The IRBA seeks comments from all stakeholders on this comment paper on Mandatory Audit Firm Rotation (MAFR).
In particular, it is seeking views on whether the Requirement for MAFR Framework is clear, comprehensive and how best it should be implemented to accomplish the primary objective of:
The IRBA believes the development of this requirement to be in the public interest as it aims to improve the protection of the investing public from potential audit failures that might result in substantial financial losses for investors.
Furthermore, it agrees that in the interest of investor transparency and enhanced audit quality, that public interest entities and their independent external audit firms should be comfortable with the requirement to allow fresh eyes to review the financial statements from time to time, as prescribed by the regulatory board, to ensure that there is no threat of actual or perceived, to independence, which may impair audit quality.
The consultation paper describes a number of variables around auditor independence and perceived lack of independence that might damage investor confidence in the veracity of audit opinion on financial reporting of public interest entities and provides solutions through the proposed requirement to mitigate the risks that arise from the threat of independence. The consultation paper should be read in conjunction with the accompanying research in relevant sections.
The IRBA invites stakeholders, including investors and audit committees, to consider the best manner of implementation of MAFR for the maximum public and investor interest results in line with the objective outlined above.
While the primary responsibility for performing quality audits rests with auditors, maximum audit quality is achieved in an environment where the audit committee is clear about its responsibilities and is enabled to work independently from the management of the company. At each stage of the audit process there must be provision for independence to ensure healthy challenge between those charged with governance and those being governed. In developing these requirements, the IRBA has identified, from a variety of frequently vastly differing viewpoints, depending on the interest of the stakeholder, what it believes is an adequate middle ground which should satisfy the need for the protection of the investing public while also being practical for companies and audit firms to implement.
The IRBA welcomes views on the practical implementation of the requirement from the following categories of Interested and Affected Parties: