Mandatory Audit Firm Rotation

Many parties strongly oppose the concept of MAFR, including two hearings held by the permanent public accounting committee in early 2017. Here is the answer of the CFO Forum.

Deloitte's position is to support all measures to improve auditor independence, audit quality and professional change. There is doubt as to whether MAFR is the best mechanism for achieving any of these goals.

In the absence of further dialogue with regulatory authorities, South African utilities (PIEs) need to carefully consider the term of office of the auditors and plan the medium-term rotation of the auditors.

This rule requires that companies with long-term audit relationships (over 10 years) change the term of office of auditors after April 1, 2023.

Given the experience of other jurisdictions around the world that must manage such changes, we encourage the Audit Committee to consider the following factors:

Do I need to consider audit bidding such as lead partner rotation according to the requirements of the "Company Law"? Is there a natural break point?

We will manage services offered by specialized companies that are not incumbent auditors. This is very important to prevent other companies from being excluded at the time of bidding, as the ongoing projects and past work will disturb the company or require long cooling times. This includes accounting services affected by Article 90 (2) of the Companies Act.

Does your company's leadership (CEO, CFO, Chairman of the Audit Committee), or other corporate activities that guarantee the continuity of audit services change?

Many large organizations in South Africa do not have a formal audit bidding procedure for a long time, so we can provide guidance.

In addition, the UK business unit recently announced a study on how to make audit decisions in the UK. These decisions may seem beneficial. Download survey

If you need other advice on the impact of the audit bidding process, or if you need a copy of the "bidding method guide", please contact one of the following:

For details, please contact our managing partner Andrew Mackie, our audit development manager, Penny Binnie, or Gauteng auditor, Bonga Nyembe.

Ruiz-Barbadillo et al. (2009) Analyze the situation in Spain and compare the period (1991 - 1994) during which the obligatory audit company's rotation rules are enforced and any rotation period (1995 - 2000). Their findings did not show a significant change in the quality of the audit during the two periods. However, in the Spanish environment, this rule has been deleted before the first rotation of the law, so it has never been done in practice. In Korea, from 2006 to 2010, the auditing company needs to be replaced every 6 years. Kwon et al. (2014) indicates that the audit fee during the post-regulation period is much higher than the pre-rule audit fee and does not affect the quality of financial reporting. Again, as in Spain, this rule does not appear to have been carried out in practice. Study China's audit framework, Firth et al. (2012) Focusing on different types of rotation (ie auditing company and auditing partner) is an essential environment

Mandatory Auditor Company The most cited value of the potential adverse effects of introducing rotation rules is conversion costs. The conversion audit firm will introduce costs that may be borne by the audit firm (eg familiar with the new customer accounting system) and customers (the time to select and train new auditors). In addition, because this rule takes time to become familiar with new audit recipients, we will lose customer-specific knowledge owned by the auditing company. During this familiar period, the auditor may miss a serious mistake or mistake and adversely affect the quality of the audit. Finally, in environments where the rules are not enforced, market participants can infer specific information (such as purchasing attitudes of customer opinions) on voluntary changes in the auditing company. Rotation is also occurring