The deadline for Mandatory Audit Firm Rotation (MAFR) in South Africa is not until 1 April 2023, but many Johannesburg Stock Exchange (JSE)-listed entities are already switching auditors despite the impact of the pandemic. Joe Pickard speaks to Imre Nagy, acting CEO at South Africa’s Independent Regulatory Board for Auditors (IRBA) to find out more about the progress to strengthen the country’s audit market


The South African audit industry has not been short of controversies in recent years, such as the corruption scandal involving KPMG back in 2017, but the IRBA has been trying hard to strengthen audit and mend its reputation.

Since June 2017, 48% of JSE listed entities have rotated audit firms, driven by early adoption of compliance to MAFR. The IRBA believes this suggests Covid-19 has had little impact on the rate of rotation.

Of all rotations, 46% of these cited MAFR compliance as the main reason for rotating auditors. This remains the leading reason for changing external audit firms, with the next most cited reason being a tender process at 12%. Terminations either by mutual agreement or from the entity come in at 11%, while resignation of auditors accounts for 10%. Audit firm mergers among mid-tier firms account for 11%.

Commenting on the findings, Nagy says: “It is clear from our analysis that the horse has bolted on MAFR. The IRBA expects the pace of rotations to continue to pick up significantly in 2022 in order to meet the 1 April 2023 deadline.

“Listed entities that leave rotation until the last minute face the risk of being unable to appoint a preferred auditor due to potential ineligibility as a result of potential conflicts of interest, and so during 2022 we may see a new development as mid-tier firms pick up a greater number of rotations. The IRBA would welcome this development as it would address concerns around concentration.”

The Accountant: Do you think Covid has encouraged early adoption of MAFR in anyway?

Imre Nagy: One might imagine that businesses under financial stress could have initiated tender processes in order to reduce audit fees during the pandemic, but we have seen no significant change in the percentage of entities citing tender or cost as the reason for changing auditors during the pandemic. So it appears that the early adoption is continuing in order to be in compliance ahead of the effective date.

TA: What has the feedback been so far from both audit firms and clients on MAFR?

IN: Many audit firms responded locally as early as 2017 by publishing guides to MAFR with explanations for their clients on what to expect and how to proceed with running a change process to rotate auditors. Some mid-tier firms have seen this as an opportunity to merge and build capacity.

JSE-listed clients which we are tracking appear to be in support of MAFR. In fact, many large and complex entities have already rotated or announced their schedules for rotation, including three of the top four banks, a number of large mining houses, including a multi-national such as Anglo American, and the four largest insurance companies on the JSE. Given these are considered among the most complex audits – banks, mining and insurance – this is encouraging, as it leads the way for other listed entities.

TA: What have been the reasons for the 17 entities that have already rotated more than once?

IN: Various reasons were cited such as mergers of audit firms, termination by the entity, tender (for reduction in costs), delisting and resignation of the auditor.

TA: Although the deadline for MAFR is not until 1 April 2023, what have been the main barriers for the 52% of JSE-listed businesses that have not already rotated their auditor?

IN: This is not something which the IRBA has conducted research on, but we did provide a five-year lead in to the effective date, to accommodate entities that might be utilising the services of multiple of the big four firms on advisory projects.

The South African Companies Act – Section 90(2) – has a five-year cooling-off clause that would limit the choice of certain entities if these projects had not been completed. The Companies Act amendments, one of which is to reduce the cooling-off period to two years, is expected to be concluded this year.

TA: You said some mid-tier firms may get more JSE clients due to certain entities not being able to appoint their preferred choice if they leave it too late. How well positioned are the mid-tier firms to take on this work?

IN: The IRBA has observed a number of mergers of mid-tier firms to build capacity, and there appears to be support for network firms from their overseas counterparts in terms of capacitating and upskilling. This is likely to continue as firms acquire the necessary skills, experience and capacity to take on larger or more specialised audits.

A secondary objective of the rule is to stimulate competition and address the market concentration. Some clients are appointing joint auditors which will help diversify audit firms tendering for listed audits in future.

TA: Have the mid-tier firms already increased the number of the JSE clients they have as a result of early adoption of MAFR?

IN: Of all the rotations since June 2017, 86 went to mid-tier or smaller firms, five of which were awarded in a joint audit arrangement between a Big Four firm and, for example, black-owned firms. So the IRBA views this positively as it opens access to black-owned firms to gain the necessary skills and experience. This advances the transformation of the profession in this country.

During 2020, the IRBA produced a Guide to Joint Audits and how these arrangements should be best executed for maximum skills transfer.

TA: Is the public opinion of the audit industry improving in South Africa because of early adoption of MAFR?

IN: We have not conducted a public opinion survey, but we have been tracking the shareholder voting at Annual General Meetings and have observed a marked increase in the percentage of shareholders voting against reappointing audit firms that have an excessive length of tenure.

This indicates that shareholders have become more aware of the risk of compromised independence of the auditor as a result of excessive tenure.