Assurance and judgement: When reliance outpaces enquiry

By Nqobani Mzizi

Recent regulatory action against an audit partner in the VBS Mutual Bank audit has again drawn attention to the role of assurance in governance. These moments are often framed in terms of individual accountability. They also invite a broader reflection on the place of assurance within the governance system itself.

Modern governance is supported by a layered architecture of assurance. External auditors provide independent opinions on financial statements. Internal audit evaluates the effectiveness of controls and risk management. Legal advisors interpret regulatory obligations and provide guidance on complex matters. Consultants bring specialised expertise, often shaping strategic and operational decisions. Professional bodies set standards, enforce discipline and sustain the credibility of the professions that operate within this ecosystem.

These mechanisms exist to strengthen confidence, enabling boards, management and stakeholders to operate with confidence that key aspects have been independently reviewed. Over time, they have become integral to how governance is practised.

Their influence extends beyond the boardroom. Shareholders rely on audited financial statements when making investment decisions. Lenders consider assurance outputs when assessing credit risk and determining funding terms. Regulators depend on submissions and audit opinions to monitor compliance and financial soundness. Employees draw comfort from the perceived stability and integrity of the organisation. Customers and counterparties make decisions based on the credibility that assurance signals. In the public sector, citizens and oversight bodies rely on the work of institutions such as the Auditor-General to form a view on the use of public resources.

Assurance, in this sense, plays a central role in shaping economic and institutional behaviour. It informs decisions, influences confidence and underpins participation.

The expectation that reliance will be placed on assurance is therefore entirely appropriate, and the systems of governance are designed with this reliance in mind. The presence of independent review, applied with rigour and integrity, strengthens oversight and supports sound decision-making.

The VBS matter illustrates a more complex reality. The collapse of the institution was underpinned by two interconnected dynamics: the capture and looting of the bank, and the fraudulent concealment of that activity. The latter is particularly relevant in the context of assurance. Financial statements were produced. Audit opinions were issued. Regulatory returns were submitted and reviewed. Internal structures were in place. Yet the underlying condition of the institution was materially misrepresented, and the misconduct continued over time.

The issue was not the absence of assurance. It was that assurance, in various forms, did not disrupt what was unfolding.

The Steinhoff case presents a similar reflection. External auditors issued unqualified audit opinions on financial statements that were later found to be materially misstated across jurisdictions, including South Africa and Germany, where the company was listed. These financial statements informed investment decisions at scale, with reliance placed on their credibility by shareholders and investors in both markets.

Subsequent scrutiny raised concerns regarding the exercise of professional scepticism, including the extent to which explanations were tested and evidence interrogated.

Regulatory action followed, with the Independent Regulatory Board for Auditors undertaking a prolonged investigation into the audits conducted between 2014 and 2016. While financial penalties were ultimately imposed, they were constrained by the regulatory framework applicable at the time. By then, the impact had already been realised, with significant losses borne by investors.

This raises an important consideration for governance. Assurance provides structured insight into defined areas. It reflects the scope of work undertaken, the evidence considered and the judgements applied by the assurance provider. It is designed to inform and operates alongside continued enquiry.

There is also a behavioural dimension. Robust assurance can subtly shift boardroom dynamics. Reports are accepted, conclusions are noted and discussions proceed with a degree of confidence. The discipline of probing, revisiting assumptions and exploring what may sit beyond the scope of formal assurance can become less pronounced.

This is not a criticism of those providing assurance. The system depends on their work. It is an acknowledgement of how reliance, when unexamined, can influence behaviour within governance structures.

The broader assurance ecosystem reflects similar dynamics. Legal opinions provide clarity within defined parameters. Advisory reports are shaped by the terms of reference agreed with the client. Specialist reviews focus on specific risks or transactions. Each of these contributes to the overall picture presented to the board. Each also carries inherent boundaries.

Professional bodies play a critical role in sustaining the credibility of this system. Through standard setting, monitoring and disciplinary processes, they reinforce the expectations placed on practitioners. When failures occur, their response becomes part of the oversight context. Timely and decisive action signals that standards are upheld. It reinforces confidence in the professions and in the assurance they provide.

Assurance does function as intended in many cases. Internal audit functions escalate concerns despite resistance. External auditors qualify opinions or highlight material uncertainties. Public sector oversight institutions flag irregular expenditure and governance weaknesses. These actions demonstrate that assurance, when exercised with independence and professional scepticism, can strengthen governance outcomes and influence corrective action.

The presence of assurance therefore remains essential. The reliance placed on it by boards and stakeholders is both necessary and justified. The governance question lies in how that reliance is exercised.

Boards operate within an environment shaped by information, interpretation and judgement. Assurance contributes to this environment by providing independent perspectives. It does not diminish the responsibility of the board to engage with that information actively.

This responsibility takes several forms. It involves understanding the scope and limitations of assurance engagements. It requires attention to areas that may fall outside formal review. It calls for consideration of how conclusions have been reached and what assumptions underpin them. It includes recognising patterns across reporting cycles and identifying where further enquiry may be warranted.

These steps extend beyond procedure. They reflect the application of judgement within the governance process.

In the public sector, similar principles apply. The work of the Auditor-General provides critical insight into financial management, compliance and performance. It informs parliamentary oversight, executive accountability and public understanding. It also exists within a broader governance architecture that requires engagement, response and corrective action from those charged with responsibility.

Assurance strengthens governance when it is integrated into a system of active oversight. It supports decision-making, enhances transparency and contributes to accountability. Its effectiveness is shaped by the quality of the work performed and by how it is received and engaged with.

The events at VBS and Steinhoff serve as reminders that assurance, on its own, does not determine outcomes. It forms part of a wider oversight architecture that depends on integrity, competence and the consistent application of judgement.

Boards should therefore continue to rely on assurance. They should also remain attentive to how that reliance informs their engagement with the organisation. What is being assured? What lies beyond the scope of that assurance? And how do we satisfy ourselves that the picture presented reflects the underlying reality?

Assurance provides the foundation; judgement provides the direction.

* Nqobani Mzizi is a Professional Accountant (SA), Cert.Dir (IoDSA) and an Academic.

** The views expressed do not necessarily reflect the views of IOL or Independent Media.

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