The Independent Regulatory Board for Auditors (IRBA) has said that additional measures to drive transformation will be required to address government’s concerns regarding de-concentration of the audit market and transformation. This in the face of criticism that Mandatory Audit Firm Rotation (MAFR) will not address transformation of the profession.
The IRBA and Malusi Gigaba, Minister of Finance, agree that while MAFR is best suited to address the independence of auditors by bringing an end to excessively long tenures of audit firms with their clients, it would not necessarily on its own facilitate the growth and participation of black audit firms in a market that has been historically dominated by the "big four" audit firms.
Therefore, prior to the 2023 implementation date, additional measures will be required to prevent the mere rotation of audits between the big four and to ensure that meaningful black participation increases through equity ownership, as well as that black-owned firms are grown and capacitated to take on the work of large listed entities.
It noted that there was a real need to:
- Increase the number of qualification routes to registered auditing by increasing the number of accredited professional bodies;
- Enhance long-term career prospects for black accountants in auditing;
- Improve the attraction, retention and progression approach for black auditors and ensure equitable opportunity and access on par with white counterparts;
- Advance the number of black partners in senior and executive roles;
- Increase the number of black partners with equity ownership in the audit firms;
- Crack down on and expose discriminatory recruitment practices that limit opportunities and career path possibilities for black accountants;
- Create access to markets for black-owned firms and include these in mainstream auditing; and
- Hold broader governance structures accountable for transformation targets and goals through comprehensive regulation of the broader accounting environment.
The IRBA said that transformation of the governance structures that select and appoint audit firms is also necessary to ensure diversity and that the selection and appointment of auditors is not restrictive, selective or influenced by the management of companies.
Stephen Haddrill (pictured), CEO of the Financial Reporting Council of the United Kingdom said:
"I commend South Africa for its decision to introduce mandatory rotation, and congratulate the IRBA for its leadership. This step builds on the leadership South Africa has already shown in corporate governance and reporting. The reforms of governance will in particular enable the success of rotation. They provide confidence that audit committees will take full ownership of tendering and put quality and the interests of investors above price in their objectives. Our own experience is that the retendering of longstanding audit contracts has driven innovation and improvements in audit quality and I look forward to the same experience in South Africa."
