Finance sector seeks a rethink on audit rotation
Leading stakeholders in the financial sector have called on Treasury to reconsider the final decision by the board of the Independent Regulatory Board for Auditors (Irba) to go ahead with mandatory audit firm rotation from April 1 2023.
Irba CEO Bernard Agulhas and Finance Minister Malusi Gigaba held a media briefing recently to announce the decision, which Agulhas said had taken account of all the submissions made to Irba and to Parliament’s standing committee on finance during public hearings on the issue.
In a media statement on Monday, the Chief Financial Officers (CFO) Forum, the Institute of Directors, the King Committee, the Association for Savings and Investments in SA and the Audit Committee Forum reiterated their objection to the measures.
The CFO Forum represents the chief financial officers of the top 100 companies on the JSE.
CFO Forum chairperson Christine Ramon, speaking on behalf of all these stakeholders, urged the government to reconsider the Irba decision.
"Mandatory audit firm rotation is being presented as a change to audit regulations, but the implications for the South African economy extend far beyond that: mandatory audit firm rotation will directly affect the rights and interests of companies, investors and many other stakeholders, and could have a massive impact on current and future investment," Ramon said.
"Irba cannot be allowed to proceed with these new regulations, and we collectively call on National Treasury to reconsider the decision in recognition of the disastrous effect it could have on the South African economy.
"The introduction of mandatory audit firm rotation could result in a withdrawal of capital and possibly prompt companies to move listings — which would have a significant impact on the JSE and foreign direct investment."
The financial sector bodies believe mandatory audit firm rotation will undermine business confidence in the government and cause concern among foreign investors about the fact that their rights are being diluted.
"It is common knowledge that changes to shareholders’ rights can only take place through a change in the Companies Act. This is not the domain of a regulatory body for auditors, and Irba needs to recognise that," Ramon said.
She noted that mandatory audit firm rotation had been a failure globally, having been rejected by most major markets.
At least 11 countries had scrapped the system within a few years of introduction. Furthermore, she estimated that introducing the system would cost approximately R10bn over 10 years, or R1bn a year.
Ramon said these ramifications of introducing mandatory audit firm rotation had been pointed out to Irba and Treasury but Irba had pushed on regardless.
"It now appears the outcome of this regulatory change was predetermined, and that the regulatory body’s ‘consultation process’ was merely an exercise in ticking boxes," she said.