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JSE-listed companies are divided on KPMG relationship

Some have fired, some are reviