With 48% of Johannesburg Stock Exchange (JSE) listed entities having rotated audit firms, driven by early adoption of compliance to Mandatory Audit Firm Rotation (MAFR), since June 2017, it suggests Covid-19 has had little impact on the rate of rotation says South Africa’s Independent Regulatory Board for Auditors (IRBA).
Of all rotations, 46% of these cited MAFR compliance since June 2017 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 comes in at 11%, while resignation of auditors accounts for 10%. Audit firm mergers amongst mid-tier firms accounts for 11%.
Due to the uncertainty caused by Covid-19 and its effect on the market during 2020, this could have impacted some entities’ decisions regarding rotation of auditors, says IRBA, but it appears as if it has had little impact, as January to June 2020 is comparable to the preceding six months at 16 rotations for each half year, and doubled in the period from July to December 2020 during the extended lockdown to 31 rotations. This trend has continued with 26 rotations occurring in the first half to June 2021.
IRBA acting CEO Imre Nagy said: “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 April 1, 2023 deadline.
“Listed entities which leave rotation until the last minute stand to face the risk of being unable to appoint a preferred audit firm 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.”