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August 30, 2011

Editor’s letter: big changes in South Africa

Photo of The Accountant editor Nicola MaherA new South African Companies Act has now been signed into law after much debate and delay. New regulations pertaining to audit are going to change the accounting landscape in the country forever and have caused the two professional bodies to take up arms to defend their members businesses.

Despite their valiant efforts, neither succeeded in making much difference to the Companies Act before it was made official, but both are still tussling with regulators and the government to try and make changes as implementation begins.

The new law has restricted statutory audit to listed companies and public interest entities. Large and mid-sized private companies will be subject to a new independent review while the very smallest companies are to be exempt altogether.

It was previously thought the losers would be registered auditors, who are members of the South African Institute of Chartered Accountants, while the winners could be members of South Africa’s smaller accountancy body, the South African Institute of Public Accountants (SAIPA). But this is not the case.

South Africa has devised a new method of assessing organisations – through a point system where turnover, number of staff and stakeholders, and debt are assessed. The winners of this system will surely be SAICA whose members will still audit a large chunk of the market, while SAIPA members are left to conduct reviews on much smaller number of SME businesses (see A year of change).

Audit reforms reach US soil

While the majority of the world eagerly awaits the outcome of Michael Barnier’s proposals on audit in November, it is no surprise the US has also sat up and taken note.

This month, the US Public Company Accounting Oversight Board (PCAOB) has issued a consultation on independence and mandatory audit firm rotation (see PCAOB consults on independence and audit rotation).

The oversight body will be collecting feedback on the idea that auditor independence, objectivity and professional scepticism can be enhanced and one method being discussed is mandatory rotation of audit firms.

Across Europe a large amount of businesses and audit firms have been opposed to this controversial idea also proposed in Barnier’s Green Paper.

Earlier this year The Accountant’s sister publication International Accounting Bulletin held a round table on the proposed reforms and some participants argued that mandatory rotation of audit firms has actually caused further concentration in the markets where it is practised and is a financial burden to firms.

Frequent rotation leads to transitional problems as new audit firms need to pick up knowledge of a new client that is built up over time. There is an argument that this knowledge drain could affect the quality of an audit in the early stages of an engagement.

Audit partners are already required to rotate in many countries at any rate due to independence concerns.

It will be interesting to see how the US market reacts to this proposal.


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