Auditor Tenure and Independence: Evidence from Safaricom Plc

Abstract: Audit independence is paramount for corporate accountability and market confidence, particularly in rapidly evolving emerging economies. This study examines its practical application within Kenya's telecommunications sector, using Safaricom PLC – contributing approximately 7% to Kenya's GDP – as a prominent case to illustrate the challenges and implications. Despite Safaricom's robust governance, its prolonged 14-year auditor tenure with PwC Kenya, and KES 167 million in non-audit fees (approaching the 30% local threshold), raised significant concerns about familiarity and self-review threats. This research addresses a notable knowledge gap in understanding these specific challenges within emerging market telecommunications. Employing a detailed case study approach spanning Safaricom's audit relationship from 2009 to 2024, the study analyzed quantitative independence indicators, qualitative changes in audit reports, and stakeholder perceptions. The 2024 auditor transition to EY served as a valuable natural experiment. Findings reveal a strong negative correlation (r=−0.73, p<0.05) between prolonged auditor tenure and audit independence, with the Independence Index decreasing by 2.847 points for each additional year of tenure (p=0.002). This manifested as a 40% decline in management letter issues during PwC's final five years. The transition to EY resulted in an immediate 104% increase in audit fees and a significant rise in management letter issues (from 2 to 8), alongside an increase in investor confidence (from 23.1 to 67.8).

Audit Independence, Auditor Tenure, Familiarity Threat, Emerging Markets, Corporate Governance, Safaricom

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