Transparency report disclosure practices of large- and medium-sized audit firms in South Africa

Rozanne J Smith,Ben Marx

doi:10.4102/jef.v14i1.662

Abstract

Research purpose: The purpose of this study is to examine the corporate governance practices disclosed by large- and medium-sized audit firms in South Africa, with a particular focus on transparency reports. Audit firms serve the public interest.Motivation for the study: This study was motivated by recent corporate failures in South Africa, such KPMG, VBS Bank, and Steinhoff, to mention a few.Research approach/design and method: The research approach followed for this study consists of a mixed method approach. Qualitative secondary data were obtained from publicly accessible information published on the websites of the audit firms. The data, which consisted of the firms’ transparency reports, were analysed through content analysis. The results were then converted into quantitative data.Main findings: The main findings reveal that audit firms in South Africa do not disclose sufficient corporate governance information in their transparency reports. There are inconsistencies between audit firms.Practical/managerial implications: In South Africa, audit firms do not have a corporate governance code for audit firms, and thus audit firms are not disclosing the relevant corporate governance information to their stakeholders.Contribution/value-add: This article contributes to the limited literature available on audit firm governance. Based on the findings, the study proposes best practice recommendations and regulatory and statutory recommendations regarding audit firm governance.

Highlights

Fraudulent financial reporting and corporate collapses are often associated with audit failures
As the King Code was initially developed based on the Cadbury Report (Mangena & Chamisa 2008), it is submitted that the United Kingdom (UK) Audit Firm Governance Code could be used as the foundation to develop guidelines for South African audit firms
It should be noticed that only the UK Audit Firm Governance Code principles that deal with disclosure were used for the purposes of this study

Summary

Introduction

Fraudulent financial reporting and corporate collapses are often associated with audit failures In these instances, it is believed that the auditors failed in their duty as ‘watchdog’ of the users of financial statements by letting fraud pass by undetected. It is believed that the auditors failed in their duty as ‘watchdog’ of the users of financial statements by letting fraud pass by undetected Such failures have been ascribed to the poor governance practices and values within audit firms (Crotty 2019:n.p.; Sikka 2003:188). The code was drafted to serve the interests of shareholders of listed companies to whom auditors address their reports The objective of this code is to ensure that audit firms uphold best practice governance to enhance the transparency of audit firm’s reporting and to improve the way in which audit firms are managed. Shortcomings are still evident in the corporate structures of some audit firms, which fail to apply codes of corporate governance (Abedian 2019:n.p.)

Methods

Results

Conclusion