It wasn’t quite a guffaw, more like a few stifled chuckles. One or other of the directors at the AGM of Steinhoff Africa Retail (Star) had suggested shareholders could relax because the auditors had interrogated the issue at hand "and were satisfied".
The suggestion didn’t quite capture the mood of the room. Many of those in attendance were representatives of institutions that had poured heaps of money into Steinhoff. They had pitched up to the AGM not so much to keep tabs on Star but in the hope of getting some insight into Steinhoff.
No sentence with "auditors" in it was going to give them any comfort. Particularly as the auditors providing the comfort in this case were none other than Deloitte, the same firm that had been in the vicinity of the "accounting irregularities" referred to by Steinhoff directors in December.
It wasn’t always so. There was a time when a director could silence any criticism with the words "our auditors have approved the matter". Now, thanks to these same auditors, those words carry so little authority that shareholders must be wondering why they are forced to hand over huge dollops of money every year for an exercise in wishful thinking.
Audit firms encourage expectations in the hope of milking huge fees
— Ann Crotty
It’s not just an SA problem and it’s not limited to Deloitte. In the past week alone the UK financial regulator has called for an inquiry into whether the Big Four accountancy firms should be broken up; the International Forum of Independent Audit Regulators reported that it identified serious problems at 40% of the audits it inspected in 2017; the Securities & Exchange Commission censured KPMG SA, Deloitte and BDO for noncompliance; and our very own Independent Regulatory Board for Auditors (IRBA) announced a disciplinary hearing into Deloitte’s audit of African Bank ahead of its implosion in 2014.
Remarkably, for an institution that prefers to sort out its industry’s problems far from the spotlight, the IRBA hearing is open to the public.
Recently we also had the auditor-general reminding us of how bizarre it is that PwC was able to sign off on SA Airways’ accounts for five years to 2016 without any red flags about its going-concern status. Kimi Makwetu qualified SAA’s 2016/2017 audit opinion because of "significant deficiencies in internal controls".
As for KPMG, it will have the decaying Gupta carcass around its neck for some time to come.
It’s difficult to think of a brand that has destroyed as much of its own value as the global auditing profession has in the past five years. Part of the problem relates to expectations. Shareholders and regulators desperately want to believe the task assigned to auditors is doable, even when a company is ridiculously large and complex and spread across the globe.
Audit firms encourage these expectations in the hope of milking huge fees. And because they’re so brilliant at auditing they must be the go-to guys for pricey consultancy services.
It wasn’t much more than a year ago that the business community looked on askance as IRBA’s Bernard Agulhas pushed for mandatory auditor rotation; now that looks too conservative a solution.
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