Auditors have the power to stamp out software piracy

Auditors and accounting officers have the power to stamp out software piracy, a scourge that costs the software industry many millions of rands a year in lost retail revenue and the government a huge amount in lost taxes - some R2 billion in 1999 alone.

"The generally accepted accounting practices (GAAP) laid down by the Public Accountants and Auditors Board place an obligation on the auditor of a company to report contingent liabilities. If the company cannot produce proof of licensed software then this constitutes a contingent liability and it should be reported accordingly in the financial statements," says Stephen Corrigan, managing director of accounting and business software distributor AccountMate Africa and a director of Pastel Software, both Softline companies.

"Auditors and accounting officers have a duty to check that the software used by the company is legal. If it is not, a probable material contingent liability could exist that could amount to many millions of rands in terms of penalties and the cost of legalising the software."

Corrigan believes there is also an obligation on the directors of companies to ensure their software is legal.

"This is more than just an ethical or moral obligation because directors are obliged to state that they are not aware of any contingent liabilities other than those formally disclosed in the financial statements. Should software piracy later be exposed and the company prejudiced, the directors could be held personally liable."

Corrigan adds that the accounting and auditing profession is becoming more alert to the potential liabilities stemming from software piracy and that there is support for a software legality check becoming a formal item on the annual audit checklist for every company.

"At the end of the day, an auditor or accounting officer has an obligation to go on record that the financial statements of the company that has been audited are an accurate reflection of its financial status. Software is a component of the balance sheet and if its legality has not been checked, it follows that the audit cannot be an entirely accurate reflection of the status of the company."

Mark Reynolds, chairman of the Business Software Alliance in South Africa, confirmed most of the BSA's settlements are with "good, reputable, well-managed companies that simply have a blind spot" when it comes to software asset management.

"Formal assistance by auditors in identifying software compliance issues within organisations will definitely assist in reducing the piracy rate in SA while at the same time reducing potential liabilities for those organisations," said Reynolds.

The Institute of Commercial and Financial Accountants of Southern Africa (CFA) says it supports the principle of auditors or accounting officers being involved in software compliance issues.

"It is important to remember that financial statements are the responsibility of the company directors or members. One of the duties of Accounting Officers is to determine that the financial statements are in agreement with the accounting records," comments CFA chief executive officer Bill Shellard.

"They do this by adopting such procedures and conducting such enquiries in relation to the accounting records as are considered necessary in the circumstances. Accounting Officers also review the accounting policies that have been represented to them as having been applied in the preparation of the annual financial statements, and they consider whether they are appropriate to the business, and are in conformity with generally accepted accounting practice.

"We will be suggesting to our members that they incorporate a schedule that deals with software compliance in their formal work programmes. However, we don't believe it is our role to act as the industry watchdog. Our main aim is to promote the establishment of a professional accounting environment and within that aim we will, on a general level, always promote the use of legal software."