There is no benefit in MAFR, says AECI CFO Mark Kathan
- CFO Profile: Mark Kathan from AECI
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IRBA says it wants to regularly force companies to change auditors to encourage audit independence, transformation and to combat market concentration. Mark says that although good governance is at the forefront of a CFO's mind, he doesn't believe those reasons will necessarily achieve all the desired objectives. "One potential pitfall, for example, is that audit fees could be commoditised. Our company is engaged in tendering processes on an ongoing basis and experience has shown that price is not the only determinant in ensuring the desired level of service."
AECI has had KPMG as an auditor for over 90 years, although some companies in the group have used other firms in the past. That doesn't mean there is no independence, says Mark, adding that the mandatory rotation of audit partners means the company automatically gets fresh eyes regularly. "Fresh eyes are important, but I would argue that they are even more important in management teams than they are for auditors. Shareholders reappoint auditors at each AGM of a company - and would certainly raise their legitimate concerns on independence if they had any."
Like many other CFOs, Mark feels that more consultation with the IRBA is required.
"Independence is already addressed via existing structures, particularly audit committees. To the best of my knowledge, there have not been any cases of significance in South Africa where auditors have failed in their duties because their independence was compromised. Our country is among the best in the world when it comes to the quality of the audit profession, including the independence of auditors."
Transformation also won't necessarily be achieved, Mark thinks. "The large auditing firms have their own transformation programmes so perhaps representation issues could be better addressed with them directly. The reality for a company like ours, which is active in 25 countries, is that a firm with the reach and capacity of KPMG or another of the other Big Four auditing firms is essential. By definition, then, it is highly likely that any rotation would be among these big firms."
That's not to say that he thinks that smaller auditors don't have a role that they must continue to play. "From at least the early 90s, there have been smaller auditing firms servicing smaller clients. They had a place in the market then, just as they do now." The needs of a larger company, such as AECI, however, are likely to continue to require more extensive external audit resources.
Another unintended consequence of the IRBA's proposals, according to Mark, is that individual audit partners could well begin moving between firms rather than between clients. In an "extreme end-game scenario", Mark believes that rotation could even become an issue with key stakeholders. "It's not inconceivable that some shareholders and investors could argue that MAFR is not value-adding."
"As a way forward, the IRBA should engage more extensively with CFOs, audit committees and even companies' Boards of Directors so that all stakeholders' concerns and objectives are addressed as equitably as possible. I would be more than happy to participate in such a process."