By George W. Russell
Terence Nombembe, Chief Executive Officer of the South African Institute of Chartered Accountants, tells George W. Russell about how the profession can be an important force for national transformation.
In September, the World Economic Forum once again ranked South Africa at the top of 148 countries for the strength of its auditing and financial reporting. It was the fifth time in a row the country had topped the tables and the result is a source of pride for Terence Nombembe, Chief Executive Officer of the South African Institute of Chartered Accountants.
The most worrying sign, he says, is not among the profession now, but among its future practitioners, evidenced by the dismal mathematical proficiency of South African high school students. The same WEF ranking put South Africa last of 148 for maths and science education.
“It pains us that South Africa is at the bottom of the list when it comes to proficiency in mathematics, which is a contradiction of South Africa being at the top of the list when it comes to financial reporting,” Nombembe, who became the head of SAICA in January this year, tells A Plus.
“The issue is how to then use this to sustain what we are doing right, and improve in the other areas where we are viewed as poor in order to raise the overall level of financial reporting and auditing in South Africa,” he says.
As one of the 11 bodies that are, like the Hong Kong Institute of CPAs, members of the Global Accounting Alliance, Nombembe believes that he and SAICA members have an obligation to act in the public interest and set benchmarks for society as a whole.
As a result, SAICA initiated a programme to help raise the ranking of mathematical skills of students in concert with other professional bodies. “We can never achieve it alone as accountants,” says Nombembe. “For that reason we are working with the other bodies – actuaries, engineers, doctors and others – on a huge drive to get mathematics to be a preferred subject at school level. We’ve got to share the workload.”
SAICA has about 37,000 members – roughly equal to the membership of the Hong Kong Institute of CPAs – in a country with a population of about 54 million. Nombembe says there is room for many more.
“I want to underscore the point that we don’t want every child in South Africa to become an accountant, but we want our children to be part of the scientific evolution, whether in mathematics, economics or the natural sciences,” he says. “The quality of education is our biggest risk. If we can improve, it really would solve our problems.”
Setting benchmarks is nothing new for SAICA. The organization, the only GAA member in Africa, frequently liaises with accounting institutes in neighbouring countries with a view to building capacity in the accounting and auditing profession across sub-Saharan Africa.
“We have taken a deliberate position to support the regional institutes and the promotion of the profession through a formal channel, the Pan-African Federation of Accounting,” says Nombembe. The organization, established in 2011, aims to influence the International Federation of Accountants with a united African voice.
SAICA, the largest PAFA member, does not seek to dominate the body, Nombembe says. “We don’t impose our own methods and practices on other countries but we do open our doors so that other institutes can learn how SAICA can strengthen their own positions.”
One development that has prompted cooperation is the increased investment from China in sub-Saharan Africa. As Chinese state and private investment ramps up in South Africa, he sees tighter links developing between SAICA and the Institute in Hong Kong. “I see that in South Africa there is a lot of Chinese investment and trade activity as well,” he observes. “I do see those opportunities as bringing us closer together.”
Nombembe credits the GAA with helping to develop South Africa’s internationalist outlook. “For us to be a part of that honourable body is a true privilege indeed and we always pledge that we will play our role very actively and very responsibly so we are seen to be a valuable member of GAA, not only a beneficiary.”
To be sure, South African accounting has been a world leader in some areas of the profession. Integrated reporting is a largely South African invention and South African corporate governance, at least on paper, has been a global model.
“We are privileged to have a clear foundation for [corporate governance] in the King code,” says Nombembe, referring to the King Report on Corporate Governance, a series of recommendations that, although not enshrined directly in legislation, have been sufficiently recognized, including by incorporation into the Johannesburg Stock Exchange listing rules, the Public Entities Act and the Financial Services Act, to be a de facto legal standard.
Mervyn King, the retired judge who developed the code, is also Chairman of the International Integrated Reporting Council. “The incubation of the whole integrated reporting [model], which started as sustainability reporting, came from here,” Nombembe notes. “It was transformational.”
The art of change
Transformation is an omnipresent theme in South Africa. Nombembe can witness its effects from his office, about eight kilometres east of the city centre. Nearby Bruma Lake, once a leafy tourist attraction that has been stagnant and toxic for years, was in June earmarked for a 60 million rand (HK$42 million) revitalization project.
Two decades after its transition to parliamentary democracy, South Africa’s own revitalization has a long way to go. Personal security remains an issue in many places, hindering foreign investment and an influx of professionals. Corruption is rife and the economy – the largest and most modern in Africa – has struggled to diversify away from natural resources.
Nombembe stresses how much transformation has occurred in those 20 years. “It is no secret that accounting has been a profession that has been biased towards the minority population group of South Africa,” he points out. “We needed to respond to that challenge.”
SAICA already has experience in training future generations. At the end of whites-only rule in 1994, fewer than 1 percent of South African chartered accountants were from the black majority. The first black accountant was qualified only in 1976, and the first black woman became a chartered accountant only in 1987.
