Audit regulator says support for auditor rotation is growing
Votes against retaining auditors are on the rise, says the Independent Regulatory Board for Auditors
The Independent Regulatory Board for Auditors believes it is making progress in raising shareholder support for the mandatory rotation of audit firms, which becomes effective in 2023.
The regulatory body said Telkom and cement company PPC were two recent high-profile instances of shareholders becoming more engaged in the mandatory rotation issue, with significant increases in the no vote at the annual general meetings (AGMs) of both.
"A visible trend towards voting against the reappointment of auditors is developing, with 27% of surveyed companies increasing their votes against the reappointment of auditors by up to 40%," said Bernard Agulhas, the CEO of the regulatory body. He said the likelihood of a vote against reappointment was particularly high when the audit firm’s tenure was excessively long.
Since December 2015 audit firms have been required to disclose in the independent auditor’s report how long they have been the auditors. This ensured shareholders were aware of tenures, which frequently run to several decades.
"What is clear is that the shareholders are beginning to make their voice heard at AGMs regarding the necessity for firm rotation to end excessively long relationships. Where audit committees may feel a 20-year, 50-year or longer relationship might not impair auditor independence, shareholders are saying otherwise," Agulhas said.
Of the 102 auditor appointment resolutions tabled at AGMs since November 2016, when the 2023 deadline was confirmed, about 51 recorded an increase in votes against reappointment.
"Of these, 24 resulted in significant shareholder opposition to the auditor’s reappointment," Agulhas said.
Christine Ramon, AngloGold Ashanti’s chief financial officer and chairwoman of the CFO Forum, said mandatory rotation would dilute the oversight role of audit committees and shareholders’ rights.
Ramon said in a presentation to Parliament in 2016 that it was the duty of the audit committee to assess when and if auditor rotation was required.
In 2013, Sasol decided to change KPMG, which had been its auditor for more than 60 years. It was a costly and time-consuming exercise, said Ramon, who was previously chief financial officer of Sasol.
The JSE Ltd revealed earlier in 2017 that its audit committee had put the company’s external audit out to tender in 2016.
The committee decided that because of its long tenure as the JSE’s external auditor, KPMG would not be considered for reappointment and the work went to EY.
Last week, Ramon said the results of recent AGM voting on the matter merely reflected shareholders exercising the rights they had in terms of the Companies Act.
"It does not necessarily mean that they are voting in favour of mandatory audit firm rotation every 10 years, which is a significant cost and risk burden to companies," Ramon said.