Management College of

Southern Africa

An Investigation into Factors Influencing the Motivation toward Mandatory

Audit Firm Rotation by Governance Structures in Botswana

Silvia Camara-Roos

MBA

2017
An Investigation into Factors Influencing the Motivation toward Mandatory
Audit Firm Rotation by Governance Structures in Botswana

By

Silvia Camara-Roos

Dissertation submitted in partial

fulfilment of the requirements for
the degree of Masters of
Business Administration in the

Department of Business Studies

Management College of Southern Africa
(MANCOSA)

Supervisor: Chipo Mugova

2017

i
DECLARATION

I, Silvia Jardim Camara-Roos, do hereby declare that this dissertation is the result
of my investigation and research and that this has not been submitted in part or full
for any degree or any other degree to any other University.

S Camara-Roos Date

ii
ACKNOWLEDGEMENTS

I wish to express my deepest gratitude to the following individuals who enabled this
document to be successfully and timeously completed:
• To my husband Francois, for his unwavering support, understanding and
encouragement throughout this study,
• To my children Siona, Francois and Luca, who had to sacrifice so much of their
time with me,
• Mrs Chipo Mugova, my supervisor, for her guidance, patience and encouragement
throughout this dissertation,
• To all the respondents who took the time to complete my questionnaire, sharing
their invaluable opinions,
• To those family members, friends, relatives and work colleagues who gently
reminded me of the need to complete this dissertation and who assisted with my
children.

iii
ABSTRACT

Mandatory audit form rotation (MAFR) is an important topic to investigate not only as
it is concerned with governance issues in the interest of information to public and
various stakeholders of Public Interest Entities (PIEs), but also because it could have
unintended consequences for the markets and profession in Botswana. This study
investigates if and why MAFR is supported by those charged with governance in
Botswana PIEs.

Governance structures of PIEs in the public sector, are increasingly advocating for
MAFR although there is currently no requirement for audit firm rotation in Botswana.
Secondly, there is speculation that the Botswana Accounting Oversight Authority
(BAOA) as the local regulator will follow the trend of the Independent Regulatory Board
for Auditors (IRBA) in South Africa and in future motivate for MAFR via legislation. This
change could have a big impact if followed through without consideration for the impact
on the local audit profession and PIEs. This research study firstly indicates the view
point of the governance structures of both public and private sector PIEs. Secondly,
the research study reveals what the factors are that influence audit rotation in PIEs.

A quantitative approach was followed in this study and data collected by means of a
survey questionnaire, administered to a sample frame. Descriptive analytics were
applied to the research results which are presented in graphs.
Recommendations were made to external audit stakeholders to aid in obtaining a
deeper understanding of the implications of MAFR and to aid in enhancing the
relationships between the stakeholders.

iv
TABLE OF CONTENTS

Content Page No
Title page i
Declaration ii
Acknowledgements iii
Abstract iv
Table of Contents v
List of Acronyms viii
List of Tables ix
List of Figures x
Chapter 1 - Introduction 1
1.1. Introduction 1
1.2. Research Context: Background 1
1.3. Research Problem 3
1.4. Aim of the Study 3
1.5. Research Objectives 3
1.6. Research Questions 4
1.7. Significance of the Study 4
1.8. Chapter Organisation 4
1.9. Conclusion 5
Chapter 2 - Literature Review 6
2.1. Introduction 6
2.2. Trends Around the Globe 6
2.2.1. United States – Public Company Accounting Oversight 6
Board
2.2.2. European Union – European Commission 7
2.2.3. United Kingdom – Competition Commission 7
2.2.4. Singapore – Monetary Authority of Singapore 7
2.2.5. South Africa –Independent Regulatory Board of Auditors 8
2.3. Benefit Vs Unintended Impact 8
2.3.1. Reduction in the Quality, Increase in Cost 9
2.3.2. Reduces an Audit Committees Ability to Fulfil Its Responsibilities 10
2.3.3. Reduces Competition and Restricts Free Market Forces 10

v
TABLE OF CONTENT (CONTINUED)

Content Page No
2.4. Self-Regulation 11
2.4.1. IESBA – Code of Ethics 12
2.4.2. IAASB– Standards 12
2.4.3. Botswana Accountancy Oversight Authority – Firm Reviews 12
2.5. Conclusion 13
Chapter 3 – Research Methodology 15
3.1. Introduction 15
3.2. Research Design 15
3.3. Research Philosophy 15
3.4. Research Strategies 16
3.5. Target Population 17
3.5.1. Sampling Strategy 17
3.6. Research Instrument 18
3.6.1. Questionnaire Construction 18
3.7. Pilot Study 19
3.8. Administration of Questionnaires 20
3.9. Data Analytics 20
3.10. Validity and Reliability 20
3.11. Limitations of the Study 21
3.12. Elimination of Bias 21
3.13. Ethical Considerations 22
3.14. Conclusion 22

Chapter 4 – Results, Discussions and Interpretation of Findings 23

4.1. Introduction 23
4.2. Presentation of Findings 23
4.2.1. Demographical Information 23
4.2.2. Structure of the Questionnaire 25
4.3. Research Findings and Analysis 25
4.3.1. View on Mandatory Audit Firm Rotation 25

vi
TABLE OF CONTENT (CONTINUED)

Content Page No
4.3.2. View on Factors That Influence Motivation for Rotation 37
4.3.3. View on Established Governance Processes Re External Audit 45
Appointments
4.4. Conclusion 53
Chapter 5 – Conclusion and Recommendations 54
5.1. Introduction 54
5.2. Findings from the Study 54
5.2.1. Findings from the Literature Review 54
5.2.2. Findings from the Research 55
5.2.3. Conclusions 57
5.3 Recommendations 58
5.4 Future Research 58
5.4 Conclusion 58
List Of References 60
Annexure A - Cover Letter 65
Annexure B - Questionnaire 66
Annexure C - Permission Letter 69

vii
LIST OF ACRONYMS

BAOA – Botswana Accountancy Oversight Authority

EC – European Commission
EU – European Union
IAASB – Independent Audit and Assurance Standards Board
IESBA – International Ethics and Standards Board for Accountants
IFAC – International Federation of Accountants
IFIAR – International Forum of Independent Audit Regulators
IRBA – Independent Regulatory Board for Auditors
ISA – International Standards on Auditing
ISQC – International Standard of Quality Control
MAFR – Mandatory Audit Firm Rotation
MAS – Monetary Authority of Singapore
PCAOB – Public Company Accounting Oversight Board
PIE – Public Interest Entity

viii
LIST OF TABLES

Table 4.1 Sector Representation 25

Table 4.2 Governance Positions of Respondents 25
Table 4.3 Representation of Governance Roles 25

ix
LIST OF FIGURES

Figure 4.1 - Frequency Bar Chart: I Am In Support Of MAFR 26

Figure 4.2 - Frequency Bar Chart: View On MAFR Support Per Governance 26
Role
Figure 4.3 - Frequency Bar Chart: I Believe MAFR Improves Auditor 27
Independence
Figure 4.4 - Frequency Bar Chart: View On MAFR Impact On Auditor 28
Independence Per Governance Role
Figure 4.5 - Frequency Bar Chart: I Believe MAFR Enhances Auditor 29
Quality
Figure 4.6 - Frequency Bar Chart: View On MAFR Impact On Auditor Quality 29
Figure 4.7 - Frequency Bar Chart: I Believe MAFR Enhances Scepticism 30
Figure 4.8 - Frequency Bar Chart: View On MAFR Impact On Auditor 31
Scepticism
Figure 4.9 - Frequency Bar Chart: I Believe MAFR Increases Audit Costs 32
Figure 4.10 - Frequency Bar Chart: I Believe MAFR Increase The Time And 33
Costs Spent Orientating New Auditors
Figure 4.11 - Frequency Bar Chart: View On MAFR Impact On Time And 34
Cost Spent Orientating New Auditors Per Governance Role
Figure 4.12 - Frequency Bar Chart: I Believe MAFR Undermines The Audit 34
Committee’s Role Of Appointing And Evaluating External
Auditors
Figure 4.13 - Frequency Bar Chart: View On MAFR Impact On Audit 35
Committee’s Roles And Responsibility Per Governance Role
Figure 4.14 - Frequency Bar Chart: I Believe There Are Enough Audit Firms 36
To Select From That Can Support My Organisation
Figure 4.15 - Frequency Bar Chart: I Believe MAFR Restricts Our Selection 38
Of Non-Audit Service Providers
Figure 4.16 - Frequency Bar Chart: I Believe Greater Audit Innovation Drives 37
Audit Rotation

x
LIST OF FIGURES (CONTINUED)

Figure 4.17 - Frequency Bar Chart: Audit Innovation Impacts On Audit 39

Rotation Per Governance Role
Figure 4.18 - Frequency Bar Chart: I Believe Auditor Complacency Drives 40
Audit Rotation
Figure 4.19 - Frequency Bar Chart: I Believe Minimisng Misstatements Is A 41
Factor That Drives Audit Rotation
Figure 4.20 - Frequency Bar Chart: Minimising Misstatements As A Factor 42
That Impacts On Audit Rotation Per Governance Role
Figure 4.21 - Frequency Bar Chart: I Believe Independence And Objectivity 43
Is A Factor For Audit Rotation
Figure 4.22 - Frequency Bar Chart: I Believe Reduction In Audit Cost Is A 44
Factor That Drives Audit Rotation
Figure 4.23 - Frequency Bar Chart: Reducing Audit Cost As A Factor That 45
Impacts On Audit Rotation Per Governance Role
Figure 4.24 - Frequency Bar Chart: My Organisation Governance Processes 46
Includes A Comprehensive Documented Policy On Audit
Governance
Figure 4.25 - Frequency Bar Chart: My Organisation Governance Processes 47
Includes A Formal Performance Evaluation
Figure 4.26 - Frequency Bar Chart: My Organisation Governance Processes 48
Includes A Formal Annual Assessment Of Auditor
Independence
Figure 4.27 - Frequency Bar Chart: My Organisation Governance Processes 49
Includes Annual Meetings With The External Auditors Without
Management Being Present
Figure 4.28 - Frequency Bar Chart: I Am Aware Of Mandatory Audit Partner 50
Rotation
Figure 4.29 - Frequency Bar Chart: I Am Aware Of The EQCR Appointment 51
Requirement
Figure 4.30 - Frequency Bar Chart: I Am Aware That Audit Firms Are Subject 52
To BAOA Reviews
Figure 4.31 - Frequency Bar Chart: I Am Aware Of The Quality Assurance 53
Plan That My Organisation’s External Auditors Has In Place

xi
CHAPTER 1 - INTRODUCTION

1.1. INTRODUCTION
Auditors are key in providing integrity to the financial reports of organisations, giving
comfort to stakeholders that the organisation is financially sound. Historically
organisations appointed audit firms for many years and in so doing relationships were
established between auditor and auditee. Mandatory audit firm rotation (MAFR)
requires that external auditors be rotated after a fixed period due to a regulatory
requirement.

MAFR is an important topic to both audit professionals due to the possible impact on
the profession and to those tasked with governance and the responsibility for the
financial affairs of an organisation. In Botswana audit firm rotation has become an
increasing trend for Public Interest Entities (PIEs) in the public sector, despite it not
being mandatory regarding any regulation or standard.

This study seeks to understand if MAFR would be supported by the governance

structures of PIEs in Botswana. It furthermore aims to identify what the motivating
factors would be in favour of audit rotation.

The background to the research problem will be outlined providing insight into the
governance roles of external audit and PIEs. The background will be followed by a
statement of the problem, and the aim of the research. The objectives and the research
questions of the study will be laid out.

