The Accounting Industry in South Africa 2023

Introduction

The accounting sector is the guarantor of financial reporting standards and performs a critical function in the economy. The industry continues to be affected by recent accounting scandals which have lowered trust in the profession. While recent regulations aim to bolster efforts to hold auditors to account, there is concern that they may make the profession unattractive to graduates. This and emigration has led to concern over a shortage of auditors. Transformation, gender diversity and the continuing decline in quality of accounting in the public sector are ongoing concerns. Regulatory changes that are set to disrupt the industry include the mandatory rotation of auditors, which is due to take effect on 1 April 2023.

Opportunities

Business restructuring services such as business rescue and liquidations are likely to grow with the poor economy. Effective knowledge management can promote innovation, skills retention and secure a competitive advantage. Mandatory audit firm rotation could open the audit market up to new players. Small and mid-tier firms are set to benefit from mandatory audit firm rotation regulations, which come into effect in 2023. Technologies such as artificial intelligence (AI) and machine learning are creating new opportunities for providers of professional services. With trading under the African Continental Free Trade Area agreement underway as of 1 January 2021, analysts expect business activity and investment in Africa to rise.

Outlook

The low economic growth outlook presents benefits for restructuring professionals as more companies struggle to survive, and challenges for those involved in other corporate work as investment and economic growth slows. Other challenges are partly due to the loss in trust following various accounting scandals. New technology and regulations are likely to continue eroding the competitiveness of large accounting firms. Some role players say mandatory audit firm rotation will promote competitiveness and others it will limit the number of firms that are eligible to undertake audits.

Strengths

Formal barriers to entry are low. Its diverse client base includes businesses from all sectors, publicly-traded companies, multinational corporations, state-owned enterprises, public sector entities and public interest entities. South African chartered accountants are highly sought after in South Africa and further afield. The sector has a high level of flexibility and agility. The sector provides professional services to clients in sub-Saharan Africa. The South African accounting sector is well-established and its audit regulator is internationally-recognised. The world’s largest accounting networks have member firms in South Africa.

Threats

Further accounting scandals could cause irreparable harm to the sector’s image. Mandatory audit firm rotation could reduce the number of firms able to carry out audits if it results in a significant increase in costs. New regulations for auditors could disincentivise graduates from opting to join the profession. The ongoing exodus of professionals from South Africa.

Weaknesses

Confidence in the integrity of the sector has been compromised by high-profile fraud and financial irregularities. Lack of skilled professionals, particularly in local government finance departments. Small firms typically do not have the capacity to audit large companies. The sector is dominated by four multinational players and is highly concentrated. The sector is perceived to lack independence and accountability. There are relatively few mid-tier players.