Challenges faced by black-owned audit firms in South Africa in penetrating the JSE audit market

Abstract

Black-owned audit firms in South Africa are experiencing challenges as they try and access JSE listed external audit. This study outlines the challenges that are being faced by the black-owned audit firms in their quest to access and gain JSE listed external audit clients. The study also explores the critical success factors essential for black-owned audit firms to successfully access and gain JSE listed external audit clients. Given that prior to the attainment of democracy in 1994, the majority of South Africans were purposefully excluded from meaningful participation in the economy, the research sought to gain an understanding of the perceived challenges faced by black-owned audit firms post-apartheid in accessing and gaining JSE listed external audit clients. This study reviewed the existing literature in to understand the challenges and critical success factors and applied the findings to the black-owned audit firms. The research adopted a qualitative approach in exploring the challenges and the critical success factors essential for black-owned audit firms to access JSE listed external audit clients. The research found that black-owned audit firms experienced challenges with lack of funding, lack of skills required for expansion, failure to attract and retain talent, lack of opportunities for growth, limited geographical reach, strong preference for Big 4, resistance among companies, lack of sector experience. The research identified critical success factors of having JSE accreditation, experienced / technical skills, firm experience, knowledge of the industry, firm size and reach, personal relationships, the project team, reputation and firm resources. The recommendations point to the need for stakeholder engagement and buy in from stakeholders such as the JSE, IRBA, listed companies, institutional investors, financiers and lenders. The recommendations also identify the need for the creation of enabling legislation that will help level the playing field and consideration for limiting auditor liability.