South African Auditors Blowing the Whistle without Protection: A Challenge for Trust and Legitimacy

Abstract

South Africa is one of the few countries in the world where auditors of financial statements are required to whistle‐blow on transgressions of a client. This statutory duty places the auditor in a dilemma. On the one hand, a failure to blow the whistle is a criminal offence. On the other hand, compliance with the legislation, in good faith, does not automatically afford the auditor protection against civil claims. Under the lens of legitimacy theory, external regulation has an important role to play in legitimising accounting and auditing systems but, in order for legislation to effect meaningful change, it is paramount that it be accepted as legitimate and worthy of trust in its own right. In this context, the need for improved levels of protection against civil liability for auditors has received increased attention in the United Kingdom and the United States. Here, auditors are already afforded some protection against civil claims in connection with more limited duties to whistle‐blow. Despite the increasing acceptance of the idea that such protection is instrumental in improving the effectiveness of the audit industry, this study shows that South Africa lags behind its international counterparts in this regard. As a result, the essence of the South African auditor's whistle‐blowing duties as an instrument of legitimisation is questionable.

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