1.2. RESEARCH CONTEXT: BACKGROUND

In most countries PIEs are required to have an annual statutory audit on their financial
statements. Rezaee (2012:379) states that external auditors play a significant role in
corporate governance by lending credibility to published financial reports. He further
added that audits enhance the reliability of financial reports, strengthening the
effectiveness of design and operations of internal controls on financial reporting and
so restoring investor confidence in public financial information. Lastly external auditors
contribute to the efficiency and integrity of the financial markets (Rezaee, 2012:379).

1
PIEs are organisations that meet the following requirements:
• Listed on a stock exchange, or
• Have been defined by regulation or legislation as a public interest entity, or
• A company for which the audit is required by regulation or legislation to be
conducted in compliance with the same independence requirements that apply to
the audit of listed entities (IESBA, 2016:54).

PIEs can further be categorised as being in private or public sectors. The public sector
refers to organisations owned by government and who provide government services.
Private sector includes non-government owned entities (Averkamp, 2017).

In PIEs the responsibility for an organisation’s financial reporting oversight lies with
those charged with governance/ authority and control. These governance structures
differ for listed and non-listed entities:
• In a non-listed entity the governance structure are the chief executive officer, the
chief financial officer and any other individual who has authority and control in the
organisation. They are responsible for the appointment and evaluation of external
auditors.
• For listed companies the board of directors are charged with the governance but
they in turn appoint audit committees with the specific oversight role of the
organisations financial reporting and disclosure. Audit committees are responsible
for the evaluation and appointment of the organisations external auditor, as well as
ensuring the independence of the external auditors.

The Botswana Accountancy Oversight Authority (BAOA) was established through the
Financial Reporting Act, 2010 with the primary objective of providing oversight to
accounting and auditing services and promote standard, quality and credibility of
providing financial and non-financial information by entities, including public interest
entities (BAOA, 2017). In South Africa this oversight role is fulfilled by the Independent
Regulatory Board for Auditors (IRBA). Audit regulators play a large role in influencing
laws and regulations about audit practices. There is no regulation or law in Botswana
that dictates the frequency with which PIEs should rotate their audit firms, yet MAFR

2
is increasingly drawing attention with those charged with governance in the public
sector, claiming to follow best practices and changes in other parts of the world.

MAFR is an important topic to investigate not only as it is concerned with governance

issues in the interest of information to public and various stakeholders of public interest
entities, but also because it could have unintended consequences for the markets and
profession in Botswana. This study investigates if and why MAFR is supported by those
charged with governance in Botswana PIEs.

1.3. RESEARCH PROBLEM

Governance structures of PIEs in the public sector, are increasingly advocating for
MAFR although there is currently no requirement for audit firm rotation in Botswana.
Secondly, there is speculation that BAOA as the local regulator will follow the trend of
IRBA in South Africa and in future motivate for MAFR via legislation. This change could
have a big impact if followed through without consideration for the impact on the local
audit profession and PIEs. This research study firstly indicates the view point of the
governance structures of both public and private sector PIEs. Secondly, the research
study reveals what the factors are that influence audit rotation in PIEs.

1.4. AIM OF THE STUDY

The aim of this study is to investigate if MAFR would be supported by the governance
structures of Botswana’s public interest entities and what the motivating factors would
be in favour of audit rotation.

1.5. RESEARCH OBJECTIVES

The following objectives guided the research:
• To establish whether governance structures for PIEs in Botswana are in favour of
mandatory audit firm rotation.
• To determine the factors that would motivate governance structures of Botswana’s
PIEs to rotate their audit firms.
• To determine to what extent PIEs have governance processes in place to aid in the
appointment, evaluation and ensuring the independence of external auditors.
• To devise recommendations to audit professionals, governance structures, and the
regulator for the improvement of the audit profession in Botswana.

3
1.6. RESEARCH QUESTIONS
The study sought to answer the research questions that follow:

• Are the governance structures for PIEs in Botswana in favour of mandatory audit
firm rotation?
• What are the factors that would motivate governance structures of Botswana’s PIEs
to rotate their audit firms?
• What is the extent of established governance processes in place to aid in the
appointment, evaluation and ensuring the independence of external auditors?
• What recommendations can be made to audit professionals and governance
structures to improve the audit profession in Botswana?

1.7. SIGNIFICANCE OF THE STUDY

There is no known research on this topic in the Botswana environment and thus it will
provide a foundation for future studies to expand upon and contribute to the literature
on auditing and audit regulators. This study will provide insight to the users of financial
statements, the local regulators in the profession, those charged with the governance
of PIEs and the audit firms, as follows:
• The regulator may be motivated to consider other means of strengthening the audit
profession.
• Audit firms will be given insight in to what service delivery attributes PIEs consider
to be important and how they could enhance their service delivery and business
models.
• The governance structures of PIEs could benefit by benchmarking themselves
against the general trends in Botswana so far as evaluating, appointing and
ensuring the independence of external auditors are concerned.

1.8. CHAPTER ORGANISATION

The chapters to this study have been organised as follows:
• Chapter 1 has provided an introduction to the study and outlined the research
context. The aim, objectives of the study and the research questions have been
presented and detailed the significance of the study.

4
 • Chapter 2 reviews the literature relevant to the topic, analysing and synthesising
the views of other authors who have written on topics related to this topic and hence
situating the topic into what is already known related to the topic.
• Chapter 3 presents the research methodology for this study.
• Chapter 4 will provide the results of the survey questionnaire.
• Chapter 5 concludes the study with a discussion and by answering the research
questions.

1.9. CONCLUSION
MAFR is an increasing trend for public sector PIEs. Should the local audit regulator
follow the steps of other regulatory bodies and motivate for the formalisation of MAFR,
the result could have an impact on the local audit profession and PIEs in both the
private and public sectors. This research study investigates if MAFR is supported and
what factors would influence the rotation of auditors. It also gives insight into
established governance processes PIE’s have in place pertaining to external auditors.
This study is the first of its kind in Botswana and contributes to future studies adding

5
CHAPTER 2 - LITERATURE REVIEW

2.1 INTRODUCTION
MAFR has long been the focal point of many discussions and research in the field of
financial governance. The literature review considers what is known about MAFR from
recent studies and reports highlighting the motivations in favour of audit rotation and
the arguments against MAFR. The current safeguards in the audit arena will be
considered.

2.2 TRENDS AROUND THE GLOBE

Mandatory audit firm rotation was plainly described by Hodgson (2016) as
“…the practice of mandatory changes in auditors to keep a fresh set of eyes on
accounts and to prevent overfamiliarity that could lead to misstatements and
misrepresentation in financial accounts”.
Audit firm rotation has been treated very differently across the globe over the last
couple of decades. Despite countries such as Canada, South Korea, Greece, Latvia
and the Czech Republic abolishing MAFR (Ewelt-Knauer et al., 2012) the topic
emerges again every so often and becomes the centre of deliberation. More recently
in Botswana procurement departments issuing tenders for External audit services are
increasingly referring to international trends to rotate. These trends are investigated to
obtain a deeper understanding.

2.2.1 UNITED STATES – PUBLIC COMPANY ACCOUNTING OVERSIGHT

BOARD
In their concept release of 2011, the Public Company Accounting Oversight Board
(PCAOB) expressed their concerns that independence, objectivity and appropriate
professional scepticism was not being applied as evidenced by reviews that they had
conducted in the years preceding (PCAOB, 2011). To mitigate this PCAOB were
proposing MAFR and sought comments from industry role players. Two years later in
2013, the U.S House of representatives passed the Bill, barring the PCAOB from
enforcing mandatory audit firm rotation (Tysiac, 2013). The US thus vetoed MAFR
before it could be enforced.

6
2.2.2 EUROPEAN UNION – EUROPEAN COMMISSION
In 2011 the European Union (EU) first published their directive announcing a reform of
the EU statutory audit market (Hodgson, 2016). The European Commission (EC) held
that some weaknesses had been observed in the audit market which necessitated the
reform. The new legal framework aims for increased audit quality, enhanced
transparency through stronger reporting obligations and better accountability of
auditors through supervision by strengthened audit committees (European
Commission, 2014). Although the European Parliament backed the recommendations
of the EC, there is no evidence that this decision was based on concrete empirical
studies.

2.2.3 UNITED KINGDOM – COMPETITION COMMISSION

In October 2013 the UK Competition Commission concluded a two year investigation
into the FTSE350 audit market. The investigation stemmed from the Office of Fair
trading’s concern that the supply of audit services to large companies in the UK had
low levels of switching due to high switching costs and that therefore competition in the
market was restricted. The Office of Fair Trade also found that there were a high
concentration and a lack of choice in the market, which was likely to persist given the
high barriers to entry and expansion (Office of Fair Trading, 2011). The commission
concluded its investigations and recommended among others that the audit
appointments should be subject to mandatory re-tendering every ten years, increased
accountability of the auditor to the audit committee and an increase in reviews of audits
by the audit quality review team (Chalmers, 2013). The commission thus ruled out
mandatory audit firm rotation.

2.2.4 SINGAPORE – MONETARY AUTHORITY OF SINGAPORE

After introducing MAFR in 2001 for Banks, the Monetary Authority of Singapore (MAS)
temporarily suspended the policy in October 2008 as it believed the banks could benefit
from audit continuity during the stress in the global markets. In September 2016 MAS
announced that it was proposing for MAFR to be discontinued as it felt that the
approach underscored the responsibilities of the local banks’ audit committees in
ensuring independence, objectivity, and high quality of external audit (Monetary
Authority of Singapore, 2016). In the consultation paper on the review of MAFR, MAS

7
instead proposed to introduce a requirement for re-tendering of audit appointment
every ten years (Monetary Authority of Singapore, 2016).

2.2.5 SOUTH AFRICA –INDEPENDENT REGULATORY BOARD OF AUDITORS

In 2016 Bernard Peter Agulhas, the CEO of the Independent Regulatory Board for
Auditors (IRBA) announced that IRBA would be taking steps to implement MAFR in an
attempt to strengthen the independence and enhance audit quality (Agulhas, 2016). A
further concern was the lack of economic transformation in the profession in South
Africa, important to IRBA as the transformation of the profession is part of their
mandate. Lastly, IRBA indicated that the profession was dominated by certain firms,
not allowing for next tier or local firms to enter the market (Manganye, 2016). IRBA did
not provide empirical studies to support its motivation for MAFR and the announcement
was received with mixed responses. Various parties in the profession, including
practitioners and clients, expressed their disapproval and felt that the South African
King code on Corporate Governance was more than sufficient to address the concerns
of IRBA (Ziady, 2016; and KPMG, 2016).

Historically most countries who have introduced MAFR into their economies abolished
the same before the 1st tenure of rotation could be introduced. Even in the large
economy of the US, where the biggest scandals have occurred involving conflicted
auditors, the policy makers have not been convinced that the benefits out-weigh the
cost of mandatory audit firm rotation. The recent enforcement in the EU will take some
time to show if rotation delivered the intended outcome. There is thus no consensus in
the market to indicate that MAFR is beneficial. The consequences or unintended
impact of MAFR rotation is examined next.

2.3 BENEFIT VS UNINTENDED IMPACT

James (2015) and Lennox (2014) summarised some virtues and claims made by
various policy makers and professionals in an attempt to highlight the benefit of audit
rotation. These virtues and claims are:
• Innovation in audits: which suggest that with a threat of losing business and market
share audit firms will become more innovative with their methodologies and the
product they deliver
• Erosion of complacency: which indicates that auditors will not become complacent
and risk reputational issues, knowing a fresh set of eyes will soon scrutinise their
8
 work lower costs proposing that audit costs will reduce and value for money
increase
• Denting the monopoly: suggesting that smaller tier firms can bid and enter the
market dominated by big four audit firms.
Studies to support these benefits were not available instead it appeared that there are
some unintended consequences. These consequences are further investigated in the
following paragraphs.

