Africa’s largest internet and media group Naspers added its voice to objections to a proposed new framework of how companies appoint auditors, challenging the way the Independent Regulatory Board for Auditors (Irba) wants to introduce the new measures.<\/p>\n
Naspers, with investments in 130 countries, said in a statement it has made a formal submission to Irba objecting to its proposal of Mandatory Audit Firm Rotation (MAFR) for South African corporates.<\/p>\n
The primary objective of MAFR is to strengthen auditor independence, Irba said in a note on its website, and the body is of the view that the measure will also increase access to the audit market as well as promote transformation in the profession.<\/p>\n
MAFR – tried and failed elsewhere<\/strong><\/p>\n Naspers, however, argues that MAFR has been tried and failed in most major markets. The company therefore calls on Irba to conduct a thorough investigation into the potential impact of its proposed framework. It also called for a proper public consultation process \u2013 involving National Treasury \u2013 because of the negative impact MAFR could have on the South African economy.<\/p>\n In the statement, Naspers said concerns about MAFR have already been raised by, among others, the JSE, the Standing Committee on Company Law (SCCL), the King Committee, the Institute of Directors (IoD), the South African Institute of Chartered Accountants (Saica) and the CFO Forum \u2013 a public interest group involving chief financial officers from some of the largest South African corporates.<\/p>\n \u201cSouth Africa\u2019s auditing standards are consistently rated as the best in the world, which makes us \u2013 and many others \u2013 question why Irba is looking to introduce this failed concept here,\u201d said Naspers Group chief financial officer Basil Sgourdos.<\/p>\n \u201cMandatory audit firm rotation has proved to be a disaster in virtually every market where it has been introduced. In Europe, for example, it cost an estimated \u20ac16bn to implement, although the private sector believes the cost could be as much as \u20ac32bn. As in other markets that went down this road and later reversed its decision, there is no evidence to date that it has done anything at all to increase audit independence.\u201d<\/p>\n ‘No evidence for MAFR rationale’<\/strong><\/p>\n In its submission, Naspers says the regulator has failed to provide evidence to back up its rationale for MAFR. \u201cIrba says MAFR is the solution, without providing any evidence that there is a problem, or how it came to conclude that there is a problem. It flatly refuses to provide us with this evidence.<\/p>\n \u201cOn top of that,\u201d Sgourdos said, \u201cIrba hasn\u2019t conducted any independent research or produced an economic impact assessment on the potential consequences of MAFR. The body has also not carried out a proper consultation process, and consistently ignores the views of those who do not agree with it. We believe the potential impact of MAFR requires a proper and meaningful consultation process.\u201d<\/p>\n Sgourdos said the formulation of a White Paper and the undertaking of independent research should be part of such a consultative process.<\/p>\n \u201cIn addition, we would urge the active involvement of the CFO Forum, SCCL, the JSE, the King Committee and the IoD.\u201d<\/p>\n Naspers\u2019 concerns<\/strong><\/p>\n In its submission, Naspers outlines its concerns as follows:<\/p>\n Among other things, it cuts across existing legislation, such as the Companies Act, is in conflict with the King 4 governance framework, and fundamentally dilutes the rights of shareholders. Irba\u2019s Consultation Paper simply ignores these wide-ranging consequences.<\/p>\n Experience in other markets suggests that MAFR increases rather than decreases concentration as smaller firms need to cycle out established clients to comply with rotation requirements; creating significant volatility to its revenue and income base making it harder to build the business.<\/p>\n \u201cIn our view,\u201d Sgourdos says, \u201cIrba is missing a real opportunity to engage with all stakeholders and consider a broader range of proposals to further improve governance in South Africa and to enhance transformation in the audit profession \u2013 if this is indeed an objective that Irba is pursuing.\u201d<\/p>\n\n
\n
\n