Audit scandals deter investors

THEY CAN’T TRUST SA FINANCIAL STATEMENTS Lack of strong action after state capture and Steinhoff allegations stained nation’s reputation.

State capture and Steinhoff is costing SA desperately needed foreign investment.

The fall from grace of the South African accounting and auditing industry following the emergence of the state capture and Steinhoff scandals is costing South Africa desperately needed foreign investment.

This was one of the key messages from Trevor Manuel, former minister of finance minister, chairperson of Old Mutual and special envoy deployed by President Cyril Ramaphosa to source $100 billion of international investments for South Africa, during a panel discussion hosted by the South African Institute of Chartered Accountants (Saica).

“The president has given me a job to moonlight to raise billions.

“We need to speak to people outside the country and convince them to invest.

“They say they cannot invest here because we cannot believe what we read (in audited financial statements).”

Geoffrey Qhena, CEO of the Industrial Development Corporation (IDC) and a chartered accountant, says the IDC relies on audit reports to make investment decisions and it’s critical that these statements are accurate.

“But it is not only the auditors (who should be held accountable) but the chartered accountants who are preparing the financial statements. What is it that they are taking responsibility for?”

Several other panel participants also criticised the lack of proactive and decisive action by accounting bodies, such as Saica and the Independent Regulatory Board for Auditors (Irba), after the state capture and Steinhoff scandals broke.

Professor Linda de Beer, the chairperson of the JSE Financial Reporting Investigations Panel, a member of the King Committee on Corporate Governance and a former Saica executive, was especially critical.

During the panel discussion and during an earlier keynote address, she advocated significant governance changes at Saica to allow for a more proactive and assertive oversight function to protect the integrity of the profession. “We saw it at the start of what happened at KPMG and in a way, we have seen it with Saica.

“We are so politically correct that we either say nothing or tone down how bad it is.

“Be honest and open and transparent and say we have a problem and we don’t know yet how big the problem is.

“But denial is actually insulting for people out there.”

De Beer also called on Saica to enable a mechanism to suspend members who bring the profession into disrepute, even before they are found guilty in disciplinary or other legal processes.

“Saica can create a mechanism to allow you to suspend a member due to negative news or allegations in the public.

“You must tell the member that he or she may not be guilty, but as long as the legal processes are ongoing, we have no choice but to suspend you.”

South Africa’s auditing industry was the top-ranked industry in the world, according to the WEF World Competitiveness report.

“Everybody (in the accounting and auditing industry) was very comfortable. We are number one in the world. We are untouchable. When we fell from there, we fell to the bottom,” Manuel said.