Stein­hoff: blinded by ‘sci­ence’?

Ac­count­ing and au­dit­ing are art forms that may be lack­ing in pre­ci­sion

Financial Mail - - BOARDROOM TAILS - @an­ncrotty

If I walked into any listed com­pany, forced ev­ery­one to stop what they were do­ing and then spent a week in­ves­ti­gat­ing that com­pany, I’m quite sure I would find enough to do se­ri­ous dam­age to the com­pany’s share price.” So said a wise friend, who is not prone to dra­matic claims, af­ter re­watch­ing Markus Jooste’s par­lia­men­tary per­for­mance.

The grim re­al­ity for the ac­count­ing and au­dit­ing pro­fes­sions is that they must be des­per­ately hop­ing the PWC in­ves­ti­ga­tion into Stein­hoff will turn up some­thing indis­putably wrong — ei­ther one huge “some­thing” or hun­dreds of smaller “some­things” that can­not be lightly dis­missed as a mat­ter of in­ter­pre­ta­tion. The R200bn or so write-off recorded in the in­terim fig­ures re­leased in July cer­tainly points to the like­li­hood of some­thing indis­putably wrong, and so the ac­count­ing and au­dit­ing pro­fes­sions may be saved.

But this might only be so if Jooste is not in­ter­ro­gated too closely about any of it. In par­lia­ment he seemed to shrug off the de­ba­cle as in­con­se­quen­tial and noth­ing to do with him, as much as to say: “The whole thing was fine when I left it on De­cem­ber 4.”

What if Jooste, EX-CFO Ben la Grange and for­mer chair Christo Wiese stick to their in­di­vid­ual sto­ries and, wit­tingly or not, re­in­force each other’s view that there was noth­ing wrong at Stein­hoff?

The fact is, just over nine months on, the Stein­hoff saga — Jooste says the me­dia has sen­sa­tion­alised it by call­ing it a scan­dal — re­minds us acutely that ac­count­ing and its big brother, au­dit­ing, are more lit­er­ary art forms than precise sci­ence.

We are dis­tracted from this re­al­ity and fre­quently in­tim­i­dated be­cause of all the fig­ures in­volved in ac­count­ing for firms’ ac­tiv­i­ties and the in­evitable pomp and cir­cum­stance with which th­ese are de­liv­ered to the pub­lic.

And what if — as Jooste, La Grange and Wiese seem to sug­gest — every­body in a long line of over­seers went along with the fic­tion that was Stein­hoff’s ac­counts. Un­til one of them de­cided not to.

What hap­pened? Why did Deloitte get jit­tery about the Stein­hoff story at some stage in 2017? Did it see what was hap­pen­ing at KPMG and think now was the time for more sci­en­tific rigour and less artis­tic in­ter­pre­ta­tion? Per­haps it looked a lit­tle closer, with a cyn­i­cal, in­de­pen­dent eye, and re­alised it may have been play­ing as much an en­abling role as an au­dit­ing one.

On Jooste’s ver­sion, Deloitte’s re­fusal to sign off on the 2017 ac­counts was the only rea­son Stein­hoff share­hold­ers were forced to look on help­lessly as more than 90% of the value of their in­vest­ment dis­ap­peared. Per­haps a closer look at the myr­iad re­lated-party trans­ac­tions — which ap­pear to have stretched the group’s ex­tremely flex­i­ble stan­dards — raised con­cerns around fraud.

Of course it’s not just the ac­coun­tants and au­di­tors to blame; it’s the di­rec­tors, bankers, cor­po­rate ad­vis­ers, an­a­lysts and per­haps even the me­dia. We all en­abled this fic­tional tale.

The chill­ing thought is that if my friend is right — and even as we balk in­dig­nantly at Stein­hoff — we may be en­abling sim­i­lar ac­tiv­ity at other com­pa­nies (though it’s un­likely to be of a sim­i­lar mag­ni­tude). Per­haps we need to look more closely at com­pa­nies that squeal loudly against manda­tory au­di­tor ro­ta­tion.

Did Deloitte see what was hap­pen­ing at KPMG and think now was the time for more sci­en­tific rigour?

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