulhas believes the most important objectives for an auditor include the protection of the public interest, and the necessity of auditors delivering to high quality and ethical standards.” 

He suggests auditors forget that, when there is conflict between the public interest and other interests, the public interest must be preferred.

Among the challenges to which the profession had to reconcile itself was Irba’s mandatory rule requiring audit firm rotation, and a proposed intervention preventing auditing firms providing other services to clients. 

Agulhas says both principles relate to auditor independence. 

“Auditors are not the only role-players in the financial reporting chain. I don’t believe all the role-players in the financial reporting ecosystem are as independent as they should be, that is why we introduced mandatory audit firm rotation. When you provide accounting or any other service for an audit client, you are working for the client. By contrast, when you provide an audit service you are working for the public, essentially ‘serving two gods’ which usually leads to conflicts of interest.”

He sees a clear correlation between where South African society is at, and the state of the auditing profession. 

“At the moment, most of the country are not doing the right thing, but they don’t even know that. They follow the examples they see and unless that changes, we can’t expect that the values will be different.”

He says that bad attitudes of heads of auditing firms – mimicked from government or business leaders – permeate the entire business, creating a culture in the firm and auditing profession which is not conducive to good outcomes.

Agulhas says that after he spent 11 years in the CEO seat, Irba itself “needed a rotation”. 

But the board’s appointment of his replacement became a lightning rod for public concerns that the watchdog itself would not be clean enough, as the appointee, internal auditor Jenitha John, was alleged to have missed an accounting scandal at Hulett Tongaat, where she chaired the audit committee.

Among the questions raised by commentators was whether an Irba led by John could deal fairly and independently with complaints against auditors arising from the Hulett scandal.

Media reports at the time pointed to factions of former and current board members “galvanised around the poles of John and Agulhas”, with a source close to John claiming Agulhas was lobbying heavily behind the scenes to be reappointed as CEO.

Agulhas acknowledges experiencing “a lot of friction” in the last months before he left Irba but denies being part of a cabal intent on jettisoning John’s appointment, saying the criticism was wrong and unfair, and that he was already preparing to move onto the next step in his career, one which would provide him with the opportunity to contribute towards a project of national interest. 

“Important stakeholders who knew me knew it was just bad journalism, doing reports with no basis.”

“The public interest must be preferred… over other interests.”

He says that one of his achievements had been educating the public regarding the importance for auditors and the regulator to be independent, and the public perception was that John’s appointment was not “a good fit” for Irba.

“A person in that position, and the regulator itself, must be independent, must even be independent of politicians, and must not be associated with any scandals. Someone may be independent but, as long as they are not seen to be independent, it is a problem.

“The person who heads up the regulator must be respected and have the highest integrity.

“The auditing regulator must set the example. When I was at Irba, we were one of the few public entities to receive a clean audit report from the auditor-general for all those years. That is how you set the example.”

I suggest to him that given the high standards auditors are expected to apply, they ought to have an almost intrinsic set of values which guides their work and constitutes a lodestar for everything they do.

“It doesn’t matter what generation or profession or country you come from – there are certain things that are right and certain things that are not right,” he says.

“If I can sleep at night, I know that I am doing the right thing – if I start having problems to sleep at night, I must start looking at what I’m doing, and I must be doing something wrong.”

Since Agulhas left Irba, he has been assisting the Commission on State Capture, headed by deputy chief justice Raymond Zondo, who was subsequently appointed as the chief justice in South Africa. 

The commission has heard extensive evidence of failings of governance, corruption or maladministration in organs of state, from Parliament to the presidency and including SOCs like Eskom, Transnet, Prasa, SAA.

It has also heard evidence variously implicating some of SA’s big audit firms – PwC, KPMG, Deloitte, Ernest & Young, and Nkonki – at least in not being alert to the shenanigans being perpetrated by connected individuals within SOCs.

While Agulhas declines to speak of his work with the commission inter alia because of a non-disclosure agreement and state security considerations, he remains hopeful that Zondo’s final reports will plot steps for the auditing profession to regain the country’s confidence.

He would like to see a greater emphasis once again on the behavioural attributes auditors must bring to their jobs –  like an ethical paradigm, a sceptical disposition, and an appreciation within the individuals that they must serve the public and must not put anything before the public interest.

Outside of the auditing profession, he is concerned at the fragmented state of official regulation and oversight in the country’s financial ecosystem, including company financial directors and audit committees. He suggests that even Parliament’s oversight role, as the final entity able to hold organs of state and the executive accountable, needs to be rejigged to ensure that it is properly empowered to challenge those who report to it.

He laments a too frequent changing-of-the-guard in the person of the minister of finance with ultimate line responsibility for Irba and argues that more consistency will ensure that Irba’s good work will continue regardless of who it accounts to.

* Concise Oxford Dictionary (10th Edition); Brewer’s Dictionary of Phrase and Fable (16th edition).

— By RAY HARTLE

Bernard Agulhas: Auditing the Auditors
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