South Africa’s audit reforms add rules and disclosure but leave audit committees to carry accountability

Introduction

South Africa has spent the last decade reaching for new tools to make auditors more accountable. Listed companies have had to publish key audit matters (KAMs) in their audit reports since the ISA 701 requirement took effect for financial years ending on or after 15 December 2016 (Duboisée de Ricquebourg and Maroun, 2023). The audit regulator, the Independent Regulatory Board for Auditors (IRBA), moved towards mandatory audit firm rotation, a rule that the courts later set aside (McGregor and Malambe, 2025). The public sector has gone the other way, with the Public Audit Amendment Act 5 of 2018 extending the role of the Auditor-General of South Africa (AGSA) well beyond the traditional audit (Myeza and Nkhi, 2025). Each of these was meant to tighten the link between what auditors do and who can hold them to account.

This paper argues that none of the three has done the job on its own, and that the weight of accountability still lands on the audit committee. The evidence on rotation points to a rule that has not reduced concentration and may not lift audit quality (Wesson, 2021; Ndaba, Harber and Maroun, 2021). The evidence on key audit matters suggests a disclosure that varies between firms and is hard for ordinary users to read (Ecim, Maroun and Duboisée de Ricquebourg, 2023). The expanded public audit mandate has, according to the experts Myeza and Nkhi (2025) interviewed, not changed governance practice. The paper looks at rotation first, then at key audit matters, then at the public sector, and then at audit committees, before saying what that implies for policy.

Rotation and the concentration problem

Concentration was the stated reason for rotation, so it is the fairest place to start. Wesson (2021) studied 415 South African listed companies from 2010 to 2018 and found a market dominated by the Big 4, with something close to a monopoly inside that group. Her reading was that rotation was more likely to push concentration up than down, and she flagged the sheer number of audit firm changes that would have to happen to meet the 2023 date. That was a prediction, and a cautious one, because the rule had not yet bitten when she wrote. McGregor and Malambe (2025) were able to test it afterwards. They looked at auditor rotations among the JSE Top 100 between June 2017 and April 2023, and found that only three of 57 rotations moved a company from a Big 4 firm to a medium-sized one. Their conclusion was that rotation had been ineffective at reducing concentration.

The two studies line up, but they should not be read as proof that rotation can never work. Both rest on listed companies, and the second on only 100 of them, so they say little about the wider market of smaller entities (Wesson, 2021; McGregor and Malambe, 2025). Both may also have been affected by the long period of uncertainty around the rule. Companies that expected rotation to apply may have moved early, or waited, and either choice would distort the pattern. Even so, the direction of travel is clear enough. If the aim was to open space for second-tier firms, then a rule that mostly shifts clients between the largest firms is not doing it. Ecim, Maroun and Duboisée de Ricquebourg (2023) found that KAM disclosures by Big 4 and non-Big 4 firms were not that different, which they took as a sign of rising credibility for second-tier firms. So the capability may be there while the clients still are not moving.

Rotation and audit quality

The quality argument is harder to settle because quality is hard to see, and most of the South African evidence so far comes from what people expect rather than what they have measured (Aminu, Nomlala and Baldavoo, 2024). Ndaba, Harber and Maroun (2021) interviewed 24 audit partners and 25 non-auditors, and their findings were sceptical. They found no guarantee that rotation would strengthen independence or deepen the audit approach. The effort an incoming firm needs to understand a new client, together with the cost of tendering, was expected to cut engagement profitability, and the loss of client knowledge and staff could lower quality. Some gain was possible, because an outgoing firm’s work would be reviewed by its successor, but audit methods were not expected to change much. The authors went as far as calling the regulation possibly a symbolic response to a perceived decline in quality and independence, and that is a striking phrase from researchers who had spoken to the practitioners involved. It echoes the claim in Wesson (2021) that impaired audit quality and higher costs were among the possible unintended consequences.

