From CompliNEWS | Financial Service Intelligence Watch

Independent Regulatory Board for Auditors urgently seeks legislation for mandatory audit firm rotation

The Independent Regulatory Board for Auditors (IRBA) is taking swift action to lobby Parliament for the enactment of legislation mandating audit firm rotation. This comes after the South African Supreme Court of Appeal (SCA) set aside IRBA’s 2017 decision to implement mandatory rotation, stating that the watchdog body lacked the authority to make such a rule under the existing legislation. IRBA’s Chief Executive, Imre Nagy, emphasised that the SCA’s decision did not question the value or effectiveness of the rotation rule and reaffirmed the board’s belief that mandatory rotation is necessary.

According to Nagy, many listed companies in South Africa already practice voluntary rotation, demonstrating a positive adoption by the investor community. However, to address the legal technicality raised in the SCA judgment, IRBA aims to collaborate urgently with Parliament and other stakeholders. The goal is to find a resolution and pave the way for mandatory audit firm rotation through appropriate legislative amendments.

The Congress of South African Trade Unions (Cosatu) has been advocating for legislative changes to include the principle of mandatory rotation since 2020. They view it as an essential measure to enhance accountability and transparency within the auditing profession.

The push for mandatory rotation of audit firms stems from concerns over potential conflicts of interest and the need to maintain independence in auditing practices. By periodically changing auditors, companies can reduce the risk of complacency, foster fresh perspectives, and ensure rigorous scrutiny of financial reporting.

IRBA’s urgency to address the legal hurdles highlights its commitment to strengthening the auditing profession and maintaining public confidence in financial reporting. With collaboration from Parliament and other stakeholders, the board aims to swiftly resolve the legislative impediment, allowing for the implementation of mandatory audit firm rotation in South Africa.

Set aside of MAFR poses little risk to investors since the majority of public interest entity auditors have already rotated (IRBA)

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