A History of the Accountancy Profession in South Africa

Introduction

The history of the accountancy profession in South Africa is far from linear, punctuated by periods of colonial influence, localised development, and the relentless quest for standardized practices and professional inclusivity. It's a testament to the adaptability and resilience of the profession, underpinning its crucial role in the country's economic development.

With the recent announcement by the Independent Regulatory Board for Auditors (IRBA) of its decision to accredit the Association of Chartered Certified Accountants (ACCA) in South Africa, the profession will add to its rich tapestry.

For the first time since the regulation of the auditing profession in the 1950s, South African companies can choose their auditors to be a member of SAICA or the ACCA, which brings to close tremendous struggles in years gone by for prominence, dominance and market share.

During times of change and significant development, such as these, it is worth reviewing history to discover deeper meaning in current seismic shifts.

Part 1: The Early Stages (1400 A.D - Early 1900s)

Around 1400 A.D., during the Italian trading period, the foundations of modern accounting systems were laid within the confines of banking houses. This era saw the discovery of double-entry bookkeeping, later described in detail by Luca Pacioli in 1494 in his work 'Summa di Arithmetica', published in Venice. His writings initiated a flurry of academic treatises on accounting in Germany, the Netherlands, and Britain.

The 16th and 18th centuries marked significant shifts in capitalism, from commercial capitalism, where investment was primarily in trade, to industrial capitalism, where investment gravitated towards the means of production. This was the backdrop against which the world's first public limited liability joint stock company, the Dutch East India Company, was established in 1602.

Colonizing the Cape Colony by the Dutch from 1652 to 1795 and later by the British from 1806 to 1961 shaped South Africa's business and accounting systems. The Dutch brought their business and accounting practices to the Cape Colony, and when the British took over, they introduced British business practices, company law, and accounting systems.

In 1861, the Joint Stock Companies Limited Liabilities Act No. 23 was enacted under British Orders-in-Council, and it was applied to the Cape Colony by the Governor's Proclamations. Following this, the accountancy profession began to structure itself formally.

The establishment of the Institute of Chartered Accountants of England and Wales (ICAEW) in 1879 marked the start of formal accountancy education. However, the Society of Incorporated Accountants and Auditors (SIAA), formed in 1885 by those excluded from the ICAEW, showcased a professional rift. Members of both organisations began operating in South Africa, laying the competitive and exclusionary foundations we are still experiencing today.

The late 19th and early 20th centuries saw a flurry of accounting associations being established in South Africa, starting with the Institute of Accountants and Auditors in the South African Republic (IAASAR) in 1894, a branch of the UK-based SIAA. This was followed by the establishment of the Institute of Chartered Accountants (ICA) in South Africa in 1904 by British ICAEW members in the Transvaal Colony. The members of IAASAR and ICA established the Transvaal Society of Accountants in the same year to obtain exclusive practising rights for resident British accountants in South Africa.

The subsequent years witnessed the establishment of similar societies in the Orange Free State, the Cape, and Natal with the aim of securing exclusive practising rights for British accountants in those regions.

As South Africa unified in 1910, there was a move to unify the four societies under a single registration system and create a common qualification standard. This call for standardization resulted in the formation of the South African Accounting Societies’ General Examining Board (GEB) in 1921.

In 1926, the Companies Act was promulgated in the Union of South Africa, requiring all companies to be audited. However, it failed to specify minimum qualification criteria for auditors, leading to a proliferation of professional accounting associations in the country.

The four societies contrived the Chartered Accountants’ Designation (Private) Act, No. 13 of 1927 (CCDA), to gain control over the accounting services market, which soon faced opposition from non-chartered accounting associations. This push and pull within the profession prompted a private member’s bill in 1934 proposing the registration of all accountants in the Union.

After years of discord, a comprehensive review of the profession was commissioned, resulting in the 1936 Report by the Accountancy Profession Commission. The goal was to investigate the qualifications and registration of professional accountants in South Africa and determine if it would be "advisable to place the profession of accountancy and auditing in the Union on a qualified basis by the incorporation of a representative body having control over the whole profession and keeping a register in which should be inscribed the names of all qualified members of the profession".

Part 2: The Period of Structuring (1938 - 1987)

The disagreements and conflicts of the late 1930s, as seen with the 1938 Accountancy (Private) Bill, No. 26 of 1938, unveiled the disparities and discrimination within the accountancy profession.

This bill laid bare the dissimilarities between regions with statutory recognition, such as Transvaal and Natal, versus voluntary bodies like the Cape and the Orange Free State and the unjust exclusion of non-chartered accountants from public practice.

In 1946, the Union took control of the process. It proposed a public act to replace the discriminatory private CA designation Act, considering two options:

1. A register of all accountants or
2. Conversion of all non-chartered accountants to chartered accountants as a one-time allowance.

A significant difference was also highlighted between an Act that gives statutory recognition versus recognition of a designation and national versus foreign access to the South African economy.

In 1947, the Joint Council of the Societies of Chartered Accountants of South Africa and other professional accounting organizations met to address their differences. An agreement was reached to include all accountants as registered accountants under a new national act, which also provided for the appointment of auditors for companies. Following this agreement, the Public Accountants’ and Auditors’ Act 51 of 1951 was promulgated to register and regulate both accountants and auditors.

