IRBA announces MAFR timeline

The requirements are likely to affect JSE-listed and other public interest entities, although the regulator stresses that the proposed scope and transitional arrangements currently may well be influenced by feedback obtained during the consultation.

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“As a public entity tasked with public protection related to investments in public interest entities, it is important to obtain a broad perspective on this requirement from the public and those with an interest in audit and audit quality,” Bernard Agulhas, IRBA CEO, says.

Independence of auditor

“Whether you are an institutional investor, an individual direct investor or whether your pension funds are invested indirectly on your behalf, we would like all investors to consider how ensuring increased independence of the auditor from their clients to make certain that financial reporting has been independently tested and found to be credible.”

“Our goal is for all investors to have confidence that the information upon which investment decisions are made, are not in any way influenced or affected by a close or long-term relationship between the company and its external auditor.”

High-profile audit failure

The issue of lack of independence first came to the fore with high-profile audit failures in the United States. Enron collapsed in 2001 following misrepresented accounts and valuations which were overlooked by its auditor of 16 years. Finally, it declared losses in excess of $638m, which precipitated a collapse in the stock price and resulted in substantial losses for investors and heralded the end of the audit firm, Arthur Andersen.

Since then, regulators and oversight bodies, as well as standard setting bodies have focused on strengthening accounting practices, auditing standards and audit regulation. Following the global financial crisis of 2008, measures to ensure audit quality have become more robust.

Decision based on research

The decision to introduce MAFR by the IRBA board was based on research over a 12-month period regarding possible measures for strengthening auditor independence.

The board considered alternatives, such as mandatory audit tendering and joint audits, as well as possible combinations. The decision to implement MAFR was taken by the IRBA board during its board meeting of 28 July and the minister of finance was informed. The requirements and transitional arrangements are being drafted and will be presented to the board for adoption before being opened for public comment.