Irba unlawfully levied fee and penalty increases on auditor members: high court

The Independent Regulatory Board for Auditors (Irba) has been ordered to pass credits to all its registered auditors for fee and penalty increases that were unlawfully levied in its 2019 and 2020 financial years.

This followed Judge Janse van Nieuwenhuizen confirming in a judgment handed down in the South Gauteng High Court on Monday that the fee and penalty increases were unlawful and invalid.

Irba was also slapped with a punitive cost order.

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

The review was based on the Promotion of Administrative Justice Act (Paja), alternatively on the constitutional doctrine of legality.

Irba ‘disappointed’ by ruling

Acting Irba CEO Imre Nagy said the board is disappointed by the judgment and its probable impact on Irba, the profession, and particularly on its mandate to protect the public interest.

“The judgment is complex, and the board has referred it to the Irba’s senior counsel and legal representatives for analysis and advice on a way forward for the Irba. The Irba legal advisors are currently reviewing the judgment and a response is expected shortly,” he said.

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

At issue

The 2019 application by the district association sought to review and set aside the decisions of Irba on five categories of new fees or fee increases for the 2020 financial year:

• The payment of so-called “assurance fees” by registered auditors doing so-called Category C assurance work.

• The payment of three categories of fees connected to registered auditors’ selection of Irba as their “recognised controlling body” as tax practitioners.

• The imposition of penalties for two categories of transgressions of Irba’s regime regarding assurance fees.

• The increase of two categories of existing fees by more than the consumer price index (CPI) – increases of 35% for registration renewal and 50% for reregistration.

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

The 2020 review application related to the same categories of fees but for the 2021 financial year.

Van Nieuwenhuizen said in regard to Category C auditors, there are a few glaring inconsistencies between Irba’s Board Notice and the provisions of the act, including that the act does not provide for “assurance” fees and confirmed Irba’s decision is unlawful and invalid.

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

In regard to the introduction of the tax practitioner fees for the 2020 financial year, Van Nieuwenhuizen said Irba admitted that it must justify the tax practitioner fee with reference to services rendered, but failed to provide any evidence to support its contention that expenses are incurred in relation to tax practitioner registrations.

“Without a section in the empowering act that makes provision for the imposition of tax practitioner fees in their current form, the imposition of the fees is ultra vires the act and similarly unlawful and invalid,” he said.

The penalties imposed by Irba consisted of a fixed penalty for late submission of the assurance work affidavit and supporting documents.

It was introduced at R2 500 and a percentage penalty for under-declaration of assurance fees at 5% of additional fees due as a result of under-declaration.

Van Nieuwenhuizen said the penalties are dependent on the imposition of assurance fees, which had already been found to be ultra vires the act.

“No other provision in the Act provides for penalties to be imposed and the penalty decision suffers the same fate as the decision in respect of assurance fees,” he said.

Irba’s stance ‘untenable’

The review of the drastic increase in fees followed the annual renewal of registration fee increasing from R6 000 to R8 100 and the administration fee for reinstatement increasing from R2 700 to R4 050, an almost 50% increase.

Van Nieuwenhuizen said Irba’s stance that a consultative process was not a legal imperative for a valid fee determination is untenable, devoid of any legal justification and falls to be set aside in terms of Paja.

Irba advised in a notice dated December 14 2018 it had decided to remove the 50% discount available to registered auditors over the age of 65 because inspections had shown a continued decline in audit quality and this increased risk required Irba to extend the scope of its work.

Van Nieuwenhuizen said the failure by Irba to engage in a consultative process prior to gazetting the decision once again renders the decision reviewable on the ground that it was procedurally unfair.

Remedy

Turning to the remedy, Van Nieuwenhuizen said the district association contended that repayment of the unlawfully levied fees would be the natural consequence of the unlawfulness.

Van Nieuwenhuizen said Irba did not suggest any remedy but stated that the repayment of fees “will create financial havoc”.

He said the district association indicated that for this very reason it does not seek an order directing Irba to repay the money unlawfully levied against them, but rather for credits to be passed which can be set-off against future liabilities owed to Irba.

Van Nieuwenhuizen ordered Irba to pass the credits with the inception of its new financial year on April 1 2023, to allow Irba sufficient time to budget for and implement a system for the passing of credits.

The district association said several special considerations should be taken into account in regard to its application for a punitive cost order, including the vexatious nature of Irba’s opposition to the relief sought in its applications and the improper motive of certain of the disputed decisions.

In granting the punitive cost order application, Van Nieuwenhuizen said the legal technical points raised by Irba were no doubt unjustified and only served to add to the already voluminous papers and to protract and prolong the time spent on preparing for the hearing of the matter.

“The decision not to proceed with two of the points in limine at the hearing, only serves to confirm the lack of merits in the points taken.

“The grounds on which the court upheld the review … [with] the decisions being ultra vires the act and procedurally unfair, are the most basic cornerstones of fair administrative action.

“It should have been clear to Irba that the opposition of the applications is a futile exercise,” he said.

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