After the Bell: Audit alarm bells ring as SA’s watchdog finds too many rubber-stamp risk zones

The Independent Regulatory Board for Auditors’ (IRBA) 2025 Public Inspections Report on Audit Quality tells us that too many audit files are falling short, too many firms still have weak quality systems and some of the same old defects keep returning like mould in a damp ceiling (winter is coming and can you tell that damp walls are one of my worries?).

Anyway, this report matters because audits are one of the trust beams holding up the financial system. Investors, banks, pension funds and regulators rely on audited numbers to decide where money flows.

The sharpest warning light is this: in 2025, only 28% of audit engagements inspected were assessed as meeting the relevant standards, down from roughly 45% the year before. The IRBA says the decline was accompanied by an increase in incorrect audit opinions, fundamental ethical breaches and cases where there was insufficient evidence to support the opinion issued.

The IRBA does caution that inspections are risk-based, meaning it targets higher-risk firms and files, so results cannot be extrapolated to the whole profession. Fair enough. But when a watchdog keeps finding the same fleas, the dog has a problem.

The report lists familiar weaknesses:

• • Revenue recognition;
  • Journal entries;
  • Financial statement disclosures;
  • Going concern assessments;
  • Significant estimates and judgements;
  • Reliance on IT controls;
  • Weak documentation; and
  • Poor professional scepticism.

In other words, some auditors are still not asking enough hard questions, not documenting enough evidence and not always challenging management robustly enough.

The problem is not only with individual audit files. The IRBA says some firms had not designed or implemented effective systems of quality management at all. In some cases, engagement quality reviews were weak, absent or ineffective. Some firms had poor risk assessment processes, insufficient training, weak independence safeguards and inadequate remediation systems.

The audit quality at engagement level — six-year trend

That is the equivalent of discovering a fire station with broken hoses.

The regulator says firm-level compliance improved modestly, with “good outcomes” rising from 23% to 30% among firms inspected. But referrals for investigation also rose from two firms to five. So, while some houses are tidier, others appear to be smoking.

The technology trap

One of the more interesting sections deals with IT and AI.

Modern audits increasingly depend on complex systems, cloud platforms, data analytics and automated controls. Yet the IRBA found weak access controls, insufficient testing of system-generated reports, poor understanding of IT environments and limited use of specialists.

That is dangerous terrain. If an auditor relies on a flawed system without properly testing it, errors can become industrialised.

The report also notes the rise of AI and generative AI in audits. The IRBA’s position is sensible: technology can improve audit quality and an algorithm may be able to spot anomalies, but neither can replace human judgement.

The graphic below paints an alarming picture showing identified deficiencies have increased over the past six years and the core business of auditors (reviewing financial statements) is the biggest weak spot!

How the IRBA says it should be fixed

The report is not merely a scolding document. It outlines how firms are expected to improve.

Root cause analysis: Audit firms need to identify why failures occurred. The IRBA says firms performing sufficient root cause analyses improved to 67%, up from 57%. That means asking whether the problem was skills, incentives, supervision, culture or workload, not merely rewriting a checklist.

Stronger leadership accountability: Under newer quality management standards, firm leaders must sign off on the effectiveness of their systems. If partners reward fees more than quality, staff notice.

Better training and specialist skills: The IRBA flags shortages in competence around international financial reporting standards, valuations, IT audits and industry expertise. That means more investment in people, not just software.

Tougher independence controls: The report points to prohibited non-assurance services, incomplete declarations and weak safeguards.

Real remediation: The IRBA’s remedial action process pushes firms to fix findings and prevent recurrence. It notes progress, but also says some plans are still poorly designed or not measurable enough.

Why this report is important

South Africa has lived through VBS, Steinhoff, Tongaat Hulett and a long season of governance scandals. In many of those cases, auditors were not the villains, but they were expected to be part of the early warning system.

One shortcoming of the report is that it flags worsening outcomes but stops short of naming firms. So, we know there are audit firms where things are falling short, but we have to guess which ones? Not good enough.

Let’s be clear: the audit profession is not collapsing. Many firms are doing solid work. But the IRBA report suggests parts of the industry are still playing catch-up with standards the market assumes already exist. And that is a problem. DM