Now about 21 percent of SAICA’s membership is black. Moreover, black-owned firms, such as fifth-ranked SizweNtsalubaGobodo and sixth-ranked SekelaXabiso are challenging the dominance of the Big Four. About 75 percent of SAICA members are male, and Lindani Dhlamini, CEO of SekelaXabiso, is a rare female leader.
Several years ago, the Human Development Research Council, a government think-tank (then chaired by former South African deputy president Kgalema Motlanthe), adopted a position that every professional institute must replicate the SAICA model of developing its pipeline of professionals. “That is to the credit of SAICA,” says Nombembe.
Now SAICA is looking outside accounting. “We are working on how we can transform the thinking of industries to make it a point that good governance becomes the norm in South Africa,” says Nombembe. “Yes, there are challenges in the public sector and yes, there are challenges of ethics in the private sector.”
Nombembe believes that an accounting sector that has transformed – in the sense of developing higher professional standards, skills and ethics – can have a “spill-over” effect on to other sectors of the economy. “We are the only producer of chartered accountants in South Africa and, therefore, unless we are transformed in our activities the rest of industry will never be transformed.”
The South African accounting sector was last reformed almost a decade ago with the passage of the Auditing Profession Act 2005, which established the Independent Regulatory Board for Auditors.
The IRBA’s main focus is to ensure that only suitably qualified individuals are admitted to the auditing profession and that registered auditors deliver high quality services and adhere to ethical standards. “The level of regulation is appropriate,” says Nombembe. “You can’t have a free-for-all or too-strict regulation.”
Non-audit matters are still largely self-regulated by SAICA with the IRBA conducting ultimate oversight over registered auditors. “Ideally, the role of a super-regulator such as the IRBA would make sure we undertake our self-regulation responsibly,” says Nombembe. “That would be a good recipe to allow flexibility.”
A recent World Bank study has recommended that the government align the country’s accounting regulatory framework more to those of the United Kingdom or Australia. But Nombembe believes South Africa can do better. “We want to go beyond that by studying other jurisdictions, so that when we finally decide on our model, we would then settle for the best combination.”
As in many other jurisdictions, small- and medium-sized South African practitioners face issues. Nombembe is heartened by the recent decision to establish a Ministry of Small Business Development under an experienced minister, Lindiwe Zulu.
“That is no doubt going to elevate the way in which small businesses are looked at in South Africa and with that there will be automatic spinoffs for the SMPs,” he says.
The task for SAICA is to identify an appropriate financial reporting framework for SMEs, possibly similar to the Hong Kong Financial Reporting Standard for Private Entities, launched in 2010. “IFRS is certainly not the answer for SMEs,” Nombembe says.
Nombembe says SAICA is working towards an answer and believes the solution lies in identifying what defines a successfully run small enterprise. “We are busy with research into establishing the financial reporting needs of SMEs. We are quite advanced in that research and we should publish a paper sometime in November.”
Given the ingenuity of South African accountants, it might be no surprise that they have found another field to help lead in. “We need to collaborate with the global community to find a more suitable reporting framework for SMEs,” Nombembe adds modestly. “However, this will depend upon successful implementation.”
This article was originally published in the November 2014 issue of A Plus. Read the pageflip version here.
Private Sector to Public Figure
Terence Nombembe joined the South African Institute of Chartered Accountants in 1990 after training with what is now KPMG in Mthatha, near East London, in Eastern Cape Province. He worked as an internal auditor with the Lipton and Unilever consumer goods companies before joining BP to work for them in both South Africa and neighbouring Botswana.
Nombembe was appointed as deputy auditor general in 2000 before being named auditor general in 2007. The first black African to hold the post, he was outspoken and frequently was critical of the state of South Africa’s public finances.
As auditor general, Nombembe was praised for his independence and integrity. “Terence has a proud history of fearlessly reporting on government deficiencies,” Tim Hayden, Chairman of SAICA’s National Small and Medium Practices Committee, said at the time of Nombembe’s appointment as SAICA Chief Executive Officer.
Nombembe made a point of visiting all 283 of South Africa’s municipalities during his term as auditor general. He also increased the number of chartered accountants at the auditor general’s office, the sixth-largest employer of SAICA members in the country. Nombembe also served as chairman of the International Organisation of Supreme Audit Institutions.
He was appointed to his current role at SAICA in January. “My role to a large extent is about leading the way,” Nombembe says. “I am in touch with the members, visible to the members and have the passion to engage with the members.”
He said he saw the SAICA role as somewhat complementary to his job at the auditor general’s office. “What I used to advocate as the head of the audit office, which was persuading people to do what is right, I now have the ability to be part of the solution of in terms of professionalizing the public service.”
Nombembe hopes to carry through a similar vision at SAICA as he did at the auditor general’s office. “Together with the team and the board and all the structures at SAICA, I will be encouraging every member to have a clear, responsible and ethical head as well as a clear public-interest head.”
GAA leadership profile