South African corporate failures and audit failures, including those of VBS Bank, Tongaat, Steinhoff and KPMG, have exposed vulnerabilities in audit quality and the role of governance failures in auditing firms. In auditing firms, good corporate governance principles are not always followed. Additionally, South Africa does not have a corporate governance code that governs auditing firms, nor is there a sector supplement to the King IV Report on Corporate Governance that applies to other industries. To identify areas for improvement in South Africa, this study aimed to ascertain the current corporate governance practices in South African auditing firms and compare them to the United Kingdom (UK) Audit Firm Governance Code. A structured questionnaire based on the UK Audit Firm Governance Code was used to collect qualitative data. Nine large and medium-sized South African auditing firms with 20 or more auditing partners made up the population. The literature study emphasised the value of good corporate governance in auditing firms, as well as the difficulties these firms encounter with corporate governance. The review also emphasised the absence of codes and standards regulating corporate governance in auditing firms. The empirical results highlighted the resultant inconsistencies in corporate governance application in South African auditing firms. Areas requiring improvement were identified in the study.
Research purpose: The purpose of this study is to examine the corporate governance practices disclosed by large- and medium-sized audit firms in South Africa, with a particular focus on transparency reports. Audit firms serve the public interest.Motivation for the study: This study was motivated by recent corporate failures in South Africa, such KPMG, VBS Bank, and Steinhoff, to mention a few.Research approach/design and method: The research approach followed for this study consists of a mixed method approach. Qualitative secondary data were obtained from publicly accessible information published on the websites of the audit firms. The data, which consisted of the firms’ transparency reports, were analysed through content analysis. The results were then converted into quantitative data.Main findings: The main findings reveal that audit firms in South Africa do not disclose sufficient corporate governance information in their transparency reports. There are inconsistencies between audit firms.Practical/managerial implications: In South Africa, audit firms do not have a corporate governance code for audit firms, and thus audit firms are not disclosing the relevant corporate governance information to their stakeholders.Contribution/value-add: This article contributes to the limited literature available on audit firm governance. Based on the findings, the study proposes best practice recommendations and regulatory and statutory recommendations regarding audit firm governance.
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