Roughly 17% of Johannesburg Stock Exchange (JSE) main board listed companies have already voluntarily rotated auditors—four years early from the effective date of Mandatory Audit Firm Rotation (MAFR), according to the South African Independent Regulatory Board for Auditors (IRBA).
The 64 companies that have rotated in the past two years will not need to do so again until 2027 or 2028. The remaining companies whose audit firms have tenure of ten years or more on 1 April 2023 must rotate prior to that date.
In 2018, 35 companies changed their auditors in early compliance, with nine in the first few months of 2019.
IRBA CEO Bernard Agulhas said: “This is extremely encouraging as at this pace, we can expect that by the end of this year over 120 companies or a third of main board entities will have complied and have ‘a fresh pair of eyes scrutinising their financial statements.”
In 2018, 33% of companies cited MAFR for the change to audit firms, with results rising to 38% in 2019. The second-most cited reason was terminations of relationship.
Agulhas continued: “To assist committees in comparing audit quality during a selection process, the IRBA has also begun a first phase process to test a set of Audit Quality Indicators (AQIs) with a number of JSE-listed accredited audit firms.”
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“Although companies haven’t specified MAFR for being the reason for rotating earlier, the effective date may have been a factor.”
The IRBA warned for audit committees not to select new auditors on price alone without considering quality, necessary competence and experience for the nature of the work, as few have experience running an audit tender process.
Agulhas concluded: “by addressing any long association between the auditor and the client, the company would have gone a long way in securing reliable and credible audit opinions.”
By Asena Degirmenci