South African auditor reappointments

Since announcing in June that a new mandatory auditor rotation rule would be introduced in 2023 South Africa’s Independent Regulatory Board for Auditors (IRBA) has surveyed the proxy voting results in respect of auditor re-appointments this year.

The IRBA said that it had found a visible trend towards voting against the reappointment of auditors. Of the ordinary resolutions surveyed 27% had seen the opposition vote rise by up to 40%. The IRBA said this was particularly the case for those companies where the tenure of the auditors was excessively long.

South Africa auditor re-appointments
Bernard Agulhas IBRA CEO: Investors will increasingly vote against auditor reappointments

Disclosure regarding auditor appointments was improved in South Africa when the IRBA issued a regulation in December 2015 requiring audit firms to disclose the length of tenure of an audit in the independent auditor’s report to shareholders. The IRBA said this rule was to ensure that shareholders were aware of the length of the relationship between the auditor and their client, which should have also been considered by the audit committee when the auditors were considered for reappointment.

Bernard Agulhas, chief executive of the IRBA said: “Of the 102 auditor appointment resolutions tabled at annual general meetings since November 2016, 51 recorded an increase in opposition; of these 24 resulted in significant shareholder opposition to the auditor’s reappointment. The most significant opposition recorded an increase of up to 40% year on year in the votes against the reappointment of auditors.

“The most recent annual general meetings to be subject to this increased shareholder opposition were Telkom and PPC Ltd, which reflected 23% and 14% increases in the no vote. While such an increase may seem insignificant in some instances, it indicates to us that even minority shareholders are finding their voice.”

The IBRA’s figures show that the largest increases in opposition to auditor appointments occurred at the AGM of Lonmin in January (40.3% rise), Reunert and the Spar Group – both meetings were held in February and had increases in their dissent of 37% and 35.6% respectively.

Of those 24 resolutions that recorded an increase in the vote against the reappointment of auditors, only three had previously recorded an opposing vote above 1% (but less than 10%); the remainder had seen shareholders almost unanimously adopt the recommendation of the audit committee at the preceding AGM.

Last Updated: 17 September 2017
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