2.3.1 REDUCTION IN THE QUALITY, INCREASE IN COST

In their response to the EU proposal, the Audit firm PricewaterhouseCoopers (PWC)
stated: “... the rotation of audit firms would result in the loss of significant cumulative
knowledge of the business, people, process, controls and risks, putting audit quality at
significant unnecessary risk” (PWC, 2013). PWC further indicated that there would be
an increase in costs for companies as extra time and effort would be needed to manage
the rotation process and ensure that the new auditors were up to speed. Two separate
studies support these claims. The first was published in 2012 based on the Italian
experience where listed companies had been required by law to rotate their audit firms
since 1975 (Cameran et al., 2015). The study was conducted on 667 audit-firm year
observations (actual data from the audit firms), representing 88% of the companies
listed on the Milan stock exchange. The study revealed that MAFR led to higher audit
fees from both the outgoing and incoming auditors and that the average quality of
audited earnings was lower in the initial three years following rotation. This study is
supported by a study on the South Korean audit market where 1306 entities listed on
the Korean Stock exchange revealed that audit fees in the post rotation period where
significantly higher where organisations where impacted by the MAFR policy (Kwon et
al., 2014). Contrary to the study by Cameran et al. (2015) this study found that audit
quality remained the same, whether firm rotation was enforced or whether audit
continuation was at play. Kwon et al. (2014) also commented that troubled firms were
more likely to change auditors as management may have an incentive to rotate to lower
quality auditors when more issues are noted by their current auditors.

The studies thus proved higher audit costs as an unintended consequence of rotation
and disproved claims that audit quality improves with MAFR.

9
2.3.2 REDUCES AN AUDIT COMMITTEES ABILITY TO FULFIL ITS
RESPONSIBILITIES
Audit committees (and others charged with the governance of an organisation) have a
major role in overseeing the audit and the relationship of the auditor with management
(PWC, 2013). They have the responsibility to evaluate and appoint the organisations
external auditor and enforcing firm rotation would diminish these roles of the audit
committee (Natesan, 2015; and Chambers, 2011).

The King Report on Corporate Governance provides best practice guidelines for the
governance structures and operation of companies in South Africa. It is issued by the
King Committee on Corporate Governance with the copyright owned by the Institute of
Directors in Southern Africa (IoDSA). Compliance with the King Reports is a
requirement for companies listed on the Johannesburg Stock Exchange (Giles, 2013).
As part of their objectives set out in the Financial Reporting Act of 2010, BAOA adopted
the King Corporate governance code as the recommended best practice governance
model for Botswana (BAOA, 2014)

The King code on Corporate governance 2016 (King IV) explains that the consideration
and decision on whether to rotate auditors remain with the Audit Committee. The only
practice recommendation it makes with regards to the auditor in dependence is that
the tenure of an audit firm is disclosed (IOD, 2016:38). It should further be noted that
King IV prescribes that members of the audit-committee should be independent, non-
executive members of the governing body (IOD, 2016:56).
The independence of the audit-committee further supports auditor independence and
objectivity because although the auditee still pays for the services of external auditors
and builds the relationship with the audits suggesting a familiarity risk, they do not
appoint, evaluate and approve the external auditors including approving external audit
fees.

2.3.3 REDUCES COMPETITION AND RESTRICTS FREE MARKET FORCES

Although smaller firms would be able to introduce themselves into the market it could
have a negative impact on large client organisations located in various locations.
Organisations with offices and subsidiaries in various locations acquire the services of
Big 4 firms (KPMG, Deloitte, EY and PWC) as these firms have the resource capability
to service clients globally. In this instance options of firms are limited if there is also a
10
consulting relationship with one firm on top of an audit relationship with another. As the
firm with the consulting relationship cannot bid due to independence issues, this
narrows the market (James, 2015).

Copenhagen Economics supports this in a report issued as a response to the EC

impact assessment conducted on the statutory audit market. Copenhagen economics
concluded on the competition factor that it found clients would gravitate towards the
larger audit firms upon rotation which have the opposite effect on the audit market by
increasing rotation (Copenhagen Economics, 2012). More recently Gerakos and
Syverson (2015) concluded in their study that in the US, audit firm rotation would imply
that organisations in the US economy would pay approximately $2.7 – 5.0 billion more
in total on audit fees. The exit of a Big 4 due to market concentration could cost
organisation in the US economy $1.4 – 1.8 billion more in total on audit services. MAFR
could thus have a negative impact on the profession itself and could result in
unnecessary losses in a countries economy.

There have been no studies to support claims that the benefits of mandatory audit firm
rotation, as cited by those in favour of MAFR, are greater than the unintended
consequences it may have for the profession or economy of a country. The regulatory
requirements are scrutinised next to understand the safeguards in the profession of
auditing.

2.4 SELF-REGULATION
In the majority of countries, audit firms and audit practitioners are subject to a stringent
set of International Standards on Auditing (ISA) and International Standards on Quality
Control (ISQC). These are set by the International Audit and Assurance Standards
Board (IAAB), an independent Board of the International Federation of Accountants
(IFAC). A separate independent board of IFAC is the International Ethics Standards
Board for Accountants (IESBA) which prescribes the code of conduct for members of
IFAC (IFAC, 2017). The Botswana Accountancy Oversight Committee (BAOA) is the
local regulator of audit practitioners for Public interest entities in Botswana. As a
member organisation of IFAC, they measure compliance of audit practitioners against,
ISA and IESBA (BAOA, 2017). The following sections highlight the relevant pieces that
underpin audit independence and quality.

11
2.4.1 IESBA – CODE OF ETHICS
The International Ethics Standards Board for Accountants (IESBA) is one of the
standard setting boards of the International Federation of Accountants (IFAC). IESBA
established the professional code of ethics which have stringent requirements
regarding integrity, objectivity, professional competence and due care, confidentiality
and lastly professional behaviour. It has strict requirements for independence and
requires professional firms to demonstrate their independence both in “mind and
appearance” (IESBA, 2016). Independence in mind and appearance means that
professional firms need to show that they are not only independent in fact as far as
their work product but also in the perception their actions might create.

2.4.2 IAASB – STANDARDS

The International Auditing and Assurance Standards Board (IAASB) is an independent
standard-setting body of the International Federation of Accountants (IFAC). IAASB
established the International Standards on Auditing (ISA).
ISA 200 – Overall objective of the independent auditor and the conduct of an audit in
accordance with the international standards on auditing. This ISA standard sets out
the authority of the ISA’s and specifically requires audit firms and audit practitioners to
plan and perform audits with professional scepticism, exercise professional judgement,
obtain appropriate audit evidence, and conduct the audit in accordance with ISAs
(IAASB, 2016:79).

Further to this, the International Standard of Quality Control (ISQC) deals with the audit
firm’s system of quality control which a requirement as set out by ISA 220 (Quality
control for an audit of financial statements) as well as the Code of Ethics for
professional accountants as referred to in the previous paragraph. External practice
reviews conducted by regulators such as BAOA measure a firm’s compliance to ISQC
as a practice and measures ISA compliance for individual audit engagements (IAASB,
2016:43).

2.4.3 BOTSWANA ACCOUNTANCY OVERSIGHT AUTHORITY – FIRM REVIEWS

One of BAOA’s mandates is to conduct practice reviews of audit firms and their audit
partners, also referred to as practitioners. BAOA reviews audit firms and practitioners
of both Non-Public interest entities as well as those registered as Public Interest audit
firms and practitioners, Audit practice reviews consist of a firm (quality control) review
12
and a review of selected assurance engagements carried out by each firm’s audit
engagement partners (BAOA, 2015:3).

A firm review consists of an examination of the six (6) elements of a firm’s system of
Quality Control Policies and Procedures as defined in the International Standards on
Quality Control (ISQC1). These are Leadership Responsibilities, Independence &
Ethical Requirements; Client Risk Assessment, Acceptance & Continuance; Human
Resources; Engagement Performance; and Monitoring (IAASB, 2009:7). The aim of
the firm review is to ensure that the firm’s internal processes and system adapt ISQC1
in all material respects to ISQC.

An engagement review aims to obtain reasonable assurance that audit engagement

partners in a certified audit firm comply with the applicable Assurance Standards.
These standards are the International Financial Reporting Standards (IFRS); Code of
Ethics; and applicable laws and regulations. The engagement review further ensures
reports issued by the firm or engagement partners meet the required standards as
applicable to each engagement (BAOA, 2015:4).

BAOA review each registered audit firm in a three year cycle. Reports issued by BAOA
in 2016 revealed that the practising certificates of two practitioners and their audit firms
were revoked after they had received unsatisfactory ratings three times in a row. Two
more practitioners received an unsatisfactory review for the second time and will be
subjected to a third round of reviews. Failing the third round will result in the loss of
their practicing certificates (BAOA, 2015:16).
This outcome of the BAOA reports is indicative of the independence with which BAOA
conducts their reviews and the stringent reviews applied in the Botswana audit
profession.

2.5 CONCLUSION
It is apparent that where MAFR has been introduced, unintended consequences had
in most instances materialised in the form of additional cost and decreasing audit
quality. Furthermore, there does not appear to be any studies done in these countries
to suggest that greater independence of external auditors had been achieved, but the
fact that these countries had abolished MAFR, one could conclude that MAFR had not
achieved the intended objectives. It is also evident that where countries are proposing

13
to implement MAFR, these are not necessarily based on empirical studies with majority
stakeholders not being convinced that the benefits will be achieved. The audit
profession itself is very well governed and subject to various codes, standards and
quality reviews, all which have independence, objectivity and quality as the core focus.

14
CHAPTER 3 – RESEARCH METHODOLOGY

3.1. INTRODUCTION
Research is an action undertaken to systematically discover new things, thereby
increasing knowledge (Saunders et al., 2009:5). In this section, the research design
will be discussed and the motivation for selecting the sampling strategy will be
provided, followed by an explanation on the data collection instrument and how the
data will be analysed. The pilot study will also be explained.

3.2. RESEARCH DESIGN

Research projects can undertake various designs. These are formally categorised as
follows:
• Exploratory research - the purpose is to clarify ones understanding of a problem
where there is uncertainty of the nature of the problem or similar studies have not
been conducted relating to the problem (Saunders et al., 2009:140)
• Descriptive research –this design relies on observation as a means of collecting
data. It attempts to examine situations to establish what the norm is but does not
provide answers to how and why the norm exist (Walliman, 2011:10; and Saunders
et al., 2009:140)
• Explanatory research determines what the casual relationships are between two
variables. (Saunders et al., 2009:140)

For the purpose of this study, a combination of the exploratory and descriptive research
design was followed. The study is exploratory in nature as similar known studies had
not been conducted in Botswana. The descriptive aspect of the research stems from
the fact that the study sought to gain an understanding of the perceptions of those
tasked with governance about MAFR.

3.3. RESEARCH PHILOSOPHY

Two approaches can be followed for data collection and analysis. These are known as
either qualitative (phenomenology) or quantitative (positivist) approaches. A qualitative
approach includes non-numerical data for instance words, which can be collected via
interviews or videos and is thus a subjective approach. Quantitative methods, in
contrast, generates or uses numerical data which can, for example, be collected via

15
surveys and allows for data to be analysed in a structured manner to provide inferences
on a population. (Saunders et al., 2009:151).

To achieve the aim of this study a quantitative approach was adopted. This approach
allowed for the data to be analysed in a structured manner and in so doing provided a
view of the population’s preferences which allowed the research questions to be
answered.

3.4. RESEARCH STRATEGIES

Two main research philosophies that form the base of scientific investigations. These
are positivism and relativist (Walliman, 2011:21). Positivism assumes that there are
real world objects apart from the human knower. In other words, there is an objective
reality. Relativist adopts the believe that there is no universal objective truth, each point
of view has its own truth.

