The Implementation of Mandatory Audit Firm Rotation as tool to enhance Audit Reform in South Africa: A Case of KwaZulu-Natal
Keywords:Independent Regulatory Board of Auditors, Mandatory Audit Firm Rotation, and Audit Reform\, and Audit Quality
Using a quantitative research method, this article examined the perceptions of audit experts concerning the influence of mandatory audit firm rotation on audit reform (AR) in the province of KwaZulu-Natal. Data was gathered from 102 audit experts knowledgeable in the field of accounting and auditing from Tier 2 audit firms and two public institutions and used for data analysis. The empirical results of this study were two-fold. Firstly, the descriptive statistics provided a general overview of the respondents’ opinions. The majority of respondents agreed that MAFR implementation would strengthen audit reform, thereby validating the initial position of the Independent Regulatory Board of Auditors. In addition, most participants agreed that the ramification of the imposition of additional costs could not be ignored. Moreover, the utilization of SPSS on ordinal logistic regression also found that the probability of a decrease in the progress of audit reforms is significantly higher when mandatory audit firm rotation is in place, and a non-significant positive predictor of mandatory audit firm rotation would increase audit independence. This article contributes to existing knowledge and the continuous discourse on mandatory audit firm rotation rule in South Africa. Conclusively, the study, therefore, recommends that since the research was limited to Kwazulu-Natal, future studies should broadly include registered auditors and academics from institutions and firms in different South African provinces to obtain diverse views about pre-and post-implementation of the rule in 2023 to compare the effects of the policy on audit independence.
Azizkhani, M., Daghani, R., & Shailer, G. (2018). Audit firm tenure and audit quality in a constrained market. The International Journal of Accounting, 53(3), 167-182.
Azzali, S., Mazza, T., Reichelt, K. J., & Wang, D. (2021). Does mandatory IFRS adoption affect audit hours and the effectiveness to constrain earnings management? Evidence from Italy. AUDITING: A Journal of Practice & Theory, 40(4), 1-25.
Baatwah, S. R. (2016). Audit tenure and financial reporting in Oman: does rotation affect the quality? Risk Governance Control: Financial Markets Institutions, 6(3), 16-27.
Bleibtreu, C. (2018). The effects of mandatory rotation on the market shares of Big 4 and Non-Big 4 audit firms and the consequences for client importance. ( Available at SSRN 2981659).
Bleibtreu, C., & Stefani, U. (2018). The effects of mandatory audit firm rotation on client importance and audit industry concentration. The Accounting Review, 93(1), 1-27.
Brydon, D. (2019). ASSESS, ASSURE AND INFORM IMPROVING AUDIT QUALITY AND EFFECTIVENESS. Retrieved from London: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/852960/brydon-review-final-report.pdf
Cameran, M., Negri, G., & Pettinicchio, A. K. (2015). The audit mandatory rotation rule: the state of the art. Journal of Financial Perspectives, 3(2).
Cameran, M., Prencipe, A., & Trombetta, M. (2016). Mandatory audit firm rotation and audit quality. European Accounting Review, 25(1), 35-58.
Cameron, J. (2017). Warning: Steinhoff scandal is ‘tip of iceberg’. KPMG and friends hide many more sins.
Choi, J.-s., Lim, H.-j., & Mali, D. (2017). Mandatory audit firm rotation and Big4 effect on audit quality: evidence from South Korea. Asian Academy of Management Journal of Accounting and Finance, 13(1), 1-40. Retrieved from http://shura.shu.ac.uk/21944/1/Mali-MandatoryAudiotFirmRoation%28VoR%29.pdf
Cresswell, J., & Plano Clark, V. (2011). Designing and conducting mixed-method research. 2nd Sage. 201(Thousand Oaks, CA).
Daniels, B. W., & Booker, Q. (2011). The effects of audit firm rotation on perceived auditor independence and audit quality. Research in Accounting Regulation, 23(1), 78-82.
Dekeyser, S., & Simac, I. (2019). EU statutory audit reform: Impact on costs, concentration and competition. Retrieved from https://www.europarl.europa.eu/RegData/etudes/STUD/2019/631057/IPOL_STU(2019)631057_EN.pdf
Edwards, J. B. (2014). The battle over mandatory audit firm rotation. Journal of Corporate Accounting & Finance, 25(4), 3-10.
Etikan, I., Musa, S. A., & Alkassim, R. S. (2016). Comparison of convenience sampling and purposive sampling. American journal of theoretical applied statistics, 5(1), 1-4.
Fincham, J. E. (2008). Response rates and responsiveness for surveys, standards, and the Journal. American journal of pharmaceutical education, 72(2). Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2384218/
Gasela, M. M. (2022). The impact of material irregularity provisions of the Public Audit Act on accountability, oversight and governance in the Northern Cape province of South Africa. Africa’s Public Service Delivery Performance Review, 10(1), 10.
