At least a third of the 22 small local auditing firms are facing collapse, struggling for a foothold in a market that continues to be dominated by four globally-linked players, BusinessWeek has established.
The local auditing market is dominated nearly entirely by PwC, KPMG, Deloitte and Ernst & Young, while the failure rate amongst small firms is estimated at 30%.
From the establishment of the local audit sector, the Big Four carved up the market, leveraging on their global prowess, linkages with multi-nationals, brand power and superior product and service offerings.
According to the Botswana Accountancy Oversight Authority (BAOA), by February, the local market had 32 registered audit firms, with only 10 of those certified to audit Public Interest Entities (PIEs).
PIEs comprise the cream of the crop in the market and contracts with these are critical to survival.
PIEs include listed companies, all banks, insurance, pension and provident funds and entities that statutorily are required to submit financial results to government.
PIEs also include organisations with annual revenues of P300 million and more than 200 employees.
On Tuesday, BAOA’s chief executive officer, Duncan Majinda told BusinessWeek that the failure rate amongst small audit firms was driven by amongst others, limited technical resources and lack of funding.
“The Authority is currently working on strategies to address the issue because we have established that most of them need continued professional development on capacity issues,” he said.
“Some of the interventions will include strengthening the qualification of the audit firms by engaging experts to advise and offer training to these firms.
The Authority will also
“Compliance standards are getting complicated by the day hence the reason why there is need for continuous training for auditors to get more experience and go in depth on the principles,” he said.
The CEO said the Authority was concerned about the overall strength of individual auditors, in the wake of recent controversies both within and outside Botswana.
Auditing firms’ capabilities have been called into question following the collapse of BCL Mine as well as Kingdom Bank. “We are not conducting tests on any firm, but we are carefully looking into the matter.
“From the results of audit practice reviews undertaken by the Authority in 2016, it is evident that audit firms need to improve their systems of quality controls, particularly human resource engagement performance, monitoring as well as independence and ethical elements.”
In 2016, 12 certified auditors were reviewed with only eight of them rated as satisfactory. All four who were deemed unsatisfactory, were certified auditors of Non-Public Interest Entities. From these four, two were de-registered, while the other two were scheduled for another review.
The BAOA has about 58 certified auditors of which 28 are certified to audit PIEs.