This blog was co-authored by Felix Le Roux, Candidate Attorney.
On 31 May 2023, the Supreme Court of Appeal set aside the Mandatory Audit Firm Rotations Rule (MAFR), which came into effect on 1 April 2023.
The MAFR sought to limit the tenure of any audit firm serving as the appointed auditor of a public interest entity to 10 consecutive financial years (a public interest entity is any listed entity, as well as a non-listed entity that is subject to the same independent audit requirements that apply to listed entities). Thereafter, the audit firm could only be reappointed by that entity after the expiry of at least five financial years.
The MAFR was published by the Independent Regulatory Board for Auditors (IRBA) on 5 June 2017. The appellant, a voluntary association of chartered accountants and auditors, requested reasons for the publication of the MAFR from IRBA on 22 September 2017 and received IRBA’s response on 1 December 2017. The voluntary association instituted review proceedings against IRBA on 29 May 2018 – 179 days after receipt of IRBA’s reasons. Although the review was brought within 180 days after receipt of IRBA’s reasons, as required by section 7(1) of the Promotion of Administrative Justice Act, 2000 (PAJA), the High Court dismissed the application on the basis that the review was instituted after an unreasonable delay caused by the dilatory conduct of the voluntary association.
The court overruled the High Court and found that there was no unreasonable delay in the institution of the review proceedings, especially given that the effective date of the MAFR was nearly five years after the review was brought.
The court was then required to determine whether IRBA acted outside the scope of its powers in terms of sections 4(1) and 10(1)(a) of the Auditing Professions Act, 2005 when it published the MAFR. The court held that these provisions confined IRBA’s powers to prescribing professional standards in respect of defined functional areas. The MAFR is not a professional standard and imposes a broad restriction on the ability of companies to appoint audit firms of their choice.
Accordingly, the court ruled that IRBA acted outside the scope of its powers, and the publication of the MAFR was set aside.
