Nearly 10 days after adopting mandatory audit firm rotation (MAFR), South Africa’s audit regulator, the Independent Regulatory Board for Auditors (IRBA), has told a parliament hearing that MAFR will not address transformation of the profession on its own and that additional measures will be required.
Talking at a hearing of the Standing Committee on Finance, IRBA said it had agreed with the Minister of Finance, Malusi Gigaba, “that while MAFR was best suited to address the independence of auditors by bringing an end to excessively long tenures of audit firms with their clients, it would not necessarily on its own facilitate the growth and participation of black audit firms in a market that has been historically dominated by the Big Four audit firms”.
To prevent a game of musical chairs between Big Four firms in the rotation of the audit mandates and ensure meaningful participation of black audit firms in the market, IRBA listed a number of measures that need to be implemented before MAFR comes into force in 2023.
Amongst the measures IRBA is considering is transparency reporting by the firms, which is currently not mandatory in South Africa.
“It may become a useful tool for audit committees and shareholders,” IRBA noted. “The UK framework includes provision for audit firms to disclose, amongst others, descriptions of network relationships, a description of the governance structure of the firm, detailed explanations of internal quality control systems and an assessment of the effectiveness of quality control, descriptions of the firm’s independence procedures and practices and confirmation that an internal review was conducted, the firm’s annual financial statements and information on the remuneration of partners. In South Africa it could also include BEE ownership and employment equity reports.”
Other measures highlighted by IRBA were:
- Increase the number of qualification routes to registered auditing by increasing the number of accredited professional bodies
- Enhance long term career prospects for black accountants in auditing
- Improve the attraction, retention and progression approach for black auditors and ensure equitable opportunity and access on par with white counterparts
- Advance the number of black partners in senior and executive roles
- Increase the number of black partners with equity ownership in the audit firms
- Crack down on and expose discriminatory recruitment practices that limit opportunities and career path possibilities for black accountants
- Create access to markets for black-owned firms and include these in mainstream auditing, and
- Hold broader governance structures accountable for transformation targets and goals through comprehensive regulation of the broader accounting environment.