Other perception studies agree in part. Aminu, Nomlala and Baldavoo (2024) surveyed 101 practitioners and academics in KwaZulu-Natal, drawn from second-tier audit firms and two public institutions. Most respondents agreed that rotation would strengthen audit quality, yet they also said the added cost could make things worse. That is not a ringing endorsement, and it is a more favourable picture than Ndaba, Harber and Maroun (2021) found, which may reflect who was asked. Second-tier firms might stand to gain clients under rotation, after all. The international experience points in the same cautious direction. Castillo-Merino, Garcia-Blandon and Rodríguez-Pérez (2024) interviewed partners at the main audit firms in Spain about the 2014 European reform, which combined rotation with an extended audit report, tighter limits on non-audit services and stricter quality controls. The partners felt the costs outweighed the benefits, and that side effects might undermine the quality aim.

There is one piece of evidence that gives rotation a little more support. Duboisée de Ricquebourg and Maroun (2023) examined 243 JSE-listed companies, 666 firm-years and 1,496 key audit matters for financial years ending between 2018 and 2020. Changing the engagement partner did not make much difference to the key audit matters reported. Changing the audit firm did, and the effect was concentrated in the first year of a new engagement. The authors take this as indirect support for mandatory firm rotation, since a new firm may see risks differently. They are careful about it, though, noting that the study is inferential, covers a short period and a single jurisdiction, and ends before the first mandatory rotations. A change in what gets reported is not the same as a better audit, and I would not push the finding any further than they do. Set against the interview evidence in Ndaba, Harber and Maroun (2021), where methods were not expected to change much, it suggests that rotation changes what the new firm chooses to say about risk before it changes how the audit is done.

Key audit matters: disclosure that few can use

Key audit matters were introduced to give users a view into the auditor’s judgement. Ecim, Maroun and Duboisée de Ricquebourg (2023) analysed 1,424 audit reports from 356 JSE-listed entities between 2017 and 2020, containing 2,903 KAM disclosures. The commonest matters concerned business combinations and goodwill impairment, followed by measurement and impairment of non-financial assets, and most had a narrow, account-level focus. That is useful as far as it goes. It tells a reader where the auditor spent time, and it appears to be quite similar across Big 4 and other firms (Ecim, Maroun and Duboisée de Ricquebourg, 2023).

The weakness is readability. The same study reports Flesch reading scores indicating that the disclosures are complex and difficult to read, and the authors observe that only users with a grounding in accounting, finance and economics are likely to get value from them (Ecim, Maroun and Duboisée de Ricquebourg, 2023). That matters for accountability. A disclosure that exists to give stakeholders transparency but needs a specialist to decode it mainly serves the specialists, who already had access to the auditor. Duboisée de Ricquebourg and Maroun (2023) add a different concern, which is that ISA 701 seems to produce consistency at the level of the individual partner while leaving firms room to apply it in their own ways. So the disclosure is neither plain nor standardised, and ordinary shareholders end up relying on someone else to interpret it. In practice that someone is presumably the audit committee, which at least sees the auditor’s reasoning before it is written down.

Expanding the auditor’s powers in the public sector

The public sector shows a different version of the same pattern, where accountability is pursued by giving the auditor more to do (Myeza and Nkhi, 2025). Myeza and Nkhi (2025) analysed public comment letters and hearing minutes for the Public Audit Amendment Act, and interviewed auditing experts. Policymakers, they found, positioned the AGSA to deal with governance problems and unethical practice because of its credibility, competence and institutional independence. The experts, looking at what happened afterwards, concluded that the expanded roles had not changed governance practices. Worse, they said, the roles had amplified the use of legal tactics to avoid accountability, and the unfunded investigative, legal and advisory duties threatened the structural independence and competence of the auditors themselves (Myeza and Nkhi, 2025). Rotation rules in the private sector are justified by a similar worry about independence, which is exactly what Ndaba, Harber and Maroun (2021) probe.

The experts also pointed to duplication. When the auditor-general takes on responsibilities that other institutions already hold, those institutions can step back, which leaves the auditor carrying a task that was meant to be shared (Myeza and Nkhi, 2025). It is a sample of experts, so I would treat the conclusion as informed opinion and not as measured outcome. Still, it fits the private sector findings in an uncomfortable way. In both settings, giving the auditor a bigger rule or a bigger mandate has not by itself made anyone answer for what the auditor finds. Someone has to act on the audit, and that someone is the body that receives the findings. Coetzee et al. (2022) put it bluntly by noting that audit committees are often implicated as accomplices in governance failures, or slow to react to findings.

