There is a real risk that auditing firm KPMG could collapse in SA, so devastating has been the loss of so many of its most lucrative clients. First, it was auditor-general Kimi Makwetu who axed KPMG after giving it "ample time" to explain various governance problems. Then, last week, Barclays Africa ditched it too, snatching away about R138m in revenue from the auditing firm. Property company Redefine was next, followed by Sibanye-Stillwater, and it is understood that a few others are on the verge of following suit, which is thoroughly deserved.
But the problem isn’t just the loss of clients — it’s also the flood of skilled staff leaving. Executives at other auditing firms say CVs of senior KPMG partners are sent to them, unsolicited.
The final straw centred around revelations last month that senior KPMG officials responsible for VBS Mutual Bank, the entity that lent R7.8m to Jacob Zuma to repay his Nkandla debt, had loans with VBS that they’d hidden, compromising their independence. The trouble is that it came after a slew of other scandals — in particular KPMG’s failure to detect apparent money laundering at the Gupta-linked firms it audited, and a shoddy report its forensics arm had done on the existence of a "rogue unit" at the SA Revenue Service. Companies that exist entirely by virtue of their intellectual property can’t afford three strikes.
Some senior auditors doubt, at this point, whether KPMG’s brand in SA can survive so broad an exodus. If that is so, regulators and the industry’s political leaders need to make a plan to ensure KPMG’s auditing skills survive.
Consider the stakes in the banking sector, which is dominated by unwieldy multinationals such as Standard Bank, FirstRand, Barclays Africa, Nedbank and Investec. These banks are required by the Reserve Bank to have two external auditors at any one time — a tough ask in any event, but almost impossible when the only large audit firms left standing are EY, Deloitte and PwC. As Investec CEO Stephen Koseff puts it: "You have to be at the forefront of international regulation to audit banks properly — the smaller firms don’t have that capability and international reach."
So, as much as SizweNtsalubaGobodo might say it is ready to do an audit of a major bank, this isn’t the sort of task you embark on with just a dream and fingers crossed. A banking audit requires the work of a well-oiled machine in which each component knows its role and can trust others in the chain to do the same.
As much as KPMG is bleeding, justifiably, from its sins of the past, it still has solid auditing skills.
Bernard Agulhas, CEO of the Independent Regulatory Board for Auditors (IRBA), says: "If you speak to the companies who’ve taken this decision, they’ll say that, technically, KPMG’s audit of their business can’t be faulted. But they want to be on the right side of history — they don’t want to be associated with a company that worked for the Guptas or made these sorts of errors."
Already, the IRBA has intervened to assist KPMG with its new strategy. But one of the decisions the regulator will have to make in the next few days is whether to launch a more structured intervention. Already, several auditing firms have been hiring individuals from KPMG on an ad hoc basis. But perhaps a plan is needed that would result in entire auditing teams, including partners, being transplanted elsewhere, if KPMG folds.
Says one auditor: "It can survive, provided the panic dies down and the attrition of clients stops."
But if that doesn’t happen, the trick is to ensure the auditing skills survive. The regulator, and finance minister Nhlanhla Nene, need a contingency plan to safeguard SA’s economy.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.