Despite the initial intention of including all existing bodies, the four chartered societies hijacked the process by advocating that the national statutory regulation of the accountancy profession adopt the qualification and examination model of the four societies, which excluded other professional accountancy organizations by stealth.

In 1972, a Commission of Enquiry was appointed to report and advise on consolidating the Companies Act 1926. The outcome was the Companies Act 61 of 1973, which required all companies to follow South Africa's Generally Accepted Accounting Practice (GAAP), identical to the International Financial Reporting Standards (IFRS), when preparing financial statements. Additionally, all companies were required to be audited by an auditor registered with the PAAB. The result was that only members of the four chartered societies were allowed to perform audits in South Africa.

However, by 1984 it became evident that this model was untenable and hindered economic growth heavily dependent on SMEs.

The Close Corporations Act, 69 of 1984, created a corporate vehicle with a separate legal identity ideal for SMEs and introduced a two-tier reporting regime by adding an alternative to the auditing of companies in the form of factual findings report referred to as the Accounting Officers Report for Close Corporations. This Act provided space for non-auditing professional bodies and their members to provide external reporting services to what are essentially owner-managed entities.

Around the same period, the Association for the Advancement of Black Accountants in Southern Africa (ABASA) was established to promote the professional interests of black accountants, symbolizing a shift towards greater inclusivity in the profession.

In 1987, the Southern African Institute for Business Accountants (SAIBA) was established to further the cause of the non-auditing professional bodies. The period stretching from 1984 to 1990 saw a proliferation of new professional bodies responding to the opportunities presented by the new Close Corporations Act. The new business form proved so popular that it outnumbered company registrations 4 to 1.

An accounting officer had to be a member of a recognized professional body such as SAIBA, which as a condition for membership, required its members to have passed examinations in accounting and related fields of study.

Part 3: The Modern Era (1988 - Present)

Notably, in this period (1988 to 2023), several pieces of legislation were enacted that directly affected the profession.

The close corporations and accounting officers' success spilt over into the drafting of other legislation. This period saw a growth in statutory recognition of non-audit professional bodies to perform accounting officer, review, and tax practitioner engagements in various statutes as detailed below:

• 1996: SA Schools Act
• 1997: Lotteries Act
• 1997: Non-profit Organisations Act
• 1999: Broadcasting Act
• 2000: Construction Industry Development Board Act
• 2005: Co-operatives Act
• 2005: National Credit Act
• 2008: Companies Act
• 2011: Tax Administration Act

With the advent of the National Qualifications Framework Act, Act 67 of 2008, these professional bodies were recognised by the South Africa Qualifications Authority with subsequent registration of their designations.

However, due to various corporate financial reporting and auditing scandals, the State appointed the Nel Commission of Inquiry into affairs of Masterbond Group and investor protection in South Africa in 2001. The report recommended reviewing and replacing the Public Accountants and Auditors Act with the new Act that would strengthen auditors' independence and improve auditing quality standards. It was found that the charted societies exert improper influence on the auditor profession and that the accounting and auditing functions should be separated, and auditors should be independent.

The result was the Auditing Professions Act, 26 of 2005, the establishment of the Independent Regulatory Board of Auditors (IRBA), and the regulation, education, training, and development of registered auditors and the accreditation of professional bodies for the training of registered auditors, registration of auditors and rules of conduct for auditors.

The 2005 Act corrected the mistakes made in the 1950s and supported the separate development of the auditing and non-auditing professions without favouring the chartered societies.

It took another 23 years for the IRBA to accredit a second professional accounting body providing another route to the audit specialisation programme for aspiring registered auditors, the Association of Chartered Certified Accountants (ACCA) (South Africa).

This announcement means that eligible ACCA members can, after meeting specific criteria, perform audits for companies in South Africa.

Part 4: The future (2023 and beyond)

Considering the history of the accountancy profession in South Africa can guide our thinking and expectations of future developments. New technologies such as automation and AI may change how the profession delivers services. Still, the need for quality financial and non-financial information verified by a trusted source will remain.

The IASB released the first sustainability and climate standards alongside the traditional financial reporting standards creating a demand for new assurance engagements.

Financial reporting and auditing scandals are increasing in frequency and severity, prompting regulators to rethink the fragmented regulatory model related to auditors, accounting officers, accountants, tax practitioners, financial reporting standards, and the influence of the Big Four on the profession.

Geo-political developments will also impact the profession leading to new alliances, dual standards and country-specific application of IFRS and ISSB standards, placing pressure on consistent and comparable reporting.

The cost of regulation will increase the cost of doing business as an accountant in practice prompting mergers, acquisitions, consolidations and international expansion, both for individual firms and professional associations.

Overall, this period will likely be characterized by solid growth and enhanced recognition of the importance of the accountancy profession in South Africa. Reforms will continue to improve the profession's credibility, promote financial transparency, and enhance investor protection.

This historical overview sheds light on the dynamic progression of the accountancy profession in South Africa, from its early roots to the diverse, inclusive, and globally-aligned profession it is today. It emphasizes the integral role of accountancy in shaping South Africa's economic trajectory and the vital role it will continue to play in the country's future.