The difference between the two paradigms are as follows, in a positivistic paradigm
quantitative data is produced with large samples used. This paradigm is usually
concerned with hypothesis testing and the data is specific and precise. The location is
artificial and the reliability of the result is high although the validity is low. The results
of a positivistic paradigm generalises from the sample to the population. In contrast to
the positivistic paradigm, the relativist paradigm produces qualitative data, uses small
samples and is concerned with generating theories. The data is rich and subjective
with a natural location. With the relativist paradigm the reliability of the results hare low
but the validity high. (Saunders et al., 2009:117; and Walliman, 2011:21)

This study is based on a positivistic paradigm as it included quantitative data, based

on a large sample. However it has measures of the relativist paradigm as the study
was not concerned with proving or disproving a hypothesis but instead applied
descriptive statistic to analyse and interpret the results.

16
3.5. TARGET POPULATION
A population is the complete set of targets from which a researcher wishes to collect
data (Saunders et al., 2009:211). For this study, the population was defined as the
individuals charged with governance for Public Interest entities in Botswana. IESBA
defines the concept of “those charged with governance” as the individuals or
organisation with the responsibility of overseeing the strategic direction of the entity
and the obligations related to the accountability of the entity. This responsibility
includes overseeing the financial reporting process (IESBA, 2016: 151). Due to the
population being very large a sample of the population in question was drawn.

3.5.1. SAMPLING STRATEGY

Saunders et.al (2009:213) explain that there are two main sampling techniques. The
first is probability sampling which is based on the concept of random selection and
consists of an organised system to assure that each element of the population is given
and equal chance of being selected to be a part of the study. The second sampling
technique is non-probability sampling and is described as being arbitrary and
subjective, not giving participants an equal chance in the selection process.

The population identified for this study was large and unknown. To circumvent this
challenge the population was filtered to a sampling frame. The sampling frame
comprised of the following:
• The membership database of the Botswana Institute of Chartered Accountant
(BICA) was obtained from their websites and filtered to exclude any external
auditors. The list provided all the qualified Chartered Accountants registered in
Botswana
• The registers of PIES’s with primary contact details were obtained from BAOA.
Missing information was obtained from the audit firms KPMG, PWC and Deloitte
who assisted with their PIE client information.
The questionnaire was distributed to both these databases which contained a 1090
participants in total. The questionnaire was successfully delivered to 296 participants.
Each person in this sample frame had an equal chance of taking part in the survey.
Five sampling techniques are available to support probability sampling, these as
follows (Saunders et al., 2009:233):

17
 • Simple random; the sample is selected at random from the sampling frame
making use of either random number tables, a computer or a random number
generator online
• Systematic; the sample is selected from the sampling frame, at regular intervals
• Stratified random; the population is divided into two or more relevant and
significant strata based on one or some attributes. A random sample is then
drawn from each of the strata
• Cluster; the population is divided into groups or clusters based on a common
feature. These clusters then form part of the sampling frame
• Multi-stage: Involves dividing the population into groups as for cluster sampling
and then one or more clusters are chosen at random and everyone within the
chosen cluster is sampled.
The simple random sampling technique was applied for this study as the other methods
were found to be inappropriate in terms of the population available.

3.6. RESEARCH INSTRUMENT

Quantitative data can be collected via research strategies that include polls,
questionnaires surveys or by manipulating pre-existing statistical data
using computational techniques (University of Southern California, 2017).

For this study, a questionnaire survey was used as it allowed for the collection of data
about the opinions, preferences and perceptions of the persons of interest. The
questionnaire survey is regarded as a reliable source for the collection of primary data
and allows for quantitative data to be collected. A questionnaire is both time efficient
and cost effective to roll out. (Saunders et al., 2009:144).

3.6.1. QUESTIONAIRE CONSTRUCTION

A self-administered online questionnaire was used to obtain the answers to the
research questions posed. The survey tool offered by Questionpro.com was utilised as
it saved both time and the costs involved in survey distribution, response collection and
data analyses. The webpage was both appealing regarding its design and ease of use.
In designing the questionnaires, the researcher can chose from three types of question
designs. The first is an open-ended question which allows respondents to give answers
according to their views. The second type is the close-ended question which as the

18
name indicates provides the respondent with some alternative answers from which the
respondent is instructed to choose. Lastly, there is the close-ended question which
guides the respondent to provide simple. Close-ended questions can further be
categorised as lists where the respondent can make a choice from a list of items;
category where one response can be selected from a predetermined set of categories;
ranking where the respondent places items in order; quantity where the required
response is a number; matrix, allowing for responses from multiple questions to be
recorded in a grid and lastly rating, where the respondent applies a rating scale to
demonstrate how strongly he or she agrees to a statement. Most common used is the
Likert-style rating (Saunders et al., 2009:374).

The questionnaire for this study was designed to include a combination of forced and
close-ended questions as these question designs provided for data that could be
analysed more easily and allow for statistical interpretation. The research
questionnaires had four sections structured as follows:
• Section one gathered two basic demographical information points about the
participants
• Section two posed a questions to determine if MAFR is supported and it allowed
for comments to be entered to support the participants response
• Section three was structured to identify the factors which will support MAFR.
• Section four asked questions to determine the current practices and processes
applied by Governance structures in appointing and assessing their external
auditors.
All sections made use of close-ended questions. Section one provided the participant
with a list of options and the remaining sections applied the Likert-Style rating scale
allowing respondents to indicate how strongly they agreed or disagreed with a
statement. A total of 22 questions were posed excluding the two geographical
questions.

3.7. PILOT STUDY

Saunders et al. (2009:394) explains that a pilot test should be conducted to refine the
questionnaire ensuring that respondents have no challenges completing the
questionnaire and that the data can be analysed as intended by the researcher.

19
A pilot study group of ten individuals were randomly selected from the population
database compiled. Six responses were received confirming that the questionnaire
was appropriately designed and correctly interpreted by the respondents and
furthermore that the required analysis could be conducted on the data. It also identified
the need to ensure respondents were provided with enough time to respond as the
profile of the respondents were individuals in executive positions often out of town for
prolonged periods. The pilot study participants were excluded from the final sample
population.

3.8. ADMINISTRATION OF QUESTIONNAIRES

Questionnaires can be administered via post, internet, intranet, telephone or structured
interviews (Saunders et al., 2009:395). The questionnaire for this study was
administered to the population via the Questionpro.com website as an email with a
cover letter and a link to the survey questionnaire online. This method was found to
be most beneficial as it ensured a large population could be reached in a short time
frame. Although the email was sent from the survey tool online, the KPMG email
address versus a Gmail account of the researcher was utilised to affirm to the profile
of respondents that the source of the email was reputable. Weekly reminders were
sent to individuals who had not responded.

3.9. DATA ANALYSIS

The data collected from the questionnaires was categorical and numeric in nature. To
analyse the data descriptive statics was applied to the results with the use of excel.
Descriptive statistics allows for a concise description of the data that allowed for
conclusions to be drawn for each of the studies’ objectives

3.10. VALIDITY AND RELIABILITY

To ensure the credibility of research findings care must be taken to ensure the validity
and reliability of research results are intact (Saunders et al., 2009:156). The research
was conducted in a manner that would lead a different researcher to the same
conclusion. This was achieved as follows:
• The questionnaire was constructed in a manner that eliminated bias and
possibly guided participants. This was achieved in how the questions were
asked and structured.

20
 • The sample frame was restricted to governance structures in Botswana for
PIE’s and qualified Chartered Accountants in Botswana. As part of the
questionnaire the position of each respondent was requested to ensure any
response from an unsuitable candidate could be eliminated.
• External audit participation was deliberately not sought as the results would
have been biased.
• The pilot test demonstrated that the questionnaire was structured correctly and
had been interpreted as intended by the participants.

3.11. LIMITATIONS OF THE STUDY

The study was undertaken in an organised systematic manner with a clear
understanding of the problem and the objectives. However as some limitations are
imposed due to the population, possible response bias and time constraints. These
are as follows:

• The Public versus private sector views on the various questions were not
analysed as it did not form part of the objectives of the study, however this could
be elaborated on in further studies.
• The survey responses obtained were received from individuals in the sample
frame who volunteered to respond. It may be that these respondent had very
strong views on the topic and related questions and thus the results could be
biased.
• The results of this study may not be generalisable as the complete population
of governance structures in Botswana could not be identified.
• Due to time constraints measures to ensure increased participation could not
be taken and the survey was closed after a period which could have eliminated
the participation of a large number of individuals for various reasons.

3.12. ELIMINATION OF BIAS

Research bias can occur at any stage of the research process according to Sarniak
(2015). To eliminate researcher bias, care was taken in compiling the questionnaire so
as not to guide the respondents and impose the belief of the researcher. Further to this
care was taken in the order of the questions asked to ensure exploratory questions did
not influence the main question asked. Respondent bias was managed by ensuring

21
respondents were made aware of the anonymity and voluntary nature of the
responses. Furthermore, participants included individuals charged with governance at
both Board level as well as management level, both from public and private sector
public interest organisations.

3.13. ETHICAL CONSIDERATIONS

Walliman (2011:42) states that working with human participants always raises ethical
issues about how they are treated. This study demonstrates accountability for the
following ethical considerations
• Ensuring participants have given formal consent – A cover letter was included in
the email distributed to participants. The cover letter stated that the study was
voluntary and that the participant could opt out at any time
• Ensuring no harm to participants – Participants were informed in the cover letter
of the anonymity of their responses
• Ensuring Confidentiality and Anonymity – The cover letter explained the type of
data collection tool that would be utilised and through follow up emails the
concept of anonymity, volunteerism and confidentiality was reiterated.
• Ensuring that permission is obtained - The participants to the research were those
senior individuals who had the authority to give permission to the study involving
their entities responses. Furthermore, permission was obtained from the audit
firms KPMG, PWC and Deloitte for the use of their client information. Information
sourced from BAOA and BICA were all public information and available to any
user.

3.14. CONCLUSION
This chapter presented an over view of the research methodology regarding
appropriate and relevant application of the various techniques, fundamental principles
and practices associated with research methodology.
The number of questionnaires (119) that were submitted against the number that was
administered (296), resulted in a satisfactory response rate that will be presented in
the following chapter. The following chapter presents the research findings and
interpretation of the results.

22
CHAPTER 4 – RESULTS, DISCUSSIONS AND INTEPRETATION OF FINDINGS.

4.1. INTRODUCTION
The preceding chapters highlighted various aspects of the research methodology used
to capture and analyse data. Data analysis is the process of inspecting, cleaning and
modelling data with the goal of transforming it into usable information (Walliman, 2011:
114). Descriptive statistics procedures were applied to the primary data sets using
Excel. This section will firstly present the findings with an over view of the sample first,
followed by a discussion on the research instrument and there after the presentation
of the findings about the research questions.

4.2. PRESENTATION OF FINDINGS

As indicated in section 3.5.1 a sample frame was established due to the vastness of
the possible population. The sample frame was constructed with as follows, using
The membership database of the Botswana Institute of Chartered Accountant
(BICA) was obtained from their websites and filtered to exclude any external
auditors. The list provided all the qualified Chartered Accountants registered in
Botswana. A total of 818 emails addressed of qualified CA’s were obtained. In
addition, the registers of PIES’s with primary contact details were obtained from
BAOA. Missing information was obtained from the audit firms KPMG, PWC and
Deloitte who assisted with their PIE client information. A 192 names were
compiled for this list
The questionnaire survey was thus sent to a total of 1010 emails. However as per the
Questionpro tracking functionality, only 296 emails were successfully delivered and
opened by individuals. Of these a 119 responded in the provided time frame. Should
the response rate be calculated on the basis of actual received surveys, then a
response rate of 40.2% was achieved.

4.2.1. DEMOGRAPHICAL INFORMATION

The survey required the respondents to indicate within which sector their organisation
operated and which positions they held within the organisation they represent. These
results are presented in table 4.1 and 4.2.

