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August 7, 2018

IRBA claims ‘encouraging signs’ from mandatory audit rotation

Since the South African Independent Regulatory Board for Auditors (IRBA) began tracking audit firm rotations in January 2017, a total of 12% of Johannesburg stock exchange (JSE)-listed companies, or 43 audit clients, have rotated their audit firms.

Of these, 33% cited Mandatory Audit Firm Rotation, (MAFR) as the reason for initiating the rotation.

‘Termination’ was the second most popular reason given for changing auditor (28%).

IRBA’s CEO Bernard Agulhas said: “We anticipated that there would be a number of early adopters following the issuing of the rule in June 2017, but we are encouraged that a third of the rotations in the last 18 months noted MAFR for the reason for the early rotation.

“While we recognise that some of these early rotations citing MAFR may also be driven by other concerns around KPMG, it is important to note that only five of the 14, which have compliance with MAFR as the reason for seeking new auditors, were actually KPMG audits”

During the period monitored, KPMG has been struggling to recover from the Gupta scandal, and as such it is unsurprising that it saw the biggest net loss of JSE-listed audit clients – with a net loss of 20. IRBA stressed, however, that as these were only JSE-listed companies, the data may not reflect the total swing of client numbers in the country.

The biggest winners, when it comes to JSE-listed audit clients, were PwC, which increased its number of clients by seven, Deloitte, which went up by 8, and SNG, an indigenous firm which joined Grant Thornton at the start of 2018, with three.

Accelerating

According to IRBA, the rate of rotation is also accelerating. It said during 2017 a total of 19 audits rotated and in the first six months of 2018 there has been a growth of 26% to 24.

The Association noted that the companies left to rotate are likely those that have consistently made use of several routine firms for other non-audit services. Under the Companies act these firms will need adhere to cooling off provisions for conflicted auditors.

It also warned firms that, judging by UK experiences, there is a significant learning curve for audit committees in this process, as few have experience of running an audit tender process. 

By Mishelle Thurai

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