Research and consultation
The decision follows a year-long process of extensive research and industry consultation both locally and abroad on how best to enhance audit firm independence. The move does not exclude the possible inclusion of additional measures such as mandatory audit tendering or joint audits, as a combination with firm rotation, in certain circumstances.
The IRBA intends to further consult on implementation of the new requirements, as the board plans to engage with business around the associated steps and milestones to be accomplished. In reality, both companies and their audit firms will also need to make plans to adopt the change into their procurement and operational planning.
While the primary objective of MAFR is to strengthen auditor independence, the board also confirmed that MAFR will increase access to the audit market as well as promote transformation in the profession.
“Our latest inspections findings includes independence issues as one of the top five findings amongst the audits of financial statements. This is consistent with global inspections results. In a South African context, the IRBA board has also recognised the challenges with lack of economic transformation, and domination by certain firms within the profession," says Bernard Agulhas, CEO of the IRBA:
“Out of the 353 audit partners which sign off on the financial statements of all JSE-listed companies, only nine are black African and over 90% are audited by a few firms. We will only see true empowerment when opportunities are provided equally amongst everyone”.
Worldwide, notably in the UK and EU, as well as in some of the BRICS countries, governments and regulators are taking steps to focus on the independence of auditors, specifically through MAFR, as critical to the credibility and transparency of audited accounts, thereby enhancing public and investor confidence in the accuracy of financial reporting.
“We accept that any change to the status quo will be met with some resistance. However, the ultimate mandate of the IRBA is to enhance and ensure investor protection. Investor protection is facilitated when financial statements are reliable, credible and trustworthy - a crucial component of creating the necessary confidence in financial statements, and consequently the financial markets, is the knowledge that the auditors are independent when they report to the shareholders,” he concludes.
