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GENERAL NEWS cont.
AT LEAST 33% OF ALL AUDIT FIRM ROTATIONS
SINCE 2017 DUE TO MAFR
Since the IRBA started tracking audit firm rotations in January 2017,
a total of 12% of JSE-listed companies, or 43 audit clients, have
rotated their audit firms, with 33% (14) of these citing Mandatory
Audit Firm Rotation (MAFR) as the reason for initiating the rotation.
Termination was given as the reason for 28% (12) of the rotations,
making MAFR the most cited reason for rotation.
“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 past 18 months noted MAFR as
the reason for early rotation. While we recognise that some of these
early rotations citing MAFR may also have been driven by other
concerns around KPMG, it is important to note that only five of the
14, which gave compliance with MAFR as the reason for seeking
new auditors, were actually KPMG audits,” said IRBA CEO Bernard
Agulhas.
The third most cited reason was that the audit was put out to tender,
with 19% (8) of the rotations giving this as the primary reason for
seeking a new auditor. While these companies did not specify that
MAFR was a reason for rotating, at least in some of the cases it is
likely that the effective date of 1 April 2023 for mandatory rotation of
audit firms, where tenure exceeds 10 years, may have been a factor
in the decision to put the audit out to tender early.
During 2017, a total of 19 audits were rotated, while in the first six
months of 2018 this grew to 24.
Said the CEO: “If this pace of growth continues into the second half
of the year, we could see that as many as 36 audits have rotated by
year-end. The UK experience of audit tendering reflected a similar
growth pattern on voluntary tendering ahead of the implementation
date for mandatory tendering.
“Should we see a continued year-on-year doubling of the numbers
of audits rotating, as companies pick up the pace to ensure that
they get the auditor of their choice from first-mover advantage, we
could ultimately see as much as 74% of JSE-listed audits having
rotated by 2020.”
The remaining companies still to rotate would likely be those that
have until now routinely made use of several audit firms for other
non-audit services. These companies must comply with cooling-off
provisions for conflicted auditors in terms of the Companies Act.
It is therefore essential that companies that know they will have to
change auditors in 2023 begin to address the cooling-off periods for
the audit firm that they may wish to engage at that time.
From the UK experience, there is a significant learning curve for
audit committees in this process, as few have experience of running
an audit tender process. What the IRBA does caution against is
audit committees that select new auditors on price alone without
considering audit quality and the necessary competence and
experience for the nature of the work. To assist audit committees,
many of the larger audit firms have indicated that they have
published, or intend to publish, Audit Firm Transparency Reports.
“As the IRBA has indicated its intention to call for transparency
reporting by audit firms, this is also very encouraging,” said the CEO.
UPCOMING HEARING DATES: AFRICAN BANK
INVESTMENT LIMITED
The hearing into the conduct of the auditors responsible for the
audit of African Bank Investment Limited has been set down and
will resume on the following dates:
MONTH
DATES
October 2018
25, 26, 27, 29 and 31
November 2018
1, 2, 3, 4, 8 and 9
December 2018
3, 4, 5, 6, 7, 10 and 11
Issue 43 | July-September 2018
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