Abstract
Study purpose and context: Auditor independence is a critical component of audit
quality, which in turn is necessary for the proper functioning of capital markets, public
protection and economic decision-making. Mandatory audit firm rotation (MAFR) has
received a great deal of attention internationally in recent years, as concerns mount
regarding the quality of external audits performed and the independence of auditors.
These concerns have been exacerbated by corporate financial collapses that result
from unchecked management misconduct and fraud. In these circumstances, the
auditors are accused of failing to prevent and detect the financial misconduct, or to act
as whistle-blowers. Many have claimed that problem goes beyond negligence and that
the familiarity and relationships developed between client and auditor over many years
of the audit firm appointment has impaired independence and professional scepticism.
In 2017 the South African audit regulator, the Independent Regulatory Board for
Auditors (IRBA), issued a ruling to implement MAFR on a ten-year rotation basis,
effective April 2023. This ruling follows similar regulation enacted in the European
Union (EU) in 2014. The debate concerning MAFR has shown divergent views among
key audit-industry participants. These views include debate surrounding the additional
intentions of the IRBA to use MAFR to stimulate socio-economic transformation in the
audit profession by building the capacity of black-owned audit firms and facilitating
opportunities for small- and medium-tier audit firms to compete for the audits of large
and exchange-listed companies.
There is disagreement concerning whether audit quality and auditor independence is
impaired in South Africa, as well as whether the existing safeguards are appropriate.
The study aims to investigate the perceptions and arguments of key stakeholders in
the South African MAFR debate, with specific consideration of audit quality, socioeconomic
transformation and market concentration factors, in order to understand and
explore possible unintended consequences of MAFR, as well as provide
recommendations to audit industry stakeholders and regulators...
Ph.D. (Auditing)