The audit firm that stands to benefit from KPMG’s woes
Black-owned firm could benefit from KPMG’s trail of woes
● SizweNtsalubaGobodo, South Africa’s largest black-owned audit firm, could emerge as the main beneficiary from the troubles that have hit the audit industry.
Currently, SNG is the fifth-largest audit firm in South Africa, behind KPMG South Africa — which has been at the centre of the audit industry storm — EY, PwC and Deloitte. SNG’s clients include Anglo American, Exxaro, Denel, MTN and Aspen.
KPMG, which employs 3 000 people in South Africa, has been hemorrhaging clients and staff since late last year amid ructions over state capture.
In the latest blow to KPMG, Barclays Africa announced this month it had cut ties with the firm. The office of the auditor-general terminated its contracts with KPMG last month.
Since September last year seven senior executives, including CEO Trevor Hoole, resigned after KPMG came under fire for the role it played in auditing a Gupta-owned company, Linkway Trading, that was allegedly used to channel taxpayers’ money to fund the Gupta wedding at Sun City in 2013.
SNG CEO Victor Sekese says he sympathises with the troubles faced by rival firms.
“It’s unfortunate that we have to endure the recent events in the profession,” he told Business Times.
No schadenfreude
“I still have faith in the profession. The vast majority of registered auditors are noble and ethical individuals. Working together as the profession, we will weather the storm and will come out stronger than before,” he said.
“We do not rejoice in the downfall of other firms.”
SNG has been advocating the deconcentration of auditing in South Africa, which has been dominated by the big four firms.
“We thus do not turn away good opportunities that come our way, provided they meet our risk criteria,” Sekese said.
Early signs that things could be looking up for SNG emerged on Monday, when Telkom announced it would nominate SNG at its shareholders meeting — set for later this year — to be its joint external auditor for the 2018-19 financial year, along with PwC.
Sekese said he was pleased at the Telkom decision, which his team had worked hard to swing in SNG’s favour. His firm had identified telecoms as a “primary focus industry”, he said.
SNG has a broad spectrum of clients in the telecoms, finance, transport and logistics sectors. It would still like to add one of the major banks to its portfolio.
“Being auditors of the South African Reserve Bank for more than 10 years, we have been gradually building capacity over the years to audit large banks,” Sekese said.
“I am pleased with the progress that we have made and now believe we are ready to take on a big bank audit.”
Khaya Sithole, a chartered accountant and industry commentator, said that historically, audit work in the banking, mining and insurance sectors had been dominated by the big four firms due to their global footprint and sheer scale.
“SNG might decide to target one of these sectors — mining, insurance or banking — and specifically ensure that it scales up its capacity in that chosen sector,” he said.
Once such capacity exists in-house, it will be much easier for SNG to then put up its hand Khaya Sithole Industry commentator
Pick me
“This might entail absorbing some of the senior professionals from KPMG . . . Once such capacity exists in-house, it will be much easier for SNG to then put up its hand when the audits are up for tender.
“The fact that historically they have not done such audits on their own can be mitigated through this process,” Sithole said.
Sekese is a strong backer of mandatory audit firm rotation in South Africa, which will come into effect in 2023.
“Come 2023, public-interest companies will have to rotate their audit firms every 10 years. We as SNG advocated for the legislation as we saw it as an opportunity to engage with the private sector; a sector that is dominated by the big four firms.
“We have prepared ourselves as SNG for mandatory audit firm rotation and are ready for taking on new clients,” he said.
SNG was formed out of the merger in 2011 of SizweNtsaluba VSP with Gobodo, which was founded by Nonkululeko Gobodo, the first black woman in South Africa to qualify as a chartered accountant.
Breaking the stranglehold
The merger was in part influenced by the desire among black audit firms to break the hegemony of the big four audit firms and transform the industry.
In February this year, SNG announced that it would become a member of Grant Thornton South Africa. The move is an attempt to grow the firm’s reach among global players and incorporate international expertise in its domestic operations.
Once the deal is concluded, the new merged entity will be called SizweNtsalubaGobodo Grant Thornton South Africa.
A total of seven Grant Thornton offices, including some in Gauteng and George, are expected to become part of the new operation.
Audit firm BDO merged with Grant Thornton’s Cape Town and Port Elizabeth member firms earlier this year.
Grant Thornton’s managing partner in Pretoria, Johan Blignaut, said the intention was for the rest of the Grant Thornton operations in South Africa to join SNG.
Sekese said SNG’s membership of Grant Thornton International enhanced its global capability.
“A significant part of corporate South Africa is international. We are now able to provide corporates with a seamless global professional service,” he said.
Grant Thornton member firms operate in over 135 countries and employ about 50 000 people.