Auditor independence is the cornerstone of the auditing profession. The Independent Regulatory Board for Auditors ("IRBA") - the statutory body responsible for the regulation of auditors in South Africa - has issued a Rule prescribing that auditors of public interest entities must comply with Mandatory Audit Firm Rotation ("MAFR") with effect from 1st April 2023. This has been included in section 10 (1) (a) of the Auditing Profession Act, 26 of 2005.

The purpose of an audit is to enhance the credibility of financial statements by providing an independent opinion that they present fairly in accordance with the applicable financial reporting framework. This objective will not be met if users of the audit report believe that the auditor may have been influenced by other parties, more specifically company management or by conflicting interests (e.g. if the auditor owns shares in the company to be audited). In addition to technical competence, auditor independence is the most important factor in establishing the credibility of the audit opinion.

MAFR refers to the rotation of the audit firm, i.e. the audit firm cannot be reappointed after the prescribed tenure. If an audit firm has served as the auditor of a public interest entity for ten or more consecutive financial years before the financial year commencing on or after 1st April 2023, then the audit firm shall not accept reappointment.

The implementation of MAFR does not only have an impact on the audit firm, but will also have a significant impact on public interest entities, audit committees, regulators, shareholders and investors.

MAFR has been implemented in a number of jurisdictions, most recently in the European Union; but there are also other jurisdictions where it has been considered, but not implemented. Furthermore, other countries have implemented MAFR only to withdraw or repeal it later.

Taking into account available research on the topic of MAFR and the experience in various jurisdictions, it is safe to say that there has not been universal acceptance or rejection of MAFR.

The profession, business leaders and other stakeholders are engaged in continuous discussions with the IRBA on the implementation of MAFR.

MAFR is sure to change the auditing landscape in South Africa forever.

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E: farouk.ebrahim@kpmg.co.za