Many start to review their relationship
EMBATTLED audit firm KPMG looks set for more stormy days ahead with threats of lawsuits looming large against the firm and audit committees of listed companies starting to review their relationships with the Gupta-tainted firm.
Melanie de Nysschen, a corporate finance principal at Bravura, said that restoring trust in KPMG might take a lot longer than KPMG anticipated, especially given the long-standing relationship it had with the Gupta-related entities.
“The latest turn in events has shown that auditor independence is an absolute necessity rather than an idealistic concept in the prevention of corruption and fraud. All eyes will be on corporate South Africa and how it responds next,” Nysschen said.
The firm last week took an unprecedented step letting go of its chief executive, chief operating officer, board chairperson and six other partners after the firm admitted that its investigation for the work it did for the Gupta companies and the SA Revenue Service’s (Sars’) “rogue unit” report had “fallen short” of its standards.
The firm also undertook to repay the R23million in fees it earned from Sars and donate a further R40m it earned from the Guptas to anti-corruption activities.
However, the firm’s moves to cleanse its battered reputation were met with threats of lawsuits and backlash from corporate South Africa.
The assault on KPMG began on Friday with former finance minister, Pravin Gordhan, who was fingered by KPMG in the Sars report issuing a stern rebuke on the firm and saying he would be seeking legal advice in the matter.
“Whilst there have been personal consequences, the real issue that confronts us is the significant damage to our hardwon democracy, to our state institutions and ultimately to the South African people for whom we seek a better life,” Gordhan said.
Investec and Barclays Africa have said they were reviewing their relationship with the firm and would be making the necessary announcements soon.
Asset management group Sygnia was the first listed company to severe ties with KPMG after allegations emerged that KPMG did not pick up through its audit of Linkway Trading, a Gupta company, the R30m earmarked for an agricultural development project in the Free State, which was diverted to pay for the infamous Gupta wedding at Sun City.
Former KPMG chief executive Moses Kgosana and other partners attended the wedding.
KPMG audited the Gupta-related entities since 2002, a period of fifteen years.
Anti-corruption movement, Future SA said on Saturday that corporates must continue to review their relationship with KPMG and related activities in money laundering and tax evasion.
Sever ties “Future SA has previously called for the business community to sever their ties with KPMG South Africa for their role in aiding and abetting the Gupta family to loot public coffers.
“While we welcome the results of the review and the resignations of a number of senior KPMG officials as a result of the review, this is only a good start and not the end of the matter,” the organisation said.
Dr Iraj Abedian, a respected economist and chief executive of Pan-African Investment and Research Services, resigned as non-executive director of Munich Re of Africa, due to that KPMG was their external auditors. “External auditors play a critical role in ensuring good governance and compliance with ethical codes… So external auditors and their reputation matter beyond measure,” Abedian said.
The Independent Regulatory Board for Auditors, investigating KPMG for work it did for Gupta companies, has called for mandatory audit firm rotation that will become effective from April 1, 2023.
However, auditing firms insisted that such a move was unwarranted.
Ernst & Young Africa chief executive Ajen Sita and PricewaterhouseCoopers chief executive Dion Shango told members of Parliament’s finance committee in March that “South Africa did not have a known crisis of the independence of its auditing profession, so should not rush into changing the system.”
Sita further stressed that there had not been any audit failure in the past 20 years that could be attributed to a failure of independence of audit firms.
Business Leadership SA on Friday welcomed the findings of KPMG’s investigation and its willingness to act decisively. Newly installed KPMG chief executive Nhlanhla Dlomu said she would announce the new management team soon.
“The findings of the investigation have reinforced the criticality of leadership and governance model that sets the right tone from the top, and ensures appropriate accountability and responsibility at every level of management and leadership within the firm,” Dlomu said.