What KPMG could face
The Independent Regulatory Board for Auditors (IRBA) recently announced it’s instigating an investigation of its own volition into the 2014 audit of the Guptas’ Linkway Trading conducted by KPMG.
Besides the potential reputation damage that the global accounting firm might suffer, there are punitive options that IRBA can impose on it.
Responsibilities of auditors are encapsulated in the Auditing Profession Act 26 of 2005, and disciplinary rule 8 lays out the sanctions that can be imposed on the auditor responsible.
The fine’s hardly likely to cause a partner at KPMG to quiver in their boots, given that they’re probably earning close to R650 000 a month with bonuses. But what would hurt an auditor is the right to practice for any amount of time. Moneyweb put follow-up questions to the IRBA and got the following written responses:
Moneyweb: Further to reading Disciplinary Rule 8, the real threat for KPMG would be “a suspension of the right to practice as a registered auditor for a specific period” – what is the longest suspension IRBA has ever imposed?
IRBA: The most severe sanction would be the cancellation of the registration of the registered auditor concerned and removal of his or her name from the register. The sanction of suspending the right to practice as a registered auditor for a specific period is generally not used.
Moneyweb: I presume suspension by IRBA would prevent KPMG from practicing as an auditor. Would this be a national suspension or limited by geography or cluster?
IRBA: Should the outcome from a disciplinary hearing result in removal of a registered auditor from the register, this would be the individuals under investigation and not the audit firm.
Moneyweb: The next question is on the scope of the investigation; is it within the powers of the IRBA to understand the entire relationship KPMG had with Gupta/ Oakbay-related companies to deduce whether this compromised them in any way? Will IRBA try and unpack and understand that?
IRBA: The current investigation is focussed on the allegations pertaining to the 2014 audit of Linkway Trading.
Moneyweb: If KPMG disagrees with the findings, what relief in law do they have to challenge it?
IRBA: It has the right to challenge this and proceed to a disciplinary hearing. The conditions for, and process of disciplinary hearings, are laid out in Section 50 of the Auditing Profession Act.
So, should KPMG partner Jacques Wessels be found guilty of neglecting his duties, we will probably never find out the reasons why. As you can see in the answer to question three, the IRBA’s remit is purely the audit.