The domination of the auditing landscape by four major auditing firms came under close scrutiny during the Mandatory Rotation of Auditors and Transformation of the Auditing Profession briefing at Parliament today.
This briefing formed part of the Standing Committee on Finance’s oversight on this matter. “It cannot be that 23 years after our democracy, we still have a sector that is not transformed,” said the Chairperson of the Standing Committee on Finance, Mr Yunus Carrim. “But also the government must ensure that through the Mandatory Audit Firm Rotation’s (MAFR’s) framework it has initiated, there is an increase in the use of black firms for auditing both in the public and private sectors,” he said.
“As such we want to determine: to what extent can the Mandatory Audit Firm Rotation facilitate the transformation of the auditing industry? It is clear, the people who benefit from the status quo won’t agree to transformation but will compromise. The Finance Ministry must play a role to strike such a compromise,” he added.
First it was the CEO of South African Institute of Chartered Accountants (Saica), Dr Terence Nombembe, who stated that their deliberation on this matter was informed by their previous engagement with the Committee.
“In our deliberations we got the message clearly that we need to deal with the issue of transformation decisively. Building on that signal, we have since engaged as a profession to say let us come together and response to the expectations of the stakeholders. It is in this light that we engaged with the IRBA (Independent Regulatory Board for Auditors) to be part of this process. We have since formed a forum meant to look at a unified process of transforming the profession, to come up with a single point or a blueprint of this process. We met with all stakeholders and academics and we were quite clear that we need the factual reality of the profession informed by one common reference point – which is about transforming the profession,” he said.
Statically, there is hope that transformation can be achieved. Currently, blacks constitute 20% of the industry and white constitute 75% of this industry. But if you look at the statistics of students who are about to qualify as accountants, transformation is irreversible, he said.
“Currently, there are 60% black students who are about to qualify as accountants. That has built an irreversible pathway for transformation in the sector. These are the gains we can build on. There is also a transformation charter in the offing, this is a result of our unified way of addressing this issue,” he said.
“This charter is ready for gazetting. Others have consented except the Independent Regulatory Board for Auditors (IRBA).”
The Chairperson of Black Chartered Accountants Practitioners, Mr Victor Sekese, said: “As black firms, when we got rotated out of the public sector, there was no opportunity for us to participate in the private sector because the mandatory rotation framework did not apply to the private sector, With the mandatory rotation framework now in the offing, we can break the dominance of the sector by four auditing firms which control 75% of its share.
“We have a choice to become bold and change the status quo or accept it and live with it. This industry cannot be left to regulate itself, we need strategic intervention. If applied appropriately, it can help to transform this industry,” he said.
Transformation can afford black firms the experience that has eluded them, he said. “The challenges we encounter is lack of experience. But that is a chicken and egg situation. When we approach opportunities we are told we have no experience, and we are not given an opportunity to acquire it, hence the big four continue to dominate this industry. There is a room to look at the role of the regulator to promote joint ventures. If there are joint auditors, like other banks do, small black firms could be paired with the big four firms. This has been done. And we can also look at the notion of sub-contractors to bring other players in the market,” he said.
Rotation must be prescriptive and descriptive, it must have time frames and must be enforced, said the President of the Association for the Advancement of Black Accountants of Southern Africa, Ms Gugu Ncube. “The MFAR must change the status quo. It can be a game changer if it does so. And it can deal with the lack of inclusivity,” she said.
“The demise of colonialism and apartheid was not served on a platter, economic transformation will take the same route,” said a member of the Committee, Ms Thandi Tobias. “It is not going to be served by those who are there. They will find excuses and among us there are those who will find excuses, who say let us take it slowly, let us not rough up this process. We know the urgency of economic transformation and let us not wait until the tables are turned in favour of the majority,” she said.
On the Chartered Accountant Charter, she stated that charters are often not binding documents. “Many charters have been ratified, but we have not seen change. We have a historical background we have to address. We cannot overlook that. And we must put time frames on these targets,” she said.
“I am concerned about the fragmentation among those pursuing the same goal,” said Mr Mkhuleko Hlengwa. “Within the black organisations and firms there are so many layers of influences, while the four that have built a buffer are more organised. While I am for small business, it seems we have many players in a small field. Some will find themselves on the periphery,” he said.
We need this year to deal with these issues meaningfully, pleaded Dr Nombembe. “Give us this year, we will deal with these issue. You can monitor our action. That is what we have committed ourselves to embrace, with your guidance. There are models engineered to find solutions for inclusivity. If the rotation is not perfect, there is a room for improvement,” he said.
“The reality is that this profession is dominated by 4 200 white males, they are there and they exist and cannot be wished away. But in a matter of a decade or two, we can expect radical changes in the market,” he said.
“We need measures to enforce the opening of access and markets and to provide opportunities to black firms to decrease their dependency on the already existing role players in the market,” said the Deputy Chairperson of Independent Regulatory Board of Auditors, Mr Abel Dlamini.
“As a regulator in this market, we need to look at attraction, retention and progression of black auditors. And guard against and expose discriminatory recruitment and career path practices.”
The question is what do we do going forward, mused Mr Dlamini. “There is a need to foster mergers and partnerships by small black firms into new conglomerate entities, to capacitate themselves for large audits and increased black shareholding,” said Mr Dlamini.
“We will all agree that when it comes to auditing, we have the highest monopolies in the world,” said the Chairperson of the Committee. “And how, if at all, does the MAFR address that? And although race is a big factor in this matter, we cannot reduce any and everything to race,” he said.
“Whether you are black or white, if you have a company with auditors you are not most likely to get work. You will battle to compete in this market. Beyond race, we need to look at these dynamics and the structure of this profession holistically. I must also add that although the big auditing firms are not here, I don’t think the gaps are big and there is no much difference of opinion on the importance and urgency of this matter,” he said.
By Abel Mputing
21 June 2017
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