Picture: SUPPLIED
Picture: SUPPLIED

Media group Naspers has objected to a plan to make listed companies rotate their audit firms every 10 years.

Africa’s largest internet and media group made a formal submission to the Independent Regulatory Board of Auditors this week.

Taking issue with the way the regulator was introducing the requirement, Naspers called for thorough investigation and proper public consultation, involving the National Treasury, on the potential impact of the board’s proposed framework.

Naspers chief financial officer Basil Sgourdos said SA’s auditing standards were rated "best in the world", raising the question of why the board wanted to introduce a "failed concept".

Naspers said mandatory audit firm rotation had failed in the markets where it was tried. The board said the move was intended to strengthen audit quality and improve protection for investors and the public.

Naspers said the regulator did no independent research, and ignored the views of those opposed to the move. Other JSE-listed companies have also objected.

The CFO Forum, representing chief financial officers of major JSE-listed companies, said the proposal was made despite having been rejected by the vast majority of foreign markets. Its introduction would cost "billions". Challenges and negative consequences outweighed any perceived benefits.

The forum called for proper investigation of the state of audit independence before considering new regulatory framework for mandatory audit firm rotation.

CFO Forum chairwoman Christine Ramon queried the regulator’s evidence on auditor independence in SA, saying it had not shown measures implemented so far to entrench auditors’ independence had failed, or that there were "any significant deficiencies in the current levels of audit independence".

In its submission, the forum said there were the flaws in the regulator’s reasons for implementing the new regulation, saying its assessment of global developments relating to mandatory audit firm rotation were selective, limited to developments in the European Union and "nowhere else in the world".

It also said references used to justify audit failures took place "more than 10 years ago, while the market and standards have evolved significantly since then".

Sgourdos said mandatory audit firm rotation had "proved to be a disaster in virtually every market where it has been introduced".

Citing Europe, he said it cost an estimated €16bn to implement, although the private sector believed the cost could have been as much as €32bn.

"As in other markets that went down this road and later reversed their decisions, there is no evidence to date that it has done anything at all to increase audit independence."

Ramon said the regulator’s process was not sufficiently transparent. "We still believe this issue should be handled through a formal parliamentary commentary process," she said.

Sgourdos said this should include formulation of a white paper and independent research.

But the Public Investment Corporation (PIC), the most powerful investor on the JSE, backs the move.

Business Day reported in December 2016 that in the September quarter, the PIC voted against the reappointment of auditors at no fewer than 11 annual general meetings. The PIC voted against the reappointment of the external auditors at Naspers, Mr Price, TFG, Richemont, Mediclinic, Tongaat Hulett, Trencor, Adcorp, Tradehold and Altron, Business Day reports.

The PIC was no longer in favour of the big four audit firms — PwC, KPMG, Deloitte and EY — as it thought they were no longer independent of their clients. Its cut-off for maintaining independence was 10 years.

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