Industry corner
GEORGE Bernard Shaw, an Irish Dramatist once said: “The people who get on in this world are the people who get up and look for the circumstances they want and if they can’t find them, make them.”
And so in line with the quote, I ventured the past four weeks into art and I found the foray very fascinating and aesthetically rewarding. After such a rewarding four weeks, I couldn’t help replaying over and over in my head some of the provisions currently in the Companies Bill N.A.B 10/2017 (The “Bill”) and so, I decided to write on one particular subsection in the Bill. The Bill’s section 257(3) provides that an auditor may be reappointed by an ordinary resolution by the company at the annual general meeting but shall not be appointed continuously for a period not exceeding a total of six years. This would in effect introduce mandatory rotation in Zambia for all companies in Zambia that do not fit the small private company criteria for up to a maximum of 6 years. To understand the extent of novelty that this provision would bring, it needs to be understood that only one country in the world (Indonesia) has introduced such mandatory rotation rules for all companies. To buttress this point, an article in AB Magazine titled ‘Compulsory audit rotation sparks discord in South Africa’ 1 July 2017 reported that Argentina, Brazil, Canada, Singapore, South Korea and Spain all initially implemented mandatory audit firm rotation but have either partially or wholly withdrawn from the concept. Similarly, Australia, Hong Kong, Japan, Malaysia, Mexico, New Zealand, Russia, Sri Lanka, Switzerland, Thailand and the US have investigated and rejected it. It is worth asking ourselves why this is the case. Why would we be looking to go and travel along a less trodden path? What advantages would being unique, in this circumstance bring? World over the biggest concern that gives rise to calls for mandatory audit firm rotations is first that the audit firm tenure potentially reduces the auditor independence and consequently audit quality because of the years of close relationship between auditor and client. The other argument is that the long-standing familiarity with a client’s management coupled with the need to retain the client year on year might result in reduced audit scepticism and therefore result in an increase audit failure. These are broadly the main concerns raised by proponents of mandatory audit firm rotations. Their expectation is that the introduction of mandatory firm rotations by itself would lead to fewer corporate failures and result in enhanced user acceptance of financial markets because of the increasing credibility and reliability of the audited financial statements as a consequence of improved audit quality and heightened independence.