23
Table 4.1 Sector representation

Sector Frequency Percentage

Public Sector 34 28.57%
Private Sector 85 71.43%
Total 119 100.00%

The respondents represented a fair number of public sector individuals but

predominantly those in the private sector. For the objective of this study this was not
seen as a limitation and did not impact on the reliability of the data.

Table 4.2 - Governance positions of respondents

Governance position Frequency Percentage

Audit Committee Chairman 6 5.04%
Audit Committee Member 2 1.68%
Board of Director Chairman 3 2.52%
Board of Director member 5 4.20%
Chief Executive Officer 14 11.76%
Chief Financial Officer 31 26%
Other Executive 5 4%
Head of department 15 12.61%
Other 38 31.93%
Total 119 100.00%

The individuals who responded to the survey all met the requirement of being
individuals who were charged with the governance of their organisations. The
respondents in the category other, included positions such a group finance managers
and internal auditors.

To further aid in the analysis of the data the governance positions were summarised
into two governance positions; those who executive their governance role as the Board
of Directors or the Audit Committee and then those who execute their role as the
management team of the organisation. This is presented by table 4.3

Table 4.3 - Representation of governance roles

Governance role Frequency Percentage

Board and AC 16 13%
Management 103 87%
Total 119 100

24
The grouping as per table 4.3 was important to interpret the result in the instance were
data tables seemed to have skewed information. The two governance roles are
affected by external audit in a somewhat contradicting manner. The management team
in an organisation are the auditees and is thus the group being reported on, whilst the
Board and AC are the recipients of reports issued by external audit.

4.2.2. STRUCTURE OF THE QUESTIONNAIRE

The study sought to answer the following research questions:

• Are the governance structures for PIEs in Botswana in favour of mandatory audit
firm rotation?
• What are the factors that would motivate governance structures of Botswana’s PIEs
to rotate their audit firms?
• What is the extent of established governance processes in place to aid in the
appointment, evaluation and ensuring the independence of external auditors?
• What recommendations can be made to audit professionals and governance
structures to improve the audit profession in Botswana?
The data collected for the first three objectives will be presented in the following
section, while the last objective will be discussed in chapter 5.

4.3. RESEARCH FINDINGS AND ANALYSIS

The findings and analysis of the questionnaire results are presented as frequency Bar
Charts per question asked, with the questions grouped as per the study objectives. As
a measure of central tendency the mode was identified, reflecting the most frequently
occurring number in the data set. To determine the variability of data the skewness
and kurtosis of data was calculated.

4.3.1. VIEW ON MANDATORY AUDIT FIRM ROTATION

The first objective of the study was to determine if the governance structures in
Botswana are in favour of mandatory audit rotation. One question was asked for this
assessment.

25
4.3.1.1. Question 3.1 are you in support of MAFR?

Figure 4.1 - Frequency Bar: I am in support of MAFR

Figure 4.1 indicated that for Question 3.1: Are you in support of MAFR; 3.36% of
participants strongly agree; 14.29% disagree; 5.88% were unsure; 29.41% agree and
47.06% strongly agreed. The mode was 1 (Strongly agree), with a skewness of 1.06,
and a kurtosis of -0.051. A high number of respondents thus reflected their support for
MAFR but the responses were slightly spread across the options. To understand the
spread of responses the data was further segmented to reflect the views of the two
governance roles as presented in figure 4.2 below.

Figure 4.2 - Frequency Bar Chart: View on MAFR support per governance role

26
As depicted by figure 4.2: View on MAFR support per governance role, there is a clear
divide in support of MAFR between the Board and AC group (56% agreed) and
Management (80%). This disparity in views can be attributed to:
• The Board and AC believing that they are adequately monitoring and evaluating
the quality and independence of the external auditors.
• Management may be under repute due to issues being identified by the current
auditors and management seeking auditors who could possibly apply a different
view. This supports the view of Kwon et al., (2014).

To determine participant’s views on the impact that MAFR would have on their
organisations, they were further asked to express their views on eight statements
relating to the question:
What effect do you believe mandatory audit firm rotation would have for your
organisation in terms of the following statements?

4.3.1.2. Question 4.1 – Do you believe mandatory audit firm rotation improve
auditor independence in your organisation?

Figure 4.3 - Frequency Bar Chart: I believe MAFR improves auditor

Independence

Figure 4.3 indicate that for question 4.1 Do you believe mandatory audit firm rotation
improve auditor independence in your organisation? 0.84%% of participants strongly
disagree; 11.76% disagree; 5.04% were unsure; 36.97% agree and 45.38% strongly
agreed. The mode was 1 (Strongly agree), with a skewness of 1.170, and a kurtosis of

27
0.471. This indicates a left skew towards agreement, as demonstrated by a peaked,
moderately high number of respondents reflecting that in their view with MAFR auditor
independence would be improved. The data was further analysed to understand the
reason for the distribution of responses across the options. This is presented in figure
4.4.
Figure 4.4 - Frequency Bar Chart: View on MAFR impact on auditor
independence per governance role

Figure 4.4 indicates that although both groups predominantly agree, the Board and AC
response disagreed more (38% Board vs Management 9%). This disparity can be
contributed to the fact that the Board and AC have the mandate to review the
independence of the auditors as highlighted by Natesan (2015) and Chamber (2011).
Management on the other hand may be of the view that the assessment of the external
auditors are not effectively done.

28
4.3.1.3. Question 4.2 - Do you believe mandatory audit firm rotation enhances
auditor quality?
Figure 4.5 - Frequency Bar Chart: I believe MAFR enhances auditor quality

Figure 4.5 indicate that for question 4.2 - Do you believe mandatory audit firm rotation
enhances auditor quality?; 2.52% of participants strongly disagree agree; 16.81%
disagree; 18.49% were unsure; 29.41% agree and 32.77% strongly agreed. The mode
was 1 (Strongly agree), with a skewness of 0.505, and a kurtosis of -0.879. This
indicates a left skew towards agreement but a wide spread of frequencies across the
views indicating a spread in opinion across all options. The data was further segmented
in figure 4.6 below.

Figure 4.6 - Frequency Bar Chart: View on MAFR impact on auditor quality

29
Figure 4.6 indicates that the Board and AC members were 31% in agreement with
Management 67% in agreement that rotation would increase auditor quality. The view
of management could be seen as biased as they are the subject of the audits and held
responsible for control failures and the results reflected in the financial statements.
External audit as an independent assurance body (IESBA, 2016:44) may not always
agree with Managements view on accounting treatments and reports to the AC on
internal control weaknesses.

4.3.1.4. Question 4.3 - Do you believe mandatory audit firm rotation improves
audit scepticism?

Figure 4.7 - Frequency bar: I believe MAFR enhances auditor scepticism

Figure 4.7 indicate that for question 4.3 – Do you believe MAFR enhances audit
quality?; 1.68% of participants strongly disagree agree; 10.92% disagree; 15.13%
were unsure; 39.50% agree and 32.77% strongly agreed. The mode was 2 (Agree),
with a skewness of 0.791, and a kurtosis of -0.110. This indicates a left skew towards
agreement but a wide spread of frequencies across the views indicating that the
participants were not unanimous in their views. The data was further segmented in
figure 4.8 below.

30
Figure 4.8 - Frequency Bar Chart: View on MAFR impact on auditor scepticism

Figure 4.8 indicates that the Board and AC members are divided in their view as to
whether auditor scepticism may be enhanced with MAFR. This is evident in the 50%
agreed response, but more so by the fact that 25% of Board and AC members were
unsure and 25% did not agree. Management on the other hand demonstrated their
view with a high response of 76%. Auditor scepticism relates to the external auditors
attitude that requires the auditors to be critical of audit evidence, to have a questioning
mind and to be alert of conditions which may indicate possible misstatement due to
error or fraud (IESBA 2016). As Management would be the subject of auditor
scepticism, this could explain why they are of the opinion new auditors would have
improved scepticism.

31
4.3.1.5. Question 4.4 - Do you believe mandatory audit firm rotation increases
audit cost

Figure 4.9 - Frequency Bar Chart: I believe MAFR increases audit costs

Figure 4.9 indicates that for Question 4.4 - Do you believe mandatory audit firm rotation
increases audit costs?; 2.52% of participants strongly disagree agree; 19.33%
disagree; 24.37% were unsure; 31.09% agree and 22.69% strongly agreed. The mode
was 2 (Agree), with a skewness of 0.275, and a kurtosis of -0.897. This indicates a
response skew that is almost symmetric indicating that the participants were not
unanimous in their views. Both PWC (2013) and Cameran et al.,(2015) reported that
MAFR would result in increased audit fees. These results indicate that in Botswana,
there is not a general consensus or understanding of how the audit costs would be
impacted. Audit fees are published in the annual report of PIE’s, for parastatals and
listed entities, all of which is public information. Resultantly auditors tendering are able
to undercut their fees to ensure appointment. Kwon (2014) also indicated that exiting
auditors may inflate their fees in the last years due to being overly cautious as their
work would be the subject of scrutiny by the new auditors in the following year.

32
4.3.1.6. Question 4.5 - Do you believe mandatory audit firm rotation increases
the time and costs spent orientating new auditors?

Figure 4.10 - Frequency Bar Chart: I believe MAFR increases the time and costs
spent orientating new auditors

Figure 4.10 indicate that for Question 4.5 - Do you believe mandatory audit firm rotation
increases the time and costs spent orientating new auditors?; 0% of participants
strongly disagree; 15.97% disagree; 5.04% were unsure; 45.38% agree and 33.61%
strongly agreed. The mode was 2 (Agree), with a skewness of 0.864, and a kurtosis of
-0.302.
This indicates a left skew towards agreement but a spread across the views. Figure
4.11 reveals that Management is in 77% agreement and the Board and AC in 94%
agreement that MAFR would impact on the time and cost spent to orientate new
auditors. The Board and AC are responsible for approving the fees and appointment
of external auditors and may in this instance have expressed a stronger view. Arguably,
this disparity could support the previous question on audit cost implications as being
indicative that there is not a clear consensus of the impact of MAFR in this regard.

33
Figure 4.11 – Frequency Bar Chart: View on MAFR impact on time and cost spent
orientating new auditors per governance role.

4.3.1.7. Question 4.6 - Do you believe mandatory audit firm rotation undermines
the audit committee’s role of appointing and evaluating external auditors?

Figure 4.12 - Frequency Bar Chart: I believe MAFR undermines the audit
committee’s role of appointing and evaluating external auditors

Figure 4.12 indicate that for Question 4.6 - Do you believe mandatory audit firm rotation
undermines the audit committee’s role of appointing and evaluating external auditors?;
19.33% of participants strongly disagree; 49.48% disagree; 11.76% were unsure;
13.45% agree and 5.88% strongly agreed. The mode was 4 (Disagree), with a
skewness of -0.839, and a kurtosis of -0.079. This indicates a right skew towards dis-

34
agreement, as demonstrated by a high number of respondents reflecting that in their
view MAFR does not undermine the audit committee’s role of appointing and
evaluating external auditors. The data was further segmented to understand the
spread in figure 4.13 below.

Figure 4.13 – Frequency Bar Chart: View on MAFR impact on AC roles and
responsibility per governance role

The results in figure 4.13 did not support the view of PWC (2013) that the AC role and
responsibility would be undermined by MAFR. The Board and AC members responded
with 57% disagreeing. Management concurred with 70% disagreeing.

35
4.3.1.8. Question 4.7- Do you believe there are enough audit firms to select
from that can support your organisation?

