Mandatory Audit Firm Rotation has been saved
Mandatory Audit Firm Rotation
Our advice to clients
On Friday 2 June 2017, the IRBA announced that it was formally implementing mandatory audit firm rotation for all public interest entities for years commencing on or after 1 April 2023.
The concept of MAFR has been vociferously opposed by many interested parties, including at two public hearings held by the Standing Committee on Public Accounts in early 2017. The response of the CFO forum can be accessed here.
The Deloitte position is that we support any measure to enhance auditor independence, audit quality and the transformation of the profession. We question whether MAFR is the best mechanism to achieve any of these objectives.
In the absence of further interaction with the regulator it appears that Public Interest Entities (PIE’S) in South Africa are now faced with considering the tenure of their auditors more carefully and having to plan for the probable rotation of their auditors in the medium term.
So what advice are we giving our clients?
The regulations require that corporates with long standing audit relationships – longer than 10 years - change their auditors for years commencing on or after 1 April 2023.
This means that Companies have time to carefully consider their rotation strategy.
Looking at the experience of other jurisdictions globally that have had to manage such a change we recommend that Audit Committee’s consider the following factors:
- Are there natural breakpoints when an audit tender should be considered such as lead partner rotation, as required by the Companies Act?
- Managing the services provided by professional firms that are not your current auditor. This is important to ensure that if and when you run a bid, others firms are not precluded due to ongoing projects or past work that would preclude said firms or require long cooling off periods. This includes accounting services affected by S90(2) of the Companies Act.
- Are there likely changes in your Companies leadership (CEO; CFO; Audit Committee Chair), or other corporate activity where ensuring continuity of audit service is important?
As many large organisations in South Africa have not run a formal audit tender process for a long period we can provide guidance.
In addition, our UK practice recently published a survey as to how audit decisions were being made in the UK that you may find instructive. Download the Survey.
Should your Company require any additional advice on the impact of Audit Bid processes, or for a copy of our “how to bid brochure”, please contact any of the persons listed below: