At International Accounting Bulletin we do admit to a preference for the underdog, but regardless of where one stands on mandatory audit firm rotation, one can only admire the determination and persistence of the Independent Regulatory Board for Auditors (IRBA), the South African audit regulator.
This publication and our sister publication The Accountant have followed, with varying degrees of assiduity, IRBA’s quest for better and stronger regulation in South Africa since 2013, when its CEO, Bernard Agulhas, visited London and the UK Financial Reporting Council looking for inspiration.
As the reform comes closer, which will make IRBA the regulator for the whole of the profession and introduce new regulatory requirements such as mandatory audit firm rotation, pressure is mounting on IRBA. As Stephanie Wix reports, IRBA has few friends and supporters within the profession.
We will not pretend here to know what is best. And maybe there is insufficient evidence to show that firm rotation does much for raising quality and competition, as has been argued time and time again. Maybe long audit tenures do contribute to building valuable knowledge, which in turn contributes to audit quality.
But in an age where reputations are as volatile as election polls, it is simply not acceptable for an audit firm to be the auditor of the same company for 70 years or more. Let’s be honest. Familiarity where there is money involved does indeed affect independence. But let’s assume for a minute that it doesn’t, still, the perception of independence is as important as independence itself. Moreover, there is no evidence that mandatory firm rotation contributes to a drop in quality. Italy, after all, has been dealing with it for over 40 years.
Finally, there doesn’t seem to be any malice in IRBA’s activities – as has sometimes been suggested off the record – only the recognition that regulators and regulated entities don’t see the issues at hand from the same angle, and that, ultimately, regulation should steer accounting firms towards respecting their public interest obligations.
The regulatory changes are not yet in place, and the current political and economic situation in South Africa might mean further delays, but hopefully IRBA will be able to maintain its course in the face of adversity, as it has been doing remarkably for the last few years.