Judgment on Irba rule to be welcomed

Last week the Supreme Court of Appeal (SCA) overturned the Independent Regulatory Board for Auditors’ (Irba’s) 2017 mandatory audit firm rotation (MAFR) rule, which stipulates that the auditors of public interest entities have to be rotated every 10 years. In addition, Irba had decreed that these audit firms would be ineligible for reappointment for five years after the 10year period.

In a unanimous judgment, the SCA determined that Irba had exceeded its legislative authority and could not impose obligations on companies, audit committees and shareholders to choose their auditors, nor could it prohibit audit firms from accepting such appointments.

The judgment is surprising in that the successful applicants in the matter were a regional body of the audit profession: the East Rand Member District of Chartered Accountants (ERD) and its chair. The relevant professional body, the South African Institute of Chartered Accountants (Saica), was not even a named party to the litigation.

The fact that such an obvious breach of the legislative framework under which Irba operates went unchallenged for so long speaks volumes about the willingness of the audit profession to poke their heads above the parapets and challenge their regulator. Instead, it was left to a much smaller and lesser body to act in the interests of the profession. 123RF

Because of the profession’s apparent passivity, companies have had to incur significant time and cost in implementing the MAFR rule only to discover now that these were unnecessary. At the same time, audit firms have lost long-term clients and revenue streams.

One can only hope that Saica will chip in and compensate the ERD for the costs incurred in protecting the rights of the broader audit profession.