Bleeding KPMG SA rethinks its future
• Firm assessing how large it needs to be • Sibanye, Resilient also terminate auditing contracts
Embattled KPMG SA is reviewing its business model and will be assessing how large it needs to be and how long it will take to rebuild its business, now that it is losing some of its biggest clients.
This comes after the firm continued to bleed clients on Friday, with mining company Sibanye Gold and property group Resilient announcing that they would terminate their auditing contracts with KPMG.
The firm’s future was already unclear after it lost its largest private-sector audit client, Barclays Africa, last week, and auditor-general Kimi Makwetu cancelled its government auditing contracts in April.
And with more annual general meetings of listed companies coming up in the next few weeks, the firm could lose more clients.
KPMG SA’s CEO, Nhlamu Dlomu, said in an interview on Sunday that KPMG had already started looking at what sort of model would be appropriate for the type of firm it wanted to build in the future. “We have a number of clients who are holding their AGMs in this month [May] and we have to be realistic about the size of the business that’s left so that we can appropriately deal with it,” she said.
Dlomu said the firm — which launched a far-reaching reform process in September in response to concern about its work for the Guptas and the South African Revenue Service — was committed to cleaning itself up.
“I believe we are on the right track and taking the right steps to transform this business, but we need time to rebuild,” she said.
Also on Friday, the profession’s regulator, the Independent Regulatory Board for Auditors (Irba), stepped in to review KPMG’s turnaround strategy in an effort to address the credibility crisis being faced by the firm and by SA’s audit profession more generally.
The regulator said that it had taken the unusual step of mobilising a specialised team to do a review of KPMG’s turnaround strategy and the initiatives it was implementing internally to address any
identified weaknesses in its operations. Irba CEO Bernard Agulhas said in an interview this was the first time the board had undertaken such a review, differing considerably from regular statutory inspections it conducted on audit firms.
The review of the turnaround, which would be conducted by Irba’s own staff, would check that “they are actually doing what they say they are going to do”, Agulhas said. “We believe it is important that we now provide that independent perspective on what they are doing to restore confidence and their credibility in the market.
“It is important for us, not just for KPMG, but because of the crisis in the audit profession. It is important to now restore the credibility of the profession as a whole,” Agulhas said.
Dlomu welcomed the review, which Irba had discussed with the firm, and said that KPMG would co-operate fully with the regulator.
Sibanye will look for new external auditors for its next financial year, ending in December 2019, while at Resilient, KPMG’s appointment will terminate in November after it completes the 2018 audit.
Resilient had at its AGM in February reappointed KPMG as its auditor.
But the board subsequently resolved, “as a result of concerns over good governance and ethics compliance”, that it could no longer support its long-term association with KPMG. Collective investment scheme Cloud Atlas on Friday said it terminated its relationship in February and as a result its financial statements were late.
KPMG’s tenure as Barclays Africa’s external auditor will cease at the end of May, once the firm has completed the audit for the 2017 financial year, after the Barclays Africa board withdrew its recommendation to the upcoming AGM to reappoint the audit firm.
“It is disappointing when we lose high-profile clients, but we are trying to rebuild the firm and I am confident it can be rebuilt,” Dlomu said.
“We have clients who are committed to work with us and we employ close to 3,000 people, of which almost one-third are in training contracts, so we are responsible to those individuals [and to the clients who have stayed as well as] to the country.”