Au­dit firm ro­ta­tion gets the nod

• Par­lia­ment’s fi­nance com­mit­tee not con­vinced de­ci­sion will lead to trans­for­ma­tion and crit­i­cises au­di­tors’ board for lack of dis­cus­sion

Business Day - - BUSINESS & ECONOMY - Linda En­sor Po­lit­i­cal Writer en­sorl@busi­nesslive.co.za

Par­lia­ment’s fi­nance com­mit­tee is not con­vinced that the in­tro­duc­tion of manda­tory au­dit firm ro­ta­tion will ad­vance trans­for­ma­tion of the ac­count­ing pro­fes­sion as claimed, but has de­cided to sup­port the In­de­pen­dent Reg­u­la­tory Board for Au­di­tors’ (Irba’s) de­ci­sion on the ba­sis that the case for it is stronger than the case against it.

But, while en­dors­ing the mea­sure, al­beit in a luke­warm fash­ion, the com­mit­tee came down hard on Irba for what it be­lieved was in­ad­e­quate con­sul­ta­tion be­fore it de­cided to in­tro­duce it as of April 2023.

Fi­nance Min­is­ter Malusi Gi­gaba has en­dorsed the Irba de­ci­sion, which is strongly op­posed by the chief fi­nan­cial of­fi­cers of the top 100 com­pa­nies listed on the JSE. It is also op­posed by the As­so­ci­a­tion for Sav­ings and In­vest­ment SA, the In­sti­tute of Di­rec­tors, the King Com­mit­tee and the Au­dit Com­mit­tee Fo­rum.

The main grounds for op­po­si­tion are the dis­rup­tive ef­fects of the rule, the cost of im­ple­ment­ing it, the re­moval of choice from au­dit com­mit­tees and the un­like­li­hood that it will achieve its pur­pose of strength­en­ing au­di­tor in­de­pen­dence. There is al­ready a re­quire­ment of au­di­tor ro­ta­tion, but not au­dit firm ro­ta­tion. A com­mon ar­gu­ment is that more re­search needs to be un­der­taken on the im­pli­ca­tions of im­ple­ment­ing such a pol­icy, which has been re­jected else­where in the world.

Through­out the fi­nance com­mit­tee’s de­lib­er­a­tions on the pro­posal, chair­man Yunus Car­rim called on Irba to make con­ces­sions as the gap be­tween its pol­icy de­ci­sion and its op­po­nents was too wide.

The com­mit­tee’s re­port on the Irba de­ci­sion — adopted this week — said it was “prob­a­bly cor­rect that Irba had de­cided it was go­ing ahead with manda­tory au­dit firm ro­ta­tion rules be­fore it be­gan the con­sul­ta­tion process. While Irba cer­tainly had sev­eral meet­ings with stake­hold­ers, the qual­ity of its ne­go­ti­a­tions process is ques­tion­able.

“The com­mit­tee be­lieves that Irba should have post­poned the im­ple­men­ta­tion of the manda­tory au­dit firm ro­ta­tion rules and en­gaged fur­ther with stake­hold­ers. We re­gret that Irba and the min­is­ter did not heed our re­quest,” it said.

There should have been a con­certed and mean­ing­ful at­tempt by Irba to reach a min­i­mum de­gree of con­sen­sus.

Re­spond­ing to the com­mit­tee’s re­port, Irba CEO Bernard Agul­has said the body was com­fort­able that its ex­ten­sive twoand-a-half-year con­sul­ta­tion process was “more than ad­e­quate”. It was pleas­ing that a num­ber of listed com­pa­nies had re­cently ro­tated or in­di­cated their in­ten­tion to ro­tate early.

The com­mit­tee said it was op­posed to the mo­nop­o­li­sa­tion and mar­ket con­cen­tra­tion in the au­dit­ing sec­tor, where the four big firms — PwC, Deloitte, KPMG and EY — au­dited more than 90% of JSE-listed com­pa­nies.

It fully sup­ported the trans­for­ma­tion of the sec­tor in­clud­ing through “cre­at­ing more space for smaller and medium-sized com­pa­nies and en­sur­ing the growth of com­pa­nies that are owned by blacks, par­tic­u­larly African peo­ple and women”.

/Trevor Sam­son

Ar­gu­ment for change: Fi­nance Min­is­ter Malusi Gi­gaba has en­dorsed the Irba de­ci­sion to in­tro­duce manda­tory au­dit firm ro­ta­tion de­spite strong op­po­si­tion from the lead­ing listed com­pa­nies.

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