Figure 4.14 - Frequency Bar Chart: I believe there are enough audit firms to
select from that can support my organisation

Figure 4.14 indicate that for Question 4.7- Do you believe there are enough audit firms
to select from that can support your organisation?; 6.72% of participants strongly
disagree; 11.76% disagree; 10.08% were unsure; 51.26% agree and 20.17% strongly
agreed. The mode was 2 (Agree), with a skewness of 0.945, and a kurtosis of 0.121.
This indicates a left skew towards agreement, as demonstrated by a high number of
respondents reflecting that in their view there are enough audit firms to select from that
can support their organisation.

36
4.3.1.9. Question 4.8 – Do you believe MAFR restricts your selection of non-
audit service providers?

Figure 4.15 - Frequency Bar Chart: I believe MAFR restricts our selection of
non-audit service providers

Figure 4.15 indicate that for Question 4.8 - Do you believe MAFR restricts your
selection of non-audit service providers? 12.61% of participants strongly disagree;
37.82% disagree; 21.85% were unsure; 23.53% agree and 4.20% strongly agreed.
The mode was 4 (Disagree), with a skewness of -0.831, and a kurtosis of -0.273. This
indicates a right skew towards dis-agreement. The results were distributed across the
responses which could indicate that there is not a clear understanding as to the true
impact that MAFR could have on the service offerings from audit firms.

4.3.2. VIEW ON FACTORS THAT INFLUENCE MOTIVATION FOR ROTATION

The third objective pursued to determine if governance processes are in place are
external audit appointments. The participants were asked to express their views on
five statements relating to the question:
What factors in your view drive audit rotation in your organisation?

37
4.3.2.1. Question 5.1 – Do you believe greater audit innovation drives audit
rotation in your organisation?
Figure 4.16 - Frequency Bar Chart: I believe greater audit innovation drives
audit rotation

Figure 4.16 indicate that for Question 5.1 – Do you believe greater audit innovation
drives audit rotation in your organisation?; 1.68% of participants strongly disagree;
19.33% disagree; 14.29% were unsure; 52.94% agree and 11.76% strongly agreed.
The mode was 2 (Agree), with a skewness of 0.619, and a kurtosis of -0.476. This
indicates a left skew towards agreement, however the responses were widely spread
across the options indicating that the participants were not unanimous in their views.
The data was further segmented to understand the distribution, this is presented in
figure 4.17.

38
Figure 4.17 – Frequency Bar Chart: Audit innovation impacts on audit rotation
per governance role

While the Board an AC members displayed 44% agreement, management displayed

a 68% agreement towards greater innovation being a factor for audit rotation. This
result supports the statement made by James (2016) explaining that with market share
audit firms will have to become more innovative with their methodologies and the
product they deliver. An explanation for the disparity between the two governance roles
could be attributed to the fact that the Management team are directly subject to the
methodologies and interactions with the external audit team for the duration of an audit
as oppose to the AC who only interacts with External audit during Committee meetings
or annual engagements.

39
4.3.2.2. Question 5.2 - Do you believe auditor complacency drives audit rotation
in your organisation?

Figure 4.18 - Frequency Bar Chart: I believe auditor complacency drives audit
rotation

Figure 4.18 indicate that for Question 5.2 - Do you believe auditor complacency drives
audit rotation in your organisation?; 0% of participants strongly disagree; 11.76%
disagree; 8.40% were unsure; 52.10% agree and 27.73% strongly agreed. The mode
was 2 (Agree), with a skewness of 0.856, and a kurtosis of 0.137. This indicates a left
skew towards agreement supported the frequency of responses staggering around the
mode. This is clear indication that the respondents irrespective of their roles were
clearly in agreement that reducing auditor complacency is a factor for audit rotation in
their organisation. The results in Botswana is in agreement with the findings of James
(2015) who indicated that auditors do not become complacent and risk reputational
issues, knowing that new auditors may scrutinise their work in the next period.

40
4.3.2.3. Question 5.3 - Do you believe minimising misstatements drives audit
rotation in your organisation?

Figure 4.19 - Frequency Bar Chart: I believe minimising misstatements is a

factor that drives audit rotation

Figure 4.19 indicate that for Question 5.3 - Do you believe minimising misstatements
drives audit rotation in your organisation? 2.52% of participants strongly disagree;
27.73% disagree; 20.17% were unsure; 36.13% agree and 13.45% strongly agreed.
The mode was 2 (Agree), with a skewness of 0.110, and a kurtosis of -1.060. This
indicates a left skew towards agreement represented by data greatly distributed across
all options. The data was further segmented and presented in figure 4.20.

41
Figure 4.20 – Frequency Bar Chart: Minimising misstatements as a factor that
impacts on audit rotation per governance role

The results indicate clear disparity between the views of Board and AC members (19%
agreement) and that of Management (55% agreement). The reason why Management
might consider minimising misstatements as a factor for audit rotation could be a
biased factor. Management are held accountable for the financial results of the
organisation and so may be in dispute with the auditors regarding the application of
the international financial reporting standards. This result supports Kwon et al. (2014)
who indicated that management may promote audit rotation should there be issues
within the organisation.

42
4.3.2.4. Question 5.4 - Do you believe increasing auditor independence and
objectivity is a factor that drives audit rotation in your organisation?
Figure 4.21 – Frequency Bar Chart: I believe independence and objectivity is a
factor for audit rotation

Figure 4.21 indicate that for Question 5.4 - Do you believe increasing auditor
independence and objectivity is a factor that drives audit rotation in your organisation?;
0.84% of participants strongly disagree; 8.40% disagree; 6.72% were unsure; 41.18%
agree and 42.86% strongly agreed. The mode was 1 (Strongly agree), with a skewness
of 1.2, and a kurtosis of 0.994. This indicates a left skew towards agreement with
respondents predominantly showing their agreement. Thus in the view of Botswana
governance structures, increasing auditor independence and objectivity are a factor for
audit rotation in their organisation. The result supports the view of policy makers and
regulators in the EU and SA who cited independence and objectivity of the external
auditors as the main reason for MAFR (IRBA, 2016; and European Commission,
2014).

43
4.3.2.5. Question 5.5 – Do you believe reducing audit cost is a factor that drives
audit rotation in your organisation?
Figure 4.22- Frequency Bar Chart: I believe reduction in audit cost is a factor
that drives audit rotation

Figure 4.22 indicates that for Question 5.5 – Do you believe reducing audit cost is a
factor that drives audit rotation in your organisation?; 8.40% of participants strongly
disagree; 42.02% disagree; 22.69% were unsure; 20.17% agree and 6.72% strongly
agreed. The mode was 4 (Disagree), with a skewness of -0.460, and a kurtosis of -
0.618. This indicates a right skew towards dis-agreement with the response being
spread across the options. The data is further analysed to understand the widely
distributed view and results are presented in figure 4.23

44
Figure 4.23 – Frequency Bar Chart: Reducing audit cost as a factor that impacts
on audit rotation per governance role

Both the governance roles indicated that they disagreed with the question. The reason
for 47% of Management disagreeing and 75% of the Board and AC members
disagreeing could relate to the approval of audit fees. Although audit fees are
presented to management these are ultimately approved by the AC in their governance
role over the external auditors.

4.3.3. VIEW ON ESTABLISHED GOVERNANCE PROCESSES RE EXTERNAL

AUDIT APPOINTMENTS
The third objective pursued to determine if governance processes are in place re
external audit appointments. The participants were asked to express their views on
five statements relating to the question:
What is the extent of established governance processes in place to aid in the
appointment, evaluation and ensuring the independence of external auditors?

4.3.3.1 Question 6.1 – Does the process for your organisation, governing
external audit, include a comprehensive documented policy on external audit
governance, which includes, appointment, evaluation, independence
considerations and rotation requirements?

45
Figure 4.24 - Frequency Bar Chart: My organisation governance processes
includes a comprehensive documented policy on audit governance

Figure 4.24 indicate that for Question 6.1 – Does the process for your organisation,
governing external audit, include a comprehensive documented policy on external
audit governance, which includes, appointment, evaluation, independence
considerations and rotation requirements?; 0.84% of participants strongly disagree;
15.13% disagree; 10.08% were unsure; 42.02% agree and 31.93% strongly agreed.
The mode was 2 (Agree), with a skewness of 0.761, and a kurtosis of -0.404. This
indicates a moderately left skew peak towards agreement with the responses
distributed across the options. The King Code on Corporate governance suggests that
a comprehensive documented policy regarding external auditor be in place (IOD,
2016). The results reflect that although not compulsory this component is moderately
applied in Botswana.

46
4.3.3.2 Question 6.2 – Does the process for your organisation, governing
external audit, include a formal annual performance evaluation with established
audit quality indicators?

Figure 4.25 - Frequency Bar Chart: My organisation governance processes

includes a formal performance evaluation

Figure 4.25 indicate that for Question 6.2 - Does the process for your organisation,
governing external audit, include a formal annual performance evaluation with
established audit quality indicators?; 1.68% of participants strongly disagree; 24.37%
disagree; 10.92% were unsure; 49.58% agree and 13.45% strongly agreed. The mode
was 2 (Agree), with a skewness of 0.493, and a kurtosis of -0.836 This indicates a left
skew towards agreement, as demonstrated by a high number of respondents reflecting
that their organisations governance processes included a well-documented
governance process regarding external audit.

47
4.3.3.3 Question 6.3 – Does the process for your organisation, governing
external audit, include a formal annual assessment of auditor independence
and objectivity.

Figure 4.26 - Frequency Bar Chart: My organisation governance processes

includes a formal annual assessment of auditor independence

Figure 4.26 show that for Question 6.3 – Does the process for your organisation,
governing external audit, include a formal annual assessment of auditor independence
and objectivity; 2.52% of participants strongly disagree; 21.01% disagree; 12.61%
were unsure; 47.90% agree and 15.97% strongly agreed. The mode was 2 (Agree),
with a skewness of 0.564, and a kurtosis of -0.626 This indicates a left skew towards
agreement, as demonstrated by a high number of respondents indicating that a formal
annual assessment of auditor independence and objectivity did occur.

48
4.3.3.4 Question 6.4 - Does the process for your organisation, governing
external audit, include an annual meeting with the external auditors without
management being present, to facilitate exchange of views and concerns.

Figure 4.27 - Frequency Bar Chart: My organisation governance process

included annual meetings with the external auditors without management
being present.

Figure 4.27 show that for question 6.4: 5.88% of participants strongly disagree; 19.33%
disagree; 15.13% were unsure; 38.66% agree and 21.01% strongly agreed. The mode
was 2 (Agree), with a skewness of 0.492, and a kurtosis of -0.776 This indicates a left
skew towards agreement, as demonstrated by a high number of respondents indicating
that a formal annual assessment of auditor independence and objectivity did occur.

The audit profession is self-regulated through various requirements, these all

contribute to the governance of the profession. To ascertain the level of participant’s
awareness of self-regulation in the audit profession they were further asked to express
their views on four statements. These are discussed in the following sections.

49
4.3.3.5 Question 7.1 – Are you aware that mandatory audit partner rotation is
required for public interest entities (specific criteria apply)?

Figure 4.28 - Frequency Bar Chart: I am aware of mandatory audit partner

rotation

Figure 4.28 indicate that for Question 7.1 – Are you aware that mandatory audit partner
rotation is required for public interest entities?; 0.84% of participants strongly disagree;
5.88% disagree; 10.92% were unsure; 30.50% agree and 42.86% strongly agreed.
The mode was 1 (Strongly agree), with a skewness of 1.137, and a kurtosis of 1.137.
This indicates a left skew towards agreement, as demonstrated by the majority of
respondents indicating that they were aware of the requirement of audit partner rotation
for PIE’s under certain circumstances.

50
4.3.3.6 Question 7.2 – Are you aware that audit firms of public interest entities
are required to appoint an engagement quality control reviewer (EQCR) in
addition to the audit partner (specific criteria apply)?