Goforth, C. (2015). Statistical Consulting Associate. Retrieved from https://data.library.virginia.edu/using-and-interpreting-cronbachs-alpha/
Gomber, P., Kauffman, R. J., Parker, C., & Weber, B. W. (2018). On the fintech revolution: Interpreting the forces of innovation, disruption, and transformation in financial services. Journal of management information systems, 35(1), 220-265.
Gwala, M., & Nomlala, B. C. (2021). Mandatory audit firm rotation: A student perspective An assessment of the perceived impact on auditor independence. Jurnal Akuntansi dan Auditing Indonesia, 25(1), 1-11.
Harber, M., & Hart, D. (2018). Mandatory audit firm rotation: South African academics’ perspective. Southern African Journal of Accountability and Auditing Research, 20(1), 101-114.
Harber, M., & Marx, B. (2019a). An analysis of the possible impact of mandatory audit firm rotation on the transformation and market concentration of the South African audit industry. Journal of Economic and Financial Sciences, 12(1), 1-14.
Harber, M., & Marx, B. (2019b). An analysis of the possible impact of mandatory audit firm rotation on the transformation and market concentration of the South African audit industry. Journal of Economic Financial Sciences, 12(1), 1-14.
Harber, M., & Marx, B. (2020). Audit quality and independence concerns in the South African audit industry: Contrasting views. South African Journal of Accounting Research, 34(1), 1-23.
Harris, K., & Whisenant, S. (2012). Mandatory audit rotation: an international investigation: University of Houston.
Horton, J., Livne, G., & Pettinicchio, A. (2021). Empirical evidence on audit quality under a dual mandatory auditor rotation rule. European Accounting Review, 30(1), 1-29.
Indyk, M. (2019). Mandatory audit rotation and audit market concentration—evidence from Poland. Economics Business Review, 5(4), 90-111.
IRBA. (2016a). How independent is your auditor and audit committee? Retrieved from https://www.irba.co.za/news-headlines/press-releases/how-independent-is-your-auditor-and-audit-committee
IRBA. (2017). IRBA Newsletter 37. Retrieved from https://www.irba.co.za/library/irba-news
IRBA. (2020). 25% of JSE-listed entities have rotated audit firms ahead of 2023 MAFR deadline. Retrieved from https://www.irba.co.za/news-headlines/press-releases/25-of-jse-listed-entities-have-rotated-audit-firms-ahead-of-2023-mafr-deadline
Israel, G. D. (1992). Sampling the evidence of extension program impact: Citeseer.
Jackson, A. B., Moldrich, M., & Roebuck, P. (2008). Mandatory audit firm rotation and audit quality. Managerial Auditing Journal.
Kim, H., Lee, H., & Lee, J. E. (2015). Mandatory audit firm rotation and audit quality. Journal of Applied Business Research, 31(3), 1089-1106.
KPMG. (2016). EU Audit Reform: an overview. Retrieved from https://home.kpmg/xx/en/home/insights/2016/08/eu-audit-reform-an-overview.html
Kusi-Appiah, S. a. (2020). Auditor Rotation under Ghana’s New Companies Act, 2019 (Act 992): A game changer for companies. Retrieved from https://www.ghanaweb.com/GhanaHomePage/features/Auditor-Rotation-under-Ghana-s-New-Companies-Act-2019-Act-992-A-game-changer-for-companies-1082122
Marques, G., & Cerbone, D. (2018). ACCOUNTING PERSPECTIVES IN SOUTHERN AFRICA. ACCOUNTING PERSPECTIVES IN SOUTHERN AFRICA, VOLUME 6, 51. Retrieved from https://www.accountingperspectives.co.za/Docs/vol6.pdf
Myoli, T. (2020). THE FUTURE OF THE SOUTH AFRICAN AUDIT LANDSCAPE, PART 1. Retrieved from https://www.accountancysa.org.za/the-future-of-the-south-african-audit-landscape-part-1/
Narayanaswamy, R., & Raghunandan, K. (2019). The effect of mandatory audit firm rotation on audit quality, audit fees and audit market concentration: Evidence from India. IIM Bangalore Research Paper(582).
Narayanaswamy, R., & Raghunandan, K. (2019). The effect of mandatory audit firm rotation on audit quality, audit fees, and audit market concentration: Evidence from India. IIM Bangalore Research Paper(582).
Porter, B., Simon, J., Hatherly, D. J. B. P., J. Simon,, & D. Hatherly, P. o. E. A. (2008). Corporate responsibility assurance engagements. 723-761.
