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GENERAL NEWS cont.

AT LEAST 33% OF ALL AUDIT FIRM ROTATIONS

SINCE 2017 DUE TO MAFR

Since the IRBA started tracking audit firm rotations in January 2017,

a total of 12% of JSE-listed companies, or 43 audit clients, have

rotated their audit firms, with 33% (14) of these citing Mandatory

Audit Firm Rotation (MAFR) as the reason for initiating the rotation.

Termination was given as the reason for 28% (12) of the rotations,

making MAFR the most cited reason for rotation.

“We anticipated that there would be a number of early adopters

following the issuing of the rule in June 2017, but we are encouraged

that a third of the rotations in the past 18 months noted MAFR as

the reason for early rotation. While we recognise that some of these

early rotations citing MAFR may also have been driven by other

concerns around KPMG, it is important to note that only five of the

14, which gave compliance with MAFR as the reason for seeking

new auditors, were actually KPMG audits,” said IRBA CEO Bernard

Agulhas.

The third most cited reason was that the audit was put out to tender,

with 19% (8) of the rotations giving this as the primary reason for

seeking a new auditor. While these companies did not specify that

MAFR was a reason for rotating, at least in some of the cases it is

likely that the effective date of 1 April 2023 for mandatory rotation of

audit firms, where tenure exceeds 10 years, may have been a factor

in the decision to put the audit out to tender early.

During 2017, a total of 19 audits were rotated, while in the first six

months of 2018 this grew to 24.

Said the CEO: “If this pace of growth continues into the second half

of the year, we could see that as many as 36 audits have rotated by

year-end. The UK experience of audit tendering reflected a similar

growth pattern on voluntary tendering ahead of the implementation

date for mandatory tendering.

“Should we see a continued year-on-year doubling of the numbers

of audits rotating, as companies pick up the pace to ensure that

they get the auditor of their choice from first-mover advantage, we

could ultimately see as much as 74% of JSE-listed audits having

rotated by 2020.”

The remaining companies still to rotate would likely be those that

have until now routinely made use of several audit firms for other

non-audit services. These companies must comply with cooling-off

provisions for conflicted auditors in terms of the Companies Act.

It is therefore essential that companies that know they will have to

change auditors in 2023 begin to address the cooling-off periods for

the audit firm that they may wish to engage at that time.

From the UK experience, there is a significant learning curve for

audit committees in this process, as few have experience of running

an audit tender process. What the IRBA does caution against is

audit committees that select new auditors on price alone without

considering audit quality and the necessary competence and

experience for the nature of the work. To assist audit committees,

many of the larger audit firms have indicated that they have

published, or intend to publish, Audit Firm Transparency Reports.

“As the IRBA has indicated its intention to call for transparency

reporting by audit firms, this is also very encouraging,” said the CEO.

UPCOMING HEARING DATES: AFRICAN BANK

INVESTMENT LIMITED

The hearing into the conduct of the auditors responsible for the

audit of African Bank Investment Limited has been set down and

will resume on the following dates:

MONTH

DATES

October 2018

25, 26, 27, 29 and 31

November 2018

1, 2, 3, 4, 8 and 9

December 2018

3, 4, 5, 6, 7, 10 and 11

Issue 43 | July-September 2018

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