Chartered accountants in court bid to halt Irba rule on changing auditors
Regulation requires public-interest entities — including listed companies, state-owned companies and large private companies — to change auditors every decade
An association of Gauteng-based chartered accountants has initiated legal action in the North Gauteng High Court to halt the implementation of the regulation that requires firms to change their auditors every 10 years.
The East Rand Association of Chartered Accountants (Era) is attempting to block the controversial move by the Independent Regulatory Board for Auditors (Irba), aimed at beefing up auditor independence. The Irba regulation, effective from 2023, will require public-interest entities — which include listed companies, state-owned companies and large private companies — to change their auditors every 10 years.
On Friday, Era chair Jarie Cerny said two summonses had been issued in its fight against mandatory rotation. “One is for a review of the Irba’s decision, which we believe was wrong because it did not consider alternatives, including an increase in monitoring of audit firms.” A second summons has been issued in a bid to get documents relating to meetings between Irba and the minister and deputy minister of finance.
Cerny said the ERA, which does not represent the big four audit firms, has been fighting mandatory rotation since 2016. “Irba ignored us. We told them we would launch court action and we did in May 2018.”
He said mandatory rotation would force auditors to fire their best clients every 10 years and penalise all auditors because of the unethical behaviour of a minority “This means if you’ve worked your whole life to build up a practice, you are now required to fire your big clients, so if you’re close to retirement and were planning to sell your practice, it will have no value. The Irba move has robbed people of their pension,” said Cerny.
Irba CEO Bernard Aghulas said the board had a duty, was mandated to protect the interests of the investing public and was opposing Era’s application, which he said “would not be in the public interest”.
Aghulas said mandatory audit firm rotation was already being adopted by local companies that understand their shareholders needed to trust in independent audit opinions and appreciated that it was an important measure to restore confidence in the financial markets.
“Currently, all rotations which have taken place have been on a voluntary basis as the effective date at which all audit firms must have rotated clients for whom they have provided audits for 10 years or more is April 2023.”
Agulhas said many of the business and audit failures of the past 20 months, in SA and abroad, raised questions about auditors’ professional scepticism and independence.
“Mandatory audit firm rotation was issued as a rule in 2017 specifically to address situations where auditors might, through long association with clients, have lost the independence, actual or perceived, required to ensure that they view what is presented by management with sufficient scepticism, and therefore challenge the client sufficiently to ensure that shareholders can trust the audit opinion,” he said.