Pouwels, J. (2017). Audit firm rotation, investor protection and audit quality.
PWC. (2016). Parliament of Mauritius adopts mandatory audit firm rotation. Retrieved from https://www.pwc.com/gx/en/about/assets/parliament_of_mauritius_adopts_mandatory_audit_firm_rotation.pdf
Understanding mandatory audit firm rotation in South Africa, (2017).
Raul, D. (2017). Auditor Independence: Lessons from KPMG South Africa & Other Scandals. Tesco and BT Group terminate external auditor prematurely following earnings overstatements. Retrieved from https://www.sustainalytics.com/esg-blog/auditor-independence-kpmg-scandal/
Rong, Q. (2017). Mandatory Audit Firm and Audit Partner Rotation. (Honours). University of New Hampshire, Retrieved from https://scholars.unh.edu/cgi/viewcontent.cgi?referer=https://scholar.google.com/&httpsredir=1&article=1355&context=honors
Roos, M. (2021). Practice, practitioners, and praxis of audit committees in South African local government: A case study. (Doctorate in Public Management and Development Planning). Stellenbosch University,
Rossouw, J. (2017). Warning: Steinhoff scandal is ‘tip of iceberg’. KPMG and friends hide many more sins. Retrieved from https://www.biznews.com/sa-investing/2017/12/18/steinhoff-scandal-kpmg-friends
Rossouw, J., & Styan, J. (2021). Steinhoff collapse: a failure of corporate governance. In Ownership and Governance of Companies (pp. 173-180): Routledge.
SAICA. (2016a). MANDATORY AUDIT FIRM ROTATION Discussion Paper: Considering Mandatory Audit Firm Rotation (MAFR) (and other Related Measures) as Possible Means of Enhancing Auditor Independence. Retrieved from South Africa:
SAICA (2016b). Re: SAICA MAFR INDABA: . Message posted to https://www.saica.co.za/portals/0/technical/assurance/AttachD_SAICA_MAFR_Feedback_Final.pdf
Said, K., & Khasharmeh, H. (2014). Auditors perceptions on impact of mandatory audit firm rotation on auditor independence Evidence from Bahrain. Journal of Accounting and Taxation, 6(1), 1-18.
Said, K. M., & Khasharmeh, H. A. (2014). Mandatory audit firm rotation and audit costs: A survey of auditing firms in Bahrain. Journal of Finance and Accounting, 2(6), 116-128.
Sarbanes, P. (2002). Sarbanes-Oxley act of 2002. Paper presented at the The Public Company Accounting Reform and Investor Protection Act. Washington DC: US Congress.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill-building approach: John Wiley & Sons.
Sekise, V. (2021). Audit Reform. Retrieved from https://www.accountancysa.org.za/special-report-audit-reform/
Sulistyo Kalanjati, D., Nasution, D., Jonnergård, K., & Sutedjo, S. (2019). Auditor rotations and audit quality: A perspective from cumulative number of audit partner and audit firm rotations. Asian Review of Accounting, 27(4), 639-660.
Teoh, H. Y., & Lim, C. C. (1996). An empirical study of the effects of audit committees, disclosure of nonaudit fees, and other issues on audit independence: Malaysian evidence. Journal of international accounting, auditing and taxation, 5(2), 231-248.
Tertius, d. K., Bashier, A., & Ndumi, M. (2017). Mandatory Audit Firm Rotation. 1-6. Retrieved from https://www.nexia-sabt.co.za/wp-content/uploads/2017/06/TLA1_MAFR.pdf
Thornton, G. (2016). The Future of Audit in India – Mandatory Firm Rotation– Is India Inc. ready? – A survey. Retrieved from India:
Velte, P., & Loy, T. (2018). The impact of auditor rotation, audit firm rotation and non-audit services on earnings quality, audit quality and investor perceptions: A literature review. Journal of governance & regulation(7, Iss. 2), 74-90.
Watson, R. (2015). Quantitative research. Nursing Standard, 29(31).
Widyaningsih, I. A., Harymawan, I., Mardijuwono, A. W., Ayuningtyas, E. S., & Larasati, D. A. (2019). Audit firm rotation and audit quality: Comparison before vs after the elimination of audit firm rotation regulations in Indonesia. Cogent Business Management, 6(1), 1695403.
Writer, S. (2017). At least 30 countries are implementing audit rotations, says watchdog. Retrieved from https://www.businesslive.co.za/bd/economy/2017-01-23-at-least-30-countries-are-implementing-audit-rotations-says-watchdog/
Yamane, T. (1967). Statistics: An introductory analysis
Copyright (c) 2023 Aminu MUNKAILA, Bomi Cyril NOMLALA, Kiran BALDAVOO, Jean Damascene MVUNABANDI
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.