The Association of International Certified Professional Accountants (the Association) has voiced its strong opposition to a plan by South Africa’s Independent Regulatory Board for Auditors (IRBA) to implement mandatory audit firm rotation (MAFR).
In a written response to IRBA’s Consultation Paper, the Association, which has offices in locations including Johannesburg, Colombo, Kuala Lumpur, London, New York and Shanghai, wrote that MAFR “may have a negative impact on audit quality, increase market concentration to a more limited number of auditing firms, and will hinder, rather than promote, transformation of the profession.”
The letter, signed by Association CEO Barry C Melancon, CPA, CGMA, includes analysis of the most significant factors supporting the profession’s longstanding position. It notes that mandatory audit firm rotation:
- Negatively impacts audit quality
- Causes loss of institutional knowledge and experience
- Limits auditor specialisation
- Creates resource strains
- Could increase audit market concentration
- May result in unintended costs
- Limits the audit committee’s ability to determine the best audit firm for the company
- Limits ability to attract and retain talent
“The Association believes that each of these factors demonstrates that MAFR should be rejected,” the letter stated. “It is clear from at least some of the regulatory regimes that have adopted it that MAFR has not had the intended benefits and its continuation is either being questioned or discontinued. MAFR takes away the key responsibility of audit committees which, along with the board of directors, are in the best position to watch management actions and ensure that companies are obtaining high quality audits to protect the investing public.”
Concluding that MAFR is not in the public interest, risks harm to audit quality, would impose significant costs on businesses and shareholders without commensurate benefit, would be economically disruptive and create other negative consequences, the Association asks that IRBA reject a move to require it.