Figure 4.29 - Frequency Bar Chart: I am aware of the EQCR appointment

requirement

Figure 4.29 indicate that for Question 7.2 - I am aware that audit firms of public interest
entities are required to appoint an engagement quality control reviewer (EQCR) in
addition to the audit partner?; 0.84% of participants strongly disagree; 4.20% disagree;
18.49% were unsure; 37.82% agree and 38.66% strongly agreed. The mode was 1
(Strongly agree), with a skewness of 0.819, and a kurtosis of 0.289. This indicates a
left skew towards agreement, as demonstrated by majority of respondents indicating
that they were aware of the requirement for an engagement quality review partner to
be appointed PIE’s under certain circumstances.

51
4.3.3.7 Question 7.3 – Are you aware that audit firms are subject to reviews by
the BAOA as per a three year cycle.

Figure 4.30 - Frequency Bar Chart: I am aware that audit firms are subject to
BAOA reviews

Figure 4.30 indicate that for Question 7.3 – Are you aware that audit firms are subject
to reviews by the BAOA as per a three year cycle?; 2.52% of participants strongly
disagree; 3.36% disagree; 11.76% were unsure; 43.70% agree and 38.66% strongly
agreed. The mode was 2 (Agree), with a skewness of 1.298, and a kurtosis of 1.993.
This indicates a left skew towards agreement, as demonstrated by the majority of
respondents indicating that they were aware of BAOA reviews being conducted on
audit firms.

52
4.3.3.8 Question - 7.4 Are you aware of the quality assurance plan that your
organisation's external auditor has in place?

Figure 4.31 - Frequency Bar Chart: I am aware of the quality assurance plan
that my organisation's external auditor has in place

Figure 4.31 indicate that for Question 7.4 - Are you aware of the quality assurance plan
that your organisation's external auditor has in place?; 20.84% of participants strongly
disagree; 8.4% disagree; 14.29% were unsure; 47.06% agree and 29.41% strongly
agreed. The mode was 2 (Agree), with a skewness of 0.833, and a kurtosis of 0.333.
This indicates a left skew towards agreement, as demonstrated by the majority of
respondents indicating that they were aware of the quality assurance plans of their
external audit firm.

4.4. CONCLUSION
The study was successfully completed with 119 respondents participating in the survey
questionnaire. A fair representation was obtained from both private and public sector
respondents.
The results reflected that majority of the participants were in favour of Mandatory audit
firm rotation. Respondents indicated that they would rotate auditors to increase
independence and objectivity. Majority of respondents felt that their organisation had
a comprehensive documented policy in place on external audit governance.
The last chapter of this study provides a discussion of the results in relation to the study
objective and the literature review.

53
CHAPTER 5 - CONCLUSION AND RECOMMENDATIONS

5.1. INTRODUCTION
In this final chapter, the results of the data analysis presented in Chapter 4 are
discussed in relation to the research objectives. The conclusion on the research
findings in relation to the research objectives will be presented and there after
recommendations will be made based on the research findings. Scope of future
research will be presented in the closing conclusion.

5.2. FINDINGS FROM THE STUDY

The aim of this study was to investigate if MAFR would be supported by the
governance structures of Botswana’s public interest entities and what the motivating
factors would be in favour of audit rotation. The research questions support the aim
and are discussed with conclusions based on the observations of Chapter 4:

5.2.1. FINDINGS FROM THE LITERATURE REVIEW

5.2.1.1. Trends around the globe

Countries including Canada, South Korea, Greece and Singapore who had
introduced MAFR in to their economies had abolished MAFR before the 1st tenure
of rotation could be introduced. The perceived benefits of MAFR in these countries
could never be calculated. America and the United Kingdom both went to great
lengths to study and understand the impact of MAFR and in both instances ruled
against MAFR. MAFR is currently being enforced in the EU and has recently been
introduced in South Africa, effective April 2023 which indicates that the topic is still
contentious. However, to date there has not been consensus in the market to
indicate that MAFR is in fact beneficial.

5.2.1.2. Benefits vs unintended impact

The main reason often cited for MAFR support is the concept of audit independence.
However from the literature review various claims are made that MAFR would not only
enhance auditor independence but that it would reduce auditor complacency, increase
greater innovation, increase the quality of audits and minimise misstatements. No
studies could be found to support the claims on the suggested benefits of MAFR but
instead studies confirmed that audit costs would increase, audit committee role would

54
be undermined and that it would greatly have an impact on the audit market as MAFR
would result in this being narrowed (PWC, 2013; Cameran et al., 2015; Kwon et al.,
2014; Natesan, 2015; Chambers, 2011; James, 2015; and Copenhagen Economics,
2012).
5.2.1.3. Self-Regulation
The audit profession is greatly regulated via international bodies and regulators. At the
core of all the standards, code of conducts and quality reviews that the industry
prescribes to in most countries, lies the concept of independency, objectivity, integrity
and professional scepticism (IFAC, 2017; IESBA, 2016; and IAASB, 2016:79). The
results of the study indicated that governance structures were fairly aware of the
regulation imposed on the audit profession and still MAFR is supported with the aim of
increasing auditor independence and audit scepticism for a profession that is already
heavily self-regulated.

5.2.2. FINDINGS FROM THE RESEARCH

5.2.2.1. Research Question: Are the Governance Structures for PIE’s in

Botswana in favour Of MAFR
Governance structures of PIE’s include those individuals tasked with the responsibility
for an organisation’s financial reporting oversight. The study sought to understand if
these governance structures would be in support of MAFR and for what reasons.
Results of the survey questionnaire reflected that 76% of respondents were in support
of MAFR. The sub-questions for this objective revealed that majority of participants felt
that MAFR would improve auditor independence (82% agreement), quality (62%
agreement) and scepticism (72% agreement). These results were in line with the
observations of James (2015) and Lennox (2014), who summarised the claimed
benefits made by regulators and policy makers that auditor independence and quality
would be enhanced with rotation.

Respondents were not clear as to how the cost of audit would be impacted by MAFR.
This was evident with 54% of the respondents agreeing that audit cost would increase
(24% were unsure), yet 79% agreed that there would be an increase in time and cost
spend orientating new auditors. These two concepts are related and yet the views of
the respondents did not align.

55
Selection of audit firms were not seen as a concern as 71% agreed that there were
enough options in the Botswana market. In contrast 28% agreed that the selection on
non-audit service providers would be restricted. James (2016) stated that markets
would be narrowed as the firm with a consulting relationship with the client would not
be able to bid for audit work. The Copenhagen Economics (2012) expanded on this
and noted that clients would be likely to gravitate to larger firms on rotation. The results
possibly indicate that there is a lack of understanding of how audit firm rotation would
be practically implemented. To ensure independence, a firm providing audit service
cannot bid for non-audit services and vice a versa.

5.2.2.2. Research Question: What are the factors that would motivate
governance structures of Botswana’s PIEs to rotate their audit firms?

Organisations, rotate their audit firms for various reasons, be it due to their internal
policies or due to a perceived best practice requirement. The study sought to
understand what would motivate organisations to rotate their auditors.

The results indicated that respondents would rotate auditors to increase independence
and objectivity (84% agreement), reduce auditor complacency (80% agreement) and
improve innovation in audits (65% agreement). The factor of least concern appeared
to be, reducing audit cost (27% agreement). What is not known from these results is if
these are a possible reflection on current service delivery issues being experienced by
the respondents. These responses support James (2016), who was also of the opinion
that audit rotation results in innovative audits and erosion of complacency.

5.2.2.3. Research question: what is the extent of established governance

processes in place to aid in the appointment, evaluation and ensuring
the independence of external auditors?

Well governed organisations ensure that they have appropriate policies and
procedures in place. Such policies should also be extended to the appointment,
evaluation and assessment of their auditor’s independence. The study sought to
understand the extent of established governance policies and procedures the
organisations of the participants had in place to govern the relationship with external
auditors.

56
Statements depicting the traits of a governance process regarding external auditors
were asked in the questionnaire. The results indicated that 74% of respondents felt
that their organisation had a comprehensive documented policy in place on external
audit governance. These governance policies included, appointment, evaluation,
independence considerations and rotation requirements for external auditors as
promoted by the King Report on Corporate Governance (IOD, 2016). However, the
statements on the occurrence of formal performance evaluation (63% agreement),
formal annual independence and objectivity assessment (63% agreement), and annual
meetings with external audit in the absence of management (60% agreement)
indicated that the governance policies are possibly not being enforced by the
respective Boards. These results are aligned with the Global Competitiveness index
of 2016-2017, which placed Botswana 52nd /138 for the efficacy of corporate boards.
This statements indicate that progress is required in the arena of corporate governance
(World Economic Forum, 2016: 125).

The last section of the survey asked questions to determine if there was an
understanding of the regulations imposed by Audit regulators and policy makers. The
statements related to measures put in place to ensure auditor quality and
independence specifically relating to PIE’s. These measures further aid in the
governance of the audit profession. The results indicated that respondents were
aware of the mandatory audit partner requirement, engagement quality review partner
requirements and the regulatory reviews conducted by BAOA. Majority of respondents
(76% agreement) indicated their awareness of the quality plan their external auditors
had in place. However, one could argue that the quality plan awareness is a component
of the governance policy on external auditors that should be in place for the
organisation. This result is an additional indication that governance enhancements are
required.

5.2.2.4. Research Question: What recommendations can be made to audit

professionals and governance structures to improve the audit
profession in Botswana?
The final objective of the study was to make recommendations based on the findings
noted from the survey results. This is done in 5.3 that follows.

57
5.2.3. CONCLUSIONS

MAFR is supported by the Governance structures of PIE’s in Botswana. It should be

noted that there is uncertainty regarding the cost of MAFR and possibly not a clear
understanding of the practical implications on audit firm service offerings due to market
concentration.

The need for auditor independence and objectivity, reduced auditor complacency and
greater audit innovation are the main factors that motivate audit rotation in Botswana.

Governance policies appear to be in place regarding the; appointment, evaluation,

independence considerations and rotation requirements of external auditors. However
there are indications that these policies may not be comprehensive and fully enforced.

5.3. RECOMMENDATIONS

Based on the research findings, the following recommendations are proposed to

external audit stakeholders:
• Before measures such as MAFR are considered to enhance the independence of
external audit, responsible actions should be taken by regulators and policy
developers. These actions should include research to understand what the cost of
MAFR would bring and the impact this would have on Botswana PIEs. Furthermore,
the practical implications on audit firm service offerings due to market concentration
should be investigated and how this would impact on multi-national organisations
with representation in Botswana.
• Audit professionals should investigate the complacency concern identified. Service
delivery should be relooked and reconsidered to ensure client expectations are met
within the confines of an independence framework.
• Lastly, all stakeholders should invest time and effort into addressing the corporate
governance matters that aids as safe guards for auditor independence. External
audit governance policies should be revised and reviewed annually by Boards and
the same enforced without fault to ensure governance can be maintained. If
successfully implemented stakeholders might find that MAFR bring no added
benefit.

58
 The recommendations aim to improve the understanding of the general population
of external audit stakeholder and aid in enhancing the relationship between audit
firms and their client.

5.4. FUTURE RESEARCH

Various studies have been conducted on the unintended consequences resulting from
mandatory audit firm rotation, however, there are no empirical studies but only opinions
on the benefits of mandatory audit firm rotation. It is proposed that future research
should consider an investigation into the benefits other countries have derived from
MAFR.

5.5. CONCLUSION

The study was conducted to investigate the factors that influence motivation towards
MAFR by governance structures in Botswana. The results indicated the preference for
MAFR but also identified that an understanding on cost implications and practical
implications on audit firm services was lacking. Independence, objectivity and
complacency of auditors were identified as the main factors that would drive audit
rotation. The results also indicated a need for enhanced and enforced governance
processes regarding external auditors. Lastly, recommendations were made to
external audit stakeholders to enhance the understanding of issues identified and to
better the relationships between audit professionals and their clients.

