Mazars partner on the importance of internal auditing

20 December 2019 3 min. read
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Mazars South Africa Partner Kariem Hoosain has become the latest accounting and advisory executive to publicly address the growing menace of corporate fraud in South Africa. Hoosain recommends that the internal audit sector begin to be held to the same standards as the external audit industry.

Widespread instances of corporate fraud have implicated several external auditors recently. From KPMG’s involvement in the Gupta fiasco to Deloitte’s implication in the Steinhoff International corporate fraud case, the accounting and advisory sector has taken a major hit in recent years.

Exposure and subsequent damage to business has driven many auditing firms to take an apologetic stance. Most have responded through introspection and restructuring to minimise risks and pitfalls within their organisation, a trend that is arguably a step in the right direction for South Africa’s business environment.

However, according to Hoosain, external auditors are just as much scapegoats as they are culprits. Accusations have largely revolved around instances of malpractice or fraud that were missed by external audits during their review, although the same practices are also reviewed by internal auditors.

Mazars partner on the importance of internal auditing

“There has been little reflection or comment on the role of the internal auditors in these companies and entities. Internal auditors a re meant to be an integral part of the ‘comprehensive assurance’ on the financial and operational affairs, which must be provided to shareholders, boards and audit committees of these entities,” said Hussain.

Hoosain is a Partner at Mazars, a firm that has maintained a clean reputation during turbulent times for the accounting sector. Mazars has even benefitted from the scenario, the most prominent example being its appointment as the audit partner for Steinhoff, following Deloitte’s departure due to allegations against the Big Four firm.

For Hoosain, introspection within the external audit sector is important, but is likely to remain insufficient in the efforts towards eliminating what he describes as South Africa’s “corporate fraud problem.” For him, internal auditors need to be subject to the same level of scrutiny as external ones.

“External auditors conduct audits on a sample basis while applying a risk-based approach, which is highly effective at detecting unintentional errors and omissions in companies’ financial statements. On the other hand, when executives engage in fraud, they will commit collusion and forgery, and override internal controls in order to evade detection by random sampling. The fact is that external auditors cannot be expected to function as a first line of defence against fraud,” he said.