Steinhoff: blinded by ‘science’?

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

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?