21 percent of JSE-listed companies have rotated their auditors ahead of MAFR deadline
IRBA CEO Bernard Agulhas: audit committees should keep an open mind when appointing auditors.
On 7 October, the Independent Regulatory Board for Auditors (IRBA) announced that roughly 21 percent of the JSE main board listed companies have already voluntarily rotated auditors since IRBA started tracking audit firm rotations in January 2017.
According to IRBA, this early adoption of The Mandatory Audit Firm Rotation (MAFR) (MAFR) by companies indicates that audit committees are paying greater attention to the independence of their auditors.
The MAFR deadline is less than four years away, with effect from 1 April 2023. This means that the companies who have already rotated in the last two years won’t need to rotate again until 2027 and 2028. The remaining companies on the main board must rotate before 1 April 2023.
According to IRBA, in 2018, 35 companies changed their auditors in early compliance, up from 18 in 2017. In the nine months to end-September 2019, 24 companies have announced a change of audit firm.
Of the total number of rotations that have taken place, 41 percent of companies cited compliance to MAFR. The second most cited reason was a tender process at 23 percent.
IRBA CEO Bernard Agulhas said:
“What is particularly notable is that we have seen three companies appointing a Big Four firm together with black-owned next-tier firm in a joint audit arrangement. This will help to expose these smaller audit firms to large listed audits and transfer skills. This is a positive step for the development of black firms and will increase access to opportunity, and also prevent the big four firms from simply rotating clients amongst themselves.”
Bernard said that audit committees are encouraged to keep an open mind when appointing auditors. “To assist audit committees, some audit firms have published Audit Firm Transparency Reports, which provide insight into their quality management systems, firm structures, and inspection results,” he said.
He added that the current transparency reporting process is voluntary, but that he expects that mandatory transparency reports for certain firms will be prescribed in future. “To assist committees in considering audit quality during their appointment and reappointment decisions, the IRBA has identified a set of Audit Quality Indicators (AQIs).”
According to Bernard, these are a set of comparable measures covering independence, review, workload and training, which supports comparison between firms. The AQIs are available from firms and have also been submitted by the firms to the IRBA to enhance its regulatory understanding of quality risks that firms face, and to provide feedback to the market in the form of a feedback report.
“What the IRBA does caution against is audit committees which select new auditors on price alone without considering audit quality and the necessary competence and experience for the nature of the work. But audit committees have recognised that of crucial importance to audit quality is auditor independence, and 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,” he concludes.