Original Research

An analysis of the possible impact of mandatory audit firm rotation on the transformation and market concentration of the South African audit industry

Michael Harber, Ben Marx
Journal of Economic and Financial Sciences | Vol 12, No 1 | a227 | DOI: https://doi.org/10.4102/jef.v12i1.227 | © 2019 Michael Harber, Ben Marx | This work is licensed under CC Attribution 4.0
Submitted: 07 June 2018 | Published: 25 April 2019

About the author(s)

Michael Harber, College of Accounting, University of Cape Town, Cape Town, South Africa
Ben Marx, Department of Accountancy, University of Johannesburg, Johannesburg, South Africa

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Orientation: Consistent with global concerns regarding the quality of audits and regulatory changes in Europe, South African audit regulations will require audit firms to rotate clients periodically, in an attempt to safeguard auditor independence and audit quality. In 2017 the South African audit regulator issued a ruling requiring mandatory audit firm rotation (MAFR) every 10 years, effective April 2023, primarily intended to improve audit quality. In addition to audit quality improvement, the regulator also believes that MAFR will stimulate transformation in the audit profession by building capacity of black-owned audit firms and allowing opportunities for small- and medium-tier audit firms to compete for the audits of listed companies.

Research purpose: This study explores the perceptions of auditors and audit committee chairs of Johannesburg Stock Exchange-listed companies with regard to the direct and indirect financial effects of the implementation of MAFR in South Africa with respect to black economic empowerment and market concentration.

Motivation for the study: No studies have explored this controversial additional objective of MAFR in South Africa.

Research approach, design and method: An exploratory mixed-methods design is employed, using questionnaires derived from a review of the academic research and professional debate concerning MAFR.

Main findings: Contrary to the intentions of the regulator, MAFR may not result in improved transformation of the audit profession and could in fact reduce the capacity of audit firms to pursue transformation initiatives. In addition, MAFR may not decrease the current degree of audit domination of the Big 4 firms of the JSE, possibly even further concentrating the industry, as audit committees and shareholders may be reluctant to appoint mid-tier firms as auditors of the large listed companies.

Practical/managerial implications: Industry stakeholders and the regulator should consider targeted interventions to mitigate the potential for impaired transformation and further concentration of the industry which may result from implementation of MAFR in 2023.

Contribution/value-add: The findings and conclusions will contribute to addressing concerns regarding the rate of black participation in the industry, as well as mitigating the potential unintended consequences of MAFR.


mandatory audit firm rotation; market concentration; audit profession; transformation; audit quality; audit regulation


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