Will mandatory audit firm rotation reduce audit market concentration in South Africa?
Date
2021-07-23
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
AOSIS (Pty) Ltd.
Abstract
Purpose: Deconcentrating the audit market was one of the stated objectives of the proposed
mandatory audit firm rotation (MAFR) ruling in South Africa. With MAFR being a contentious
topic, this study aimed to explore the possible effect of MAFR on audit market concentration
in South Africa in anticipation of the implementation thereof in 2023.
Design/methodology/approach: A sample of 415 South African listed companies was studied
for the period 2010–2018. Data were mainly captured from annual reports. Descriptive statistics
and significance testing were performed on calculated concentration ratios and identified
audit firm rotations.
Findings/results: South African audit market concentration mirrored empirical evidence
from most developed countries – with Big 4 audit firms dominating the audit market,
whilst a monopoly within the Big 4 audit firm grouping was also evident. Based on observed
audit firm concentration and audit firm rotation behaviour, it was anticipated that MAFR
might further increase audit market concentration. A concerning result was the sheer scale
of audit firm rotations to be carried out in anticipation of MAFR in 2023.
Practical implications: This study identified the impairment of audit quality and increased
costs as possible unintended consequences of MAFR in South Africa.
Originality/value: This study contributed to the limited body of knowledge on the possible
effect of MAFR in South Africa. This study proposed alternatives to MAFR and recommended
areas for future research to support evidence-based decisions on remedies to address audit
quality and audit market concentration in South Africa.
Description
CITATION: Wesson, N. (2021). Will mandatory audit firm rotation reduce audit market concentration in South Africa? South African Journal of Business Management, 52(1), a2426.
doi.10.4102/sajbm.v52i1.2426
The original publication is available at: sajbm.org
The original publication is available at: sajbm.org
Keywords
Audit market concentration, Mandatory audit firm rotation, Big 4 audit firms, Audit quality, Audit firm tenure, Emerging markets, JSE
Citation
Wesson, N. (2021). Will mandatory audit firm rotation reduce audit market concentration in South Africa? South African Journal of Business Management, 52(1), a2426.
doi.10.4102/sajbm.v52i1.2426