Deloitte under fire — sort of

Revelations that Steinhoff’s accounts were wrong, to the tune of at least R106bn, dating from 2009 to 2017, would appear to have put the heat firmly on its long-standing auditor, Deloitte.

The watchdog body, the Independent Regulatory Board for Auditors (Irba), has told the FM that it is "considering" PwC’s findings, but it is already far advanced with its own probe.

While Steinhoff investors have only seen the 11-page summary, Deloitte, it seems, has had "full and unrestricted access" to the whole 3,000-page report, which has another 12,000 pages of annexures.

In February 2018 Bernard Agulhas, the CEO of Irba, began investigating what went wrong at Steinhoff from an audit perspective, using 2014 as the starting point.

"[We] have already progressed [our] investigation into the audit of Steinhoff, to the point that Irba awaits the restated audited financial statements," he said.

However, it seems Irba may have to reopen its probe for the simple reason that PwC has now flagged problems with the accounts going back far longer — to 2009.

Either way, a disciplinary probe of Deloitte would not be an open-and-shut case.

Insiders say one of the problems that Irba would have is that most of the fraud happened in Steinhoff Europe — which was audited by a company called Commerzial Treuhand (CT).

CT evidently missed this fraud, but Deloitte’s role was then to consolidate those accounts. Says one person close to the audit process: "Deloitte was not required to go and re-audit the existing work. But it still had to assess whether CT did the work properly."

Equally important, revelations from inside PwC’s forensic investigation show that documents were in some cases created after the fact and backdated, and in other cases forged outright.

There is another factor in Deloitte’s defence: to some extent, Markus Jooste’s resignation and the revelations of the fraud only emerged because Deloitte took a stand, albeit belatedly, on the company’s suspect accounts.

Insiders say that in August 2017, Deloitte’s Dutch office received an anonymous package containing a trail of fake Steinhoff documents and claims that the retailer’s profits had been manipulated. Says one insider: "That’s when we resolved that we needed a proper forensic investigation."

Deloitte began raising issues with Steinhoff’s audit committee chair, Steve Booysen, who asked Jooste to provide the auditors with the answers they needed.

Ultimately, Jooste never could provide those documents.

So, Deloitte refused to sign off Steinhoff’s year-end accounts. This is what led, in December 2017, to Jooste’s resignation and the collapse of the share price.

When Jooste was summoned to parliament last year, he said Deloitte had not acted in accord with "the real culture of the auditing profession". He said that he had told Steinhoff’s board that "Deloitte’s mandate should be terminated at that moment in time and we should appoint alternative auditors".

Evidently, Jooste believed a more compliant auditor would have signed off those financials.

There is no unqualifed case for calling Deloitte negligent in the Steinhoff saga

—  What it means

Deloitte will now use the full PwC report to finalise Steinhoff’s accounts for 2017 and 2018, hopefully in the next few weeks.

But once that is done, whether Deloitte remains as Steinhoff’s auditors after the harrowing past few years remains to be seen. It has already resigned as auditor of Steinhoff Africa Retail — now known as Pepkor.

But as Agulhas points out, the existence of "accounting irregularities" doesn’t necessarily imply an audit failure.

Agulhas told parliament this week that Irba will investigate whether the audit was done properly, and whether Deloitte’s auditors exercised "professional scepticism".

Rather like the case against Steinhoff’s directors, much will hinge on just how sceptical everyone was of Jooste’s fables. But the fact that Deloitte took a stand, even if it was late in the day, will surely count in its favour.