Cape Town – Auditing in South Africa needs a “fresh pair of eyes” to address worldwide concerns of corruption, transparency, governance and accountability in the profession, said the Independent Regulatory Board for Auditors (IRBA).
Addressing the standing committee on finance in Parliament on Wednesday, Bernard Agulhas, IRBA CEO, was explaining the rationale behind the body’s rationale for introducing Mandatory Audit Firm Rotation (MAFR), which puts a limit on the period of years during which an accounting firm may be the auditor of a specific company or entity.
IRBA regards the practice as a potential way to improve audit quality and independence, to improve transparency in the auditing environment and to provide smaller auditing firms the opportunity to gain access into the highly competitive auditing environment.
In terms of MAFR, an audit firm wont’ be allowed to serve as the registered auditor of a listed company for more than 10 consecutive financial years. The same audit firm can only be reappointed after the expiry of at least five financial years.
MAFR will be effective for the financial years on or after 1 April 2023.
A number of financial and auditing firms and organisations submitted representations to the standing committee on finance to give their input on the implementation of MAFR.
Concern about MAFR has been expressed by, among others, the CFO Forum, the South African Institute of Chartered Accountants, the Institute of Directors and a number of JSE-listed companies.
Auditing company Deloitte said in its submission that there is insufficient evidence that there is currently a problem with audit quality and auditor independence. “Furthermore, there is insufficient evidence that the introduction of the said measure (MAFR) will result in the desired outcome of enhanced quality as a result of improved auditor independence.”
The CFO forum – a grouping of chief financial officers from JSE-listed and larger state-owned companies – said in its submission that MAFR will not result in improved auditor independence and audit quality. “On the contrary, it could reduce quality, increase audit risk and possible audit failure. We are therefore strongly opposed to the introduction of these measures.”
A chartered accountant, Jeffrey Mothuloe, on the other hand said in his submission that there had been market abuse by the “big auditing firms” which have been dominating the market to keep out emerging black audit firms.
Similarly, Thuto Masasa, a chartered accountant from the auditing firm Nkonki said in her company’s submission that MFRA will not only strengthen auditor independence, but also bring about much needed transformation in the auditing sector. “It will assist black professionals in obtaining intellectual capital.”
Yunis Carrim, chairperson of the standing committee on finance, said in conclusion of the meeting that deconcentration in the financial sector, also in the auditing industry, is “non-negotiable.”
“But as much as deracialisation is important we need to remember it doesn’t equal transformation,” Carrim said.
“Even if 90% of your auditors were African it doesn’t deal with the issue that four companies have the monopoly.”
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