Will mandatory audit firm rotation reduce audit market concentration in South Africa? | Prof Nicolene Wesson Virtual Inaugural Lecture 2020 Stellenbosch Business School Skip to main content
Prof Nicolene Wesson, who lectures Accounting and Taxation at USB, recently presented her inaugural lecture during a virtual presentation on

Prof Nicolene Wesson, who lectures Accounting and Taxation at USB, recently presented her inaugural lecture during a virtual presentation on whether mandatory audit firm rotation (MAFR) will reduce audit market concentration in South Africa.

She was the first woman to be promoted to full professorship at the business school in 2018.

She says an inaugural lecture is generally quite a daunting task. “The Covid-19 pandemic definitely added a new dimension to my experience, but I am grateful that I had the opportunity to share my research and that Stellenbosch University has put measures in place to allow for the continuance of the inaugural process.”

The topic of MAFR is contentious and limited research has been done on the topic in South Africa. “Being a chartered accountant myself, I am specifically interested in this field and want to contribute to knowledge by providing evidence-based research on a topic that is often debated based on anecdotal (unscientific) evidence.

“Mandatory audit firm rotation will come into effect in South Africa on 1 April 2023. Mandatory audit firm rotation in this country aims to enhance auditor independence, accelerate transformation and enable deconcentration in the audit profession. In my inaugural lecture I explored the effect of mandatory audit firm rotation on one of the focus areas of MAFR, namely audit market deconcentration,” she says.

Wesson used annual report disclosures on audit firm identity and audit firm tenure (with audit firm tenure only available as from 2016) to describe the audit market concentration over a nine-year period (2010-2018) and to provide insights into the possible effect of MAFR on audit market concentration.

On her findings she says: “My results confirmed that the Big 4 audit firms (namely PwC, Deloitte, KPMG and EY) dominate the South African audit market and that one of the Big 4 audit firms has a monopoly within the audit market. Increased audit market concentration (based on number of clients and audit firm rotation trends) was evident subsequent to the date that audit firm tenure disclosure came into effect. This disclosure on audit firm tenure is seen as to represent evidence of an auditor’s ‘independence in appearance’ and may have influenced companies’ decision to replace their auditors in anticipation of MAFR.

“Based on the Big 4 audit firm dominance and the sheer scale of audit firm rotations to be carried out in anticipation of MAFR, this study identified the possible impairment of audit quality and an increase in costs as unintended consequences of MAFR. The study proposes remedies to address these unintended consequences prior to 2023. Future research on MAFR-related topics – specifically focussing on audit quality and audit costs – is imperative to ascertain whether MAFR (in its proposed format) is the solution for South Africa,” she says.

Watch the full inaugural lecture here: https://www.youtube.com/watch?v=MoPHGzPr8yU


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