Regulator defends need for auditors’ rotation
The Independent Regulatory Board of Auditors has hit back at criticism about its proposals to introduce audit-firm rotation. Presenting evidence after public consultations closed on Friday, CEO Bernard Agulhas said the board had noted a sharp rise in concerns about auditor independence globally through its engagement with other audit regulators.
The Independent Regulatory Board of Auditors (Irba) has hit back at criticism that its proposals to introduce audit-firm rotation would not address audit failures or ensure the independence of auditors, presenting evidence in support of its stance for the first time after public consultations closed on Friday.
Irba CEO Bernard Agulhas said the board had noted a “sharp increase” in concern about auditor independence across the world through its engagement with other audit regulators, along with various ethics and standard-setting committees. These fellow regulators had initiated programmes to address such concern.
Before the close of the period for public comment on the rotations last week — when the regulator received 65 submissions — professional bodies such as the Association of Certified Public Accountants (Acpa), the CFO Forum, and listed media firm Naspers railed against the Irba proposal, arguing that the programme had failed elsewhere and had undermined companies’ and investors’ rights.
“It is clear from at least some of the regulatory regimes that have adopted it that [mandatory audit firm rotation] has not had the intended benefits and its continuation is either being questioned or discontinued,” said Acpa CEO Barry Melancon. “Mandatory audit-firm rotation takes away the key responsibility of audit committees which, along with the board of directors, are in the best position to watch management actions and ensure companies are obtaining high-quality audits to protect the investing public.”
CFO Forum head Christine Ramon called for the Irba process “in its current form” to be scrapped, and for the Treasury and the Department of Trade and Industry to intervene — views which Naspers chief financial officer Basil Sgourdos backed.
Sgourdos said the Irba’s consultation paper did not include the research conducted by the regulator, thereby failing to prove how rotations would tackle issues with auditor independence.
“Many countries, 11 in fact, went down this road and turned back,” said Sgourdos.
But Agulhas indicated his organisation had studied markets outside the EU, such as the US Public Company Accounting Oversight Board, which proposed changes to its requirements for auditors’ reports to enhance disclosure around critical audit matters. Auditors overseen by the body also had to disclose information about their tenure to investors.
African countries were not immune. Mauritius adopted legislative amendments which required audit firm rotation for listed companies and banks, limiting tenure to seven years.