Keep your brand – appoint a registered and credible auditor

April 1st, 2021

Rule 54.20 of the Rules as per ss 95(1), 95(3) and 109(2) of the Legal Practice Act 28 of 2014 (the Rules) requires each legal practice to appoint an auditor to discharge the duties assigned to the auditor in terms of the Rules. The Rules further require that the auditor produces a report to be submitted to the Council at specified intervals.

Who is the accountant?

AccountingTools defines an ‘accountant’ as a ‘person who records business transactions on behalf of an organisation, reports on company performance to management, and issues financial statements’ (, accessed 12-2-2021). This person is generally employed by the legal practice or the service is outsourced to an entity that provides the service. Effectively, this person is accountable to the legal practitioner.

Both the accountant and the auditor fall within the accountancy profession, but their roles may differ. There is often confusion out there among some of the newer legal practitioners who cannot differentiate between an accountant who prepares the books and an auditor who examines the books, and the appointment of the auditor. This article will clarify this confusion, but mostly seeks to communicate the importance of appointing a registered and credible auditor.

An auditor

AccountingTools defines an ‘auditor’ as an ‘individual who examines the accuracy of recorded business transactions. Auditors are needed in order to verify that processes are functioning as planned, and that the financial statements produced by an organisation fairly reflect its operational and financial results’ (, accessed 12-2-2021). The auditor, while appointed by the legal practice, is not accountable to the legal practitioner but to the authority that relies on the report produced by the auditor, the Legal Practice Council (LPC) in the case of a legal practice.

From the foregoing definitions, it becomes apparent that the accountant records the business transactions, and the auditor examines the recorded business transactions, meaning they have different roles. With this understanding, the two functions should not be performed by the same person or by persons from the same entity, unless the entity can prove that a Chinese Wall (‘a virtual barrier intended to block the exchange of information between departments if it might result in business activities that are ethically or legally questionable’ (, accessed 12-2-2021)) has been built.  It is often not easy to prove Chinese Walls convincingly.

Regulatory regime for auditors

Auditors in South Africa (SA) are registered with and regulated by the Independent Regulatory Board for Auditors (IRBA), which is a statutory body for accountants and auditors in SA. The IRBA, among others, develops and maintains auditing and ethics standards that are internationally comparable. When appointing an auditor for purposes of fulfilling the requirements of r 54.20 it is important to seek the services of a credible auditor registered with IRBA. There are two types of auditors registered with IRBA, namely assurance providers and non-assurance providers. Auditors that provide assurance services reflect an assurance status of ‘Assurance’ and can be confirmed on IRBA’s website or directly with the IRBA. The LPC accepts reports issued by an auditor with an ‘Assurance’ status.

Code of Professional Conduct for Registered Auditors

The IRBA, as already indicated in the foregoing paragraphs, develops, and maintains auditing and ethics standards for registered auditors. The IRBA developed a Code of Professional Conduct for Registered Auditors (the Code), which a registered auditor is expected to always observe.

One of the major expectations of a registered auditor is that they remain independent in the performance of their duties. The Code identifies independence at two levels:

  • ‘Independence of mind’ – ‘the state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity, and exercise objectivity and professional scepticism’.
  • ‘Independence in appearance’ – ‘the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude’, weighing all the specific facts and circumstances, that a firm’s, or a member of the audit or assurance team’s integrity, objectivity or professional scepticism has been compromised.

In terms of the Code, there are fundamental principles, which all registered auditors will have to comply with:

Fundamental principle Meaning
Integrity To be straightforward and honest in all professional and business relationships.
Objectivity To not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
Professional competence and due care To maintain professional knowledge and skill at the level required to ensure that a client receives competent professional services based on current developments in practice, legislation and techniques and Acts diligently and in accordance with applicable technical and professional standards.
Confidentiality To respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, does not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the registered auditor or third parties.
Professional behaviour To comply with relevant laws and regulations and avoid any action that discredits the profession.

All of the five fundamental principles and the independence of the auditor are crucial in determining the credibility of the auditor. If one considers the meaning given to ‘objectivity’ as a fundamental principle, one should be cognisant that lack of objectivity can be ‘actual’ or ‘perceived’ and both should be avoided.

The impact of the Code on legal practices

The LPC places reliance on the reports of the auditors. As part of the criteria that the LPC uses to issue Fidelity Fund Certificates (FFC) to legal practitioners, is the presence of an approved audit report. More often than not, audit reports that are unqualified by the auditors, clean audit reports, are approved by the LPC. The impact that the Code has on the legal practitioner is that should the registered auditor be found not to have been independent or not to have complied with any of the fundamental principles, the auditor may be investigated. If on investigation the auditor is found guilty of misconduct, the report issued by that auditor to the Council may be nullified. The Council may, on nullification of the report, appoint its own inspector to conduct an inspection at the legal practice. It should also be noted that the LPC may refuse to accept an audit report issued by an auditor that the LPC does not approve of. Non-approval of an auditor by the LPC may be subject to various reasons, including the history of the reports issued by that auditor.

