Analysis:
SHE REGRETS THE DAMAGE DONE TO THOUSANDS OF GOOD PEOPLE AT KPMG WHO DO THEIR JOBS WELL
Last Friday, life changed, not just for KPMG, but for every audit firm in SA. Any temptation the other three major audit firms — PwC, EY and Deloitte — may have to celebrate KPMG’s woes will be short-lived.
It will be curbed by the realisation that the 11-page summary of KPMG International’s findings into the Gupta scandal reads like something the Independent Regulatory Body for Auditors (Irba) would have crafted to promote audit firm rotation.
On Friday, thanks to KPMG, Irba won the long-running mandatory rotation argument. Mandatory rotation will certainly not serve the purposes of any of the big four audit firms. But it may serve the interests of shareholders who rely on external auditors being sufficiently independent to safeguard the integrity of corporate accounts.
South African audit firms must also realise the days of light-touch oversight and the easy presumption of the integrity of auditors have ended. Not only is mandatory rotation on the cards for 2023, audit firms will now have to deal with demands for improved disclosure of their operations.
The transparency reports required by the UK authorities must now be on the cards for local audit firms. This means disclosure of all income sources for their audit work.
For seven years, the public has not questioned the impressive top ranking enjoyed by the local audit profession in the World Economic Forum’s annual competitiveness survey.
Now they will look closely at the flimsy self-serving justification for that ranking; it was another case of auditors being judged by colleagues.
While the removal of the entire top management team at KPMG is unprecedented, there has been growing criticism of the tone of the 11-page report, particularly after former finance minister Pravin Gordhan expressed his dismay.
None of KPMG’s clients appears to have been sufficiently persuaded to declare an unquestioning commitment. They are adopting a wait-and-see attitude, which may not stand up to any adverse findings by the regulators. The speed with which the summary report was released is believed to have been prompted by the growing number of clients who had indicated they were reviewing their relationship with KPMG.
Corporate governance specialist and accountant Linda de Beer says huge damage has been done to the auditing profession and she has urged business leaders and regulators to work together to establish a way forward. She regrets the damage done to thousands of good people at KPMG who do their jobs well.
“Irba and Saica [South African Institute of Chartered Accountants] must work with other role players to find a solution,” not just for the sake of auditors but also for their clients, says De Beer.
Corruption Watch executive director David Lewis described the summary of findings as too little, too late. “They have to come seriously clean, they must disclose exactly what transpired in their discussions with [SARS chief Tom] Moyane.”
Magda Wierzycka, CEO of Sygnia, has certainly not been persuaded by the clean-out of the top team. “The report reads as though they were afraid of admitting to wrongdoing because it would have opened them up to regulatory and legal challenges,” says Wierzycka.