Audit committees as the missing link

If accountability depends on who acts on the audit, then the audit committee needs much more attention than it gets in the reform debate (Coetzee et al., 2022). Kgwete (2024) examines the audit committee provisions of the Companies Act 71 of 2008 and starts from a worrying observation, namely that serious governance and reporting scandals occurred even though most of the companies involved had audit committees. The argument is that a more effective committee makes accurate and dependable financial statements more likely. That is plausible and it is the standard view, though a legal analysis of the provisions cannot tell us how often committees in practice live up to it. It does at least locate the statutory source of the committee’s duties, which matters because the public sector work by Coetzee et al. (2022) shows how much depends on the people who fill the seats.

What makes a committee effective is the better-studied question, at least in the public sector. Coetzee et al. (2022) ran focus groups using Interactive Qualitative Analysis, linked to the organisational power theory of Kalbers and Fogarty, and concluded that three themes give South African public sector audit committees their power. These were the political climate, the individual and collective competence of the members, and the independence of the committee. None of the three is about the number of meetings or the existence of a charter. They concern whether the committee has the standing and skill to push back, which is the same capacity a rotation rule or a KAM disclosure quietly assumes it has (Kgwete, 2024). It is worth being careful here, because the sample was public sector and it is not obvious that the same ordering of drivers holds for JSE-listed companies, where shareholders and the market sit behind the committee.

Put these results next to the rotation and KAM findings and a pattern appears. Rotation is meant to protect the auditor’s independence (Ndaba, Harber and Maroun, 2021), but someone still has to run the tender, choose the firm and judge how the new auditor behaves. KAMs are meant to expose the auditor’s judgement (Ecim, Maroun and Duboisée de Ricquebourg, 2023), but someone still has to question those judgements before they reach the page, and in most companies that someone is the committee. So both reforms work through the committee even though neither says so. If the committee is weak, as the public sector evidence suggests it often is where independence and competence are lacking, the reforms become procedures completed on paper. That is a reasonable inference from this evidence, and not a finding any of these studies tested directly.

What follows for policy

The first implication is modest. Regulators should be slower to treat rotation as the answer to concentration. McGregor and Malambe (2025) suggest the regulator should consider whether to keep pursuing it as a concentration measure at all, and the quality evidence gives it little extra support (Wesson, 2021). If concentration is the problem, other routes such as support for second-tier firms or joint audits deserve testing, though the studies reviewed here do not test them and I would not claim they would work. The second implication concerns disclosure. If KAMs are hard to read, then their wording could be tested with users before the standard is judged a success or a failure (Ecim, Maroun and Duboisée de Ricquebourg, 2023).

The third implication is the one that matters most for this paper. Audit committee effectiveness should be treated as a policy object in its own right. That means looking at independence and competence when members are appointed, which are two of the three power drivers Coetzee et al. (2022) identified, and at whether committees are using the extra information that reforms give them (Kgwete, 2024). Myeza and Nkhi (2025) show what happens when a role is widened without the resources to match. It also means the research agenda needs to follow. Almost nothing I could find measures how JSE audit committees respond to a rotation decision or to KAM drafting, so reform designers are working without evidence on the very mechanism they rely on.

Conclusion

South Africa’s audit reforms have added rules, disclosures and powers, and the evidence reviewed here gives little sign that any of them has settled the question of who holds the auditor to account. Rotation has not deconcentrated the market and is expected by many practitioners to cost more than it delivers (McGregor and Malambe, 2025; Ndaba, Harber and Maroun, 2021; Aminu, Nomlala and Baldavoo, 2024). Key audit matters tell readers where the auditor looked, but in language that is hard to read (Ecim, Maroun and Duboisée de Ricquebourg, 2023). The wider public audit mandate has, in the experts’ view, not changed governance practice (Myeza and Nkhi, 2025).

My position is that the audit committee is where these reforms either work or do not (Kgwete, 2024). The evidence on what makes committees effective is thin for listed companies and stronger for the public sector, and that imbalance is itself a finding worth acting on (Coetzee et al., 2022). Until committees are studied as seriously as auditors have been, further rules about auditors are likely to deliver less than their designers hope.

Reference list

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