The Legal Practitioners’ Fidelity Fund (the Fund) on the other hand, has developed a Legal Practitioner’s Risk Management Framework by which the Fund monitors information coming through in respect of the legal practitioners and legal practices. This information is gathered to identify potential exposure of the Fund to increased theft claims. Information coming through in respect of audit reports of the legal practices submitted to the LPC forms part of the Fund’s analysis. Therefore, should the Fund receive information related to nullified audit reports of a legal practice, the Board of the Fund may, through its vested powers and functions in terms of s 63(1)(e) of the Legal Practice Act, authorise an inspection of the legal practice affected. Readers are encouraged to read this article together with Simthandile Kholelwa Myemane ‘The increased importance of maintaining proper and accurate trust accounting records’ 2020 (July) DR 6.

Who should appoint a registered auditor?

The legal practitioner/s of a legal practice should appoint a registered auditor after performing due diligence on the sought auditor. The legal practice, on appointment of a registered auditor, should inform the LPC of the appointed auditor. We have noted instances where legal practitioners get advice from their bookkeepers or accountants who write up the books of the legal practice on the auditor to appoint. Should the legal practice appoint an auditor recommended by a bookkeeper or accountant, the legal practice inevitably allows a situation where objectivity of the auditor may be impaired or perceived to be impaired.

There is also a risk that the legal practice opens itself to the possibility of theft being concealed. If the bookkeeper or accountant and auditor have some relations with one another, the auditor may conceal the wrong doings of the bookkeeper or accountant. When this happens, the legal practitioner/s may be unaware of any wrong doings of the bookkeeper or accountant and the wrong doings may take long to be uncovered, landing the legal practice in trouble with the regulator, the Fund, and possibly other legal authorities.

While legal practitioners should appoint the auditors without the influence of bookkeepers or accountants in the employ of the legal practice, legal practitioners themselves should not have any prior existing relations with the auditor appointed. This too subjects the auditor to perceived lack of objectivity and independence.

  • Scenario

A new legal practice appoints SKM Accountants and Auditors Inc as their auditor of record. The director at the auditing firm is the customary wife to the accountant of the legal practice, not using the husband’s surname, and this information was never disclosed to the legal practice.  In pursuit of bringing business to the wife’s company, the accountant recommended to the legal practitioners of the legal practice the appointment of the audit firm. The legal practitioners, having failed to do a proper due diligence on the auditing firm, went with the recommendation of the accountant and appointed the auditing firm.

For five years in a row the legal practice received unqualified audit reports, resulting in the legal practitioners receiving their FFCs. The professional relationship of the accountant and the legal practitioners soured over time to a point that the accountant was dismissed and replaced with another accountant.  The new accountant on assuming the duties at the legal practice, noticed some creative accounting in the trust accounting records that persisted over the past three years. The accountant brought her discovery to the attention of the legal practitioners. By this time, some clients of the legal practice had started calling the legal practitioners with complaints and others lodged formal complaints with the LPC against the legal practice. The LPC launched an investigation into the trust accounts of the legal practice, and the investigation revealed that the previous accountant and the auditor were related, which relationship is perceived to have compromised the independence and objectivity of the auditor. In the absence of the clients’ funds in the trust bank account of the legal practice, the LPC advised the complainants to lodge claims with the Fund. The Fund admitted and paid the claims and recovered the funds from the legal practitioners of the legal practice. From the foregoing scenario, it is clear that the legal practitioners did not misappropriate the trust funds themselves but were misled into believing that everything was above board. Their failure to do a proper due diligence on the auditor, while relying on the report of the auditor, cost them their reputation with the public, the LPC and the Fund.


In conclusion, legal practitioners should realise that the appointment of a credible auditor is critical to the survival or collapse of the legal practice. A proper understanding of the role and expectations on the auditor and a proper due diligence on the auditor are crucial for a legal practice. Not every auditor out there has the best interest of the legal practice, third parties relying on the report of the auditor and the public at heart. These interests should always be in balance.

Simthandile Kholelwa Myemane BCom Dip Advanced Business Management (UJ) Cert Forensic and Investigative Auditing (Unisa) Certified Control Self Assessor (Institute of Internal Auditors) Cert in Management and Investigation of Cyber and Electronic Crimes Cert in Fraud Risk Management Cert in Law for Commercial Forensic Practitioners Cert in Investigation of Financial Crimes Cert in Investigation and Detection of Money Laundering Cert in Economic Crime Schemes (Enterprises University of Pretoria) is the Practitioner Support Manager at the Legal Practitioners’ Fidelity Fund in Centurion.

This article was first published in De Rebus in 2021 (April) DR 5.