Over the past few years the audit industry has been under significant scrutiny where the independence of auditors has been questioned.
In response to this and to further drive auditor independence, the Independent Regulatory Board for Auditors (IRBA) issued a rule prescribing that auditors of public interest entities (PIEs) in South Africa must comply with mandatory audit firm rotation (MAFR) with effect from 1 April 2023.
So what is a PIE?
1. All listed entities; and
2. Any entity defined by regulation or legislation as a public interest entity or for which the audit is required by regulation or legislation to be conducted in compliance with the same independence requirements that apply to the audit of listed entities. Such regulation may be promulgated by any relevant regulator, including an audit regulator such as the Board.
In general, entities, as classified under point b above, has a large number and wide range of stakeholders and are therefore more likely to be considered PIEs, for example, banks, insurers, collective investment schemes, pension fund administrators etc.
What do the new rules entail?
In the past, after a period of five years, it was mandatory for the audit partners to rotate, but the same audit firm could be used. Going forward, additionally to the partner rotation, all PIEs must rotate their audit firms as well (including network firms) after a period of ten consecutive financial years, after which that firm will only be eligible for reappointment after at least five consecutive financial years.
The new rules come into effect on 1 April 2023. For example, if you have a February yearend and your auditors have performed the audit since the 2013 financial year, you would need to rotate your audit firm for the 2024 financial year.
What is the impact of MAFR?
For PIEs, this means that every ten years a new audit firm with new audit teams that has to get to know the business and internal workings. This could result in increased audit fees.
The process is widely contested in the market, with many firms stating that the impact of this new rule has not yet been fully assessed and will not increase independence and enhance audit quality, whereas the JSE responded by being one of the first entities to rotate their auditors to support the motion.
What you need to do
If your company is a PIE, it is time to start planning when would be best to rotate your auditors, which would give you sufficient time to obtain quotes from other firms.
You are also most welcome to contact our audit department to discuss any questions you may have in this regard.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)