Interest fee

Irba illegally levied fee and penalty increases on auditors: high court

The Independent Regulatory Board for Auditors (Irba) has been ordered to credit all of its auditors for fee and penalty increases that were illegally levied during its 2019 and 2020 financial years.

This follows Judge Janse van Nieuwenhuizen’s confirmation in a judgment by the South Gauteng High Court on Monday that the fee and penalty increases were unlawful and invalid.

Irba was also slapped with a punitive costs order.

The judgment relates to two applications filed by the Member District of Chartered Accountants of East Rand and Rudolf Johannes Brits, now deceased, to review and waive certain fees prescribed by Irba.

The review was based on the Law for the Promotion of Administrative Justice (Paja), or the constitutional doctrine of legality.

Irba “disappointed” by his decision

Irba’s interim CEO, Imre Nagy, said the board was disappointed with the judgment and its likely impact on Irba, the profession, and in particular its mandate to protect the public interest.

“The judgment is complex and the council has referred it to the main lawyer and legal representatives of the Irba for analysis and advice on the way forward for the Irba. Irba’s legal advisers are currently reviewing the judgment and a response is expected shortly,” he said.

Irba said on Tuesday he was still studying the judgment and was not yet in a position to comment on it.

A tissue

The district association’s 2019 request sought to review and reverse Irba decisions on five categories of new fees or fee increases for the 2020 financial year:

  • The payment of so-called “insurance fees” by auditors performing so-called Class C assurance work.

  • The payment of three categories of fees linked to the selection by Irba’s auditors as their “recognized control body” as tax experts.

  • The imposition of penalties for two categories of transgressions of the Irba regime regarding insurance costs.

  • Raising two categories of existing fees above the Consumer Price Index (CPI) – increases of 35% for renewal of registration and 50% for re-registration.

  • The abolition of the concession of a 50% discount on the annual fees of auditors over 65 years of age.

The 2020 revision request related to the same categories of royalties but for the 2021 financial year.

Van Nieuwenhuizen said that with regard to category C auditors, there are some glaring inconsistencies between the opinion of Irba’s board of directors and the provisions of the law, in particular that the law does not provide for a fee ” insurance” and confirmed that Irba’s decision is illegal and invalid.

Read: SAA, PwC – and Irba: a case of regulatory capture?

Regarding the introduction of the tax specialist’s fees for the 2020 financial year, Van Nieuwenhuizen said that Irba had admitted that it had to justify the tax specialist’s fees by reference to the services rendered, but did not provide any evidence to support for his assertion that the expenses are incurred in connection with the records of tax practitioners.

“Without a section in the enabling statute that provides for the imposition of tax practitioner fees in their current form, the imposition of fees is ultra vires the law and equally illegal and invalid,” he said.

The penalties imposed by Irba consisted of a fixed fine for late submission of the certification work certificate and supporting documents.

It was introduced at R2,500 and a penalty percentage for under-declaration of insurance costs at 5% of the additional costs due due to under-declaration.

Van Nieuwenhuizen said the penalties depend on the imposition of insurance costs, which had already been ruled ultra vires the law.

“There is no other provision in the law for the imposition of penalties and the penalty decision suffers the same fate as the insurance fee decision,” he said.

Irba’s position “untenable”

The review of the drastic fee increase followed the annual renewal registration fee increasing from R6,000 to R8,100 and the administrative reinstatement fee increasing from R2,700 to R4,050, an increase of nearly by 50%.

Van Nieuwenhuizen said Irba’s position that a consultative process was not a legal imperative for a valid costs determination is untenable, devoid of any legal justification, and must be dismissed in terms of Paja.

Irba indicated in a notice dated December 14, 2018 that it had decided to remove the 50% discount offered to certified auditors over the age of 65, because inspections had shown a continuous decline in audit quality and this increased risk compelled Irba to extend the scope of its work. .

Van Nieuwenhuizen said Irba’s failure to engage in a consultation process before publishing the decision in the Official Gazette again makes the decision reviewable on the grounds that it was procedurally unfair.

Remedy

Regarding the appeal, Van Nieuwenhuizen said the district association argued that reimbursement of illegally collected fees would be the natural consequence of illegality.

Van Nieuwenhuizen said Irba had not suggested any remedy, but said refunding the costs would “create financial havoc”.

He said the district association had indicated that, for that very reason, they were not seeking an order directing Irba to repay the money illegally levied against them, but rather that credits be issued which could be offset against future debts due to Irba.

Van Nieuwenhuizen directed Irba to pass appropriations with the start of its new fiscal year on April 1, 2023, to allow enough time for Irba to budget and implement a appropriation pass system.

The district association said several special considerations must be taken into account with respect to its request for an order of punitive costs, including the vexatious nature of Irba’s objection to the relief sought in its requests and the motive illegitimacy of some of the contested decisions.

In granting the request for the punitive costs order, Van Nieuwenhuizen said that the technical legal points raised by Irba were undoubtedly unjustified and only served to add to the already voluminous documents and to prolong and prolong the time spent on the preparation for the hearing of the case.

“The decision not to pursue two of the points in limine at the hearing, only serves to confirm the lack of merit of the points retained.

“The grounds on which the court upheld the examination… [with] decisions that are ultra vires the law and procedurally unfair are the most fundamental cornerstones of fair administrative action.

“It should have been clear to Irba that opposing candidacies is an exercise in futility,” he said.

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