Spike in JSE-listed firms rotating auditors
Some 64 firms have changed external auditors in the past two years, says regulator
As SA’s audit profession is still picking up the pieces of its shattered reputation, more listed companies are switching their external auditors.
According to the Independent Regulatory Board for Auditors (Irba), of the companies listed on the JSE, 64 changed their external auditors in the past two years. The board, which started tracking announcements about changing auditors in January 2017, said the pace of auditor rotations almost doubled among listed companies.
However, it said that despite reputational concerns caused by audit failures at KPMG after revelations relating to Gupta-owned companies and the collapse of VBS Mutual Bank, the spike seemed to be fuelled by the looming mandatory audit firm rotation requirement which comes into effect in April 2023.
The regulator said only one of the 64 companies named reputational risk as its reason for changing KPMG as its external auditor. It said five of those who announced rotations in 2018 were previously KPMG clients but most of them cited the coming mandatory rotation as their reason for changing.
The Irba said 24 of all the 64 companies that changed auditors cited this reason as well. In 2018 alone, 35 companies changed their auditors in early compliance and in the first three months of 2019 nine companies have announced a change of audit firm.
“This is extremely encouraging as, at this pace, we can expect that by the end of this year over 120 companies, or a third of main board entities, will have complied and have ‘a fresh pair of eyes scrutinising their financial statements,” said Irba CEO Bernard Agulhas.
The regulatory board forecast that by 2021, most listed companies would have complied with the mandatory rotation regulation, which states that an audit firm should not serve a listed company for more than 10 consecutive financial years. It also prevents reappointment of an audit firm to the same company for at least five years after the rotation.
The Irba and auditing firms have, however, acknowledged that recent audit failures have put the importance of rotating auditors in the spotlight.
The regulator said auditing firms would be compelled to publish transparency reports from 2020. Currently, this is a voluntary process.
Deloitte and KPMG were the first to publish these transparency reports publicly. KPMG published in March, while Deloitte’s was released in October 2018.