59
LIST OF REFERENCES

ACCA. 2017. Corporate Governance and its impact on Audit

practice.http://www.accaglobal.com/zm/en/student/exam-support-
resources/professional-exams-study-resources/p7/technical-articles/corpgov-
audit.html Date of access: 2 Feb. 2017.

Agulhas, B.P. 2016. IRBA announces measures to strengthen auditor

independence. https://www.irba.co.za/upload/report_files/20160905021955_37.-
IRBA-announces-measures-to-strengthen-auditor-independence.docx Date of
access: 5 Dec.2016.

Averkamp, H. 2017. What is the difference between public sector and private
sector? https://www.accountingcoach.com/blog/public-sector-private-sector Date of
access: 9 May 2017.

BAOA. 2014. Notice To Botswana Accountancy Oversight Authority Stakeholders:

Adoption Of King Corporate Governance Code As Recommended Best Practice
Corporate Governance Model For Botswana.
http://www.baoa.org.bw/sites/default/files/Adoption%20Of%20King%20Corporate%2
0Governance%20Code%20As%20Recommended%20Best%20Practice%20Corpora
te%20Governance%20Model.pdf Date of access: 29 May 2017.

BAOA. 2015a. Annual Report, Financial Reporting Monitoring & Corporate

Governance, Gaborone: BAOA.

BAOA. 2015b. Summary of Audit Practice reviews for the year ended 31 December
2015, For Publication on the BAOA Website, Gaborone: BAOA.

BAOA. 2017. Botswana Accountancy Oversight Authority

http://www.baoa.org.bw/?q=about Date of access: 18 Apr. 2017.

Cameran, Francis, J.R., Marra, A. and Pettinicchio, A. 2015. Are There Adverse
Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience,
American Accounting Association, vol. 34, no. 1, pp. 1-24.

60
Chalmers, J. 2013. PWC, Competition, transparency and quality – the Competition
Commission’s final report http://www.pwc.co.uk/who-we-are/competition-
commissions-audit-market-investigation.html Date of access: 12 Apr. 2017.

Chambers, R.F. 2011. Institute of Internal Auditors Response: Rulemaking Docket

matter No.37 - Concept release on auditor independence and audit firm rotation, 14
December. https://pcaobus.org/Rulemaking/Docket037/318_IIA.pdf Date of access: 4
Feb. 2017.

Copenhagen Economics. 2012. Regulation of the Market for Statutory Audits:

Review of the EC impact assessment.
February. https://www.copenhageneconomics.com/dyn/resources/Publication/public
ationPDF/2/322/1441720584/review-of-ec-impact-assessment-of-audit-market.pdf
Date of access: 8 Apr. 2017.

Dao, M. and Pham, T. 2014. Audit tenure, auditor specialisation and audit report lag,
Managerial Auditing Journal, vol. 29, no. 6, pp. 490-512.

European Commission. 2014. European Parliament backs Commission proposals

on new rules to improve the quality of statutory audit, http://europa.eu/rapid/press-
release_STATEMENT-14-104_en.htm Date of access: 2 Apr. 2017.

Ewelt-Knauer, C., Gold, A. and Pott, C. 2012. What do we know about mandatory
audit firm rotation https://www.icas.com/__data/assets/pdf_file/0016/100843/ICAS-
Mandatory-Audit-Firm-Rotation-Report.pdf Date of access: 10 Apr. 2017.

Gerakos, J. and Syverson, C. 2015. Competition in the Audit market: Policy

implications, Journal of Accounting Research, vol. 53, no. 4, September, pp. 725-
775.

Giles, J. 2013. The JSE Listing Requirements and King III and IV.
https://www.michalsons.com/blog/jse-listing-requirements-king-iii-iv/11545 Date of
access: 29 May 2017.

Hodgson, P. 2016. Auditor rotation: are we going round in circles?

https://www.complianceweek.com/blogs/global-glimpses/auditor-rotation-are-we-
going-round-in-circles Date of access: 2 Apr. 2017.

61
Hodgson, P. 2016. New EU auditor rotation rules have auditors playing musical
chairs https://www.complianceweek.com/blogs/global-glimpses/new-eu-auditor-
rotation-rules-have-auditors-playing-musical-chairs#.WO_gNvl94mc Date of access:
3 Apr. 2017.

IAASB. 2009. International Standards on Quality Control 1. Quality Control for Firms
that Preform Audits and Reviews of Financial Statements and other Assurance
Related Services Engagements. New York: International Auditing and Assurance
Standards Board

IAASB. 2016. Handbook of International Quality Control, Auditing, Review, Other

Assurance, and Related Services Pronouncements. New York: International Auditing
and Assurance Standards Board.

IESBA. 2016. IESBA Code of conduct. https://www.ethicsboard.org/iesba-code

Date of access: 7 Apr.2017.

IFAC. 2017. About IFAC. https://www.ifac.org/about-ifac Date of access: 18 Apr.

2017.

IOD. 2016. King IV Report. http://www.iodsa.co.za/page/KingIVReport Date of

access: 29 May 2017.

James, R. 2015. Assurance, The virtues of audit rotation.

https://www.accountingtoday.com/news/the-virtues-of-audit-rotation Date of access:
2 Apr. 2017.

KPMG. 2016. Mandatory Audit Firm Rotation. Johannesburg: KPMG.

Kwong, S.Y., Lim, Y. and Simnett, R. 2014. The effect of Mandatory Audit Frim
Rotation on Audit Quality and Audit Fees: Empirical Evidence from the Korean Audit
Market, American Accounting Association, vol. 33, no. 4, pp. 167-195.

Lennox, C. 2014. Audit tenure and Rotation, Chapter 8.

https://msbfile03.usc.edu/digitalmeasures/clennox/intellcont/Book%20chapter-
1.pdf Date of access: 29 May 2017.

62
Manganye, l. .2016. How independent is your auditor and audit committee?
http://www.irbalearning.co.za/news-headlines/press-releases/how-independent-is-
your-auditor-and-audit-committee Date of access:11 Feb. 2017.

Monetary Authority of Singapore. 2016. Consultation on Review of Mandatory Audit

Firm Rotation for Local Banks.

http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%2
0Papers/Consultation%20Paper%20on%20Review%20of%20Mandatory%20Audit%
20Firm%20Rotation%20for%20Local%20Banks.pdf Date of access: 8 Apr. 2017.

Natesan, P. 2015. Analysis: Mandatory Audit firm rotation', Accountancy SA, 1

March. http://www.accountancysa.org.za/analysismandatoryauditfirmrotation/ Date of
access: 11 Nov. 2016.

Office of Fair Trading. 2011. Statutory audit. Market investigation reference to the
Competition Commission of the supply of statutory audit services to large companies
in the
UK. https://assets.publishing.service.gov.uk/media/532ad1f8ed915d0e60000307/oft
1357MIR.pdf Date of access: 10 Apr. 2017.

PCAOB. 2011. Concept release on auditor independence and audit firm rotation,
rulemaking docket matter no 37: release no.2011-
006. http.pcaobus.rog/Rules/Rulemaking/Docket037/Release_2011-005.pdf Date of
access: 3 Mar. 2017.

PWC. 2013. Point of View: Mandatory Audit firm rotation - other changes would be
better for investors. https://www.pwc.com/gx/en/audit-
services/publications/assets/pwc-pointofview-mandatoryrotation.pdf Date of access:
19 Mar. 2017.

Rezaee, Z. 2012. Corporate Governance Post-Sarbanes-Oxley: Regulations,

Requirements, and Integrated Processes, Hoboken, NJ, USA: Hoboken, NJ, USA.

Sarniak, R. 2015. 9 types of research bias and how to avoid them

https://www.quirks.com/articles/9-types-of-research-bias-and-how-to-avoid-them
Date of access: 20 Jul. 2017.

63
Saunders, M., Lewis, P. and Thornhill, A. 2009. Research methods for business
students, 5th edition, Edinburgh: Pearson Education Limited.

Tysiac, K. 2013. Bill Prohibiting mandatory audit firm rotation passes U.S House.
http://www.journalofaccountancy.com/news/2013/jul/20138294.html Date of access:
15 Apr. 2017.

University of Southern California. 2017. Organizing Your Social Sciences Research

Paper. http://libguides.usc.edu/writingguide/quantitative Date of access: 17 Jul. 2017.

Walliman, N. 2011. Research Methods. The Basics, 1st edition, New York:
Routledge.

World Economic Forum. 2016. The Global Competitiveness Report 2016 – 2017.
http://www3.weforum.org/docs/GCR2016-
2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf Date of
access: 30 May 2017.

Ziady, H. 2016. Mixed reaction to forced rotation of audit firms.

https://www.businesslive.co.za/bd/companies/20160830mixedreactiontoforcedrotatio
nofauditfirms/ Date of access: 11 Feb. 2017.

64
ANNEXURE A – COVER LETTER

65
ANNEXURE B – QUESTIONNAIRE

Questions marked with a * are required Exit Survey

Section one
* 1. Please indicate the sector of your organisation.

Public Sector

Private Sector

* 2. Please select your current position from the list of options below.

Audit Committee Chairman

Audit Committee Member

Board of Director Chairman

Board of Director member

Chief Executive Officer

Chief Financial Officer

Other (please provide)

Section two
3. What is your view of mandatory audit firm rotation?
Strongly Agree Unsure Disagree Strongly
Agree Disagree
* 3.1 I am in support of mandatory
audit firm rotation

3.2 Comments

66
4. What effect do you believe mandatory audit firm rotation would have for your organisation in terms
of the following statements?
Strongly Agree Unsure Disagree Strongly
Agree Disagree
* 4.1 Improve auditor independence
* 4.2 Enhance audit quality
* 4.3 Improve audit scepticism
* 4.4 Increase audit costs
* 4.5 Increase in time and costs
spent orientating new auditors
* 4.6 Undermine the audit committee's
role of appointing and evaluating external
auditors
* 4.7 There are enough audit firms we can
select from that can support our
organisation
* 4.8 Restrict our selection of our non-
audit service providers
4.9 Other (please provide)

Section three
5. What factors in your view drive audit rotation in your organisation?
Strongly Agree Unsure Disagree Strongly
Agree Disagree
* 5.1 Greater innovation in audits
* 5.2 Reducing auditor complacency
* 5.3 Minimising misstatements
* 5.4 Increasing auditor independence
and objectivity
* 5.5 Reducing audit costs
5.6 Other (please provide)

Section four
6. The process governing external auditors in my organisation include:
Strongly Agree Unsure Disagree Strongly
Agree Disagree
* 6.1 A comprehensive documented policy on
external audit governance, which includes,

67
 appointment, evaluation, independence
considerations and rotation requirements.
* 6.2 A formal annual performance
evaluation with established audit quality
indicators.
* 6.3 A formal annual assessment of auditor
independence and objectivity.
* 6.4 An annual meeting with the external
auditors without management being present,
to facilitate exchange of views and concerns.

6.5 Other (please provide)

7. Please indicate your view on the following:

Strongly Agree Unsure Disagree Strongly
Agree Disagree
* 7.1 I am aware that mandatory audit
partner rotation is required for public interest
entities (specific criteria apply)
* 7.2 I am aware that audit firms of public
interest entities are required to appoint an
engagement quality control reviewer in
addition to the audit partner (specific criteria
apply)
* 7.3 I am aware that audit firms are subject
to reviews by the Botswana Accountancy
Oversight Authority as per a three year cycle.
* 7.4 I am aware of the quality assurance plan
that my organisation's external auditor has in
place.

7.5 Other (please provide)

Online Survey Software Powered by

Inserted from <https://www.questionpro.com/a/TakeSurvey?ext_ref=test_response&id=5759796>

68
ANNEXURE C – PERMISSION LETTER

69