Five-year mandatory rotation for audit firms – Cosatu

Reducing the mandatory audit firm rotation period from 10 years to five and entrenching it into law will be a critical tool in safeguarding against corruption in the public and private sectors, trade union federation Cosatu said in a statement on Tuesday.

“Ten years is too long given the extent of corruption and incestuous relationships between many auditors and those they are paid to audit,” it said.

The Independent Regulatory Board for Auditors (Irba) instituted a rule requiring the rotation of auditing firms after 10 years.

Published in 2017, it comes into effect only in 2023. The rule will however not be law.

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In its submission on the Auditing Profession Amendment Bill to the national council of provinces (NCOP) select committee on finance, Cosatu said that without entrenching it into law, the board could “simply delete that rule in
the face of massive resistance from compromised auditors”.

Cosatu added: “There is the risk that the board’s rotation rule could be rescinded. Placing it into law safeguards
this critical anti-corruption tool. Reducing it from 10 to five years will help to begin to clean up the sector.”

The bill was passed by the National Assembly last year and is now before the NCOP’s finance committee for a final stamp of approval before being sent to the president, who will then sign it into law.

The bill aims to strengthen the powers of the audit watchdog, which has been criticised for its lacklustre handling of audit failures associated with state capture and large corporates such as Steinhoff and Tongaat Hulett in the past decade.

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The proposed reforms include enhancing the regulatory board’s investigating processes, strengthening its board governance, strengthening the investigating committee, and giving the watchdog increased powers to sanction those who have been found guilty of misconduct.

According to a report published by advocacy group Open Secrets in July 2020, the Big Four accounting firms – KPMG, PwC, Deloitte and EY – were complicit and helped facilitate state capture and other accounting scandals in the private sector.

Instead of sounding the alarm on the decaying governance at state-owned enterprises and corporations, these audit firms “consistently shrugged their shoulders and said that it is not their job to identify fraud”.

Cosatu has also called for Irba to be adequately resourced in order carry out its regulatory mandate.

This article first appeared on Moneyweb and was republished with permission.

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