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  1. Corporate Finance
September 13, 2017

South African shareholders reject more auditor reappointments

By Vincent Huck

There have been significant increases in votes against auditors’ reappointment at more than a quarter of annual general meetings, according to the South African regulator, the Independent Regulatory Board for Auditors. This is particularly the case where the auditor’s tenure has been excessively long, it noted. Vincent Huck reports Shareholders are increasingly rejecting auditors being reappointed for very long periods, according to the Independent Regulatory Board for Auditors.

Since it announced in June this year that mandatory audit firm rotation would be a requirement from 2023, IRBA has been tracking the results how shareholders have voted at annual general meetings over auditor reappointment.

IRBA CEO Bernard Agulhas said: “What is clear is that the shareholders are beginning to make their voice heard at AGMs regarding the necessity for firm rotation to end excessively long relationships. Where audit committees may feel a 20-year, 50-year or longer relationship might not impair auditor independence, shareholders are saying otherwise.”

Of the 102 auditor appointment resolutions tabled at AGMs since November 2016, 51 recorded an increase in opposition; of these, 24 showed a significant proportion of shareholders opposed the auditor’s reappointment, according to Agulhas.

The most significant vote against reappointment was an increase of up to 40% year on year, he continued. “The most recent annual general meetings to be subject to this increased shareholder opposition were Telkom and PPC Ltd, which reflected 23% and 14% increases in the no vote. While such an increase may seem insignificant in some instances, it indicates to us that even minority shareholders are finding their voice.”

IRBA’s collected data showed that, of the 24 resolutions that recorded an increase in the vote against the same auditors being reappointed, only three had previously recorded an opposing vote above 1% (but less than 10%); the remainder had seen shareholders almost unanimously adopt the recommendation of the audit committee at the preceding AGM (see table opposite).

Since December 2015, audit firms in South Africa have to disclose the length of tenure of an audit in the independent auditor’s report to shareholders to comply with an IRBA regulation. The regulator sees the recent highlighted trends in shareholders’ votes as a direct consequence of this rules.

“As a first step, we are satisfied that the rule to disclose tenure of audit has served the purpose of highlighting excessively long relationships between companies and their auditors,” Agulhas concluded. “However, there is still more shareholder education to be done, as it is the shareholder – and not the management of the company – who is the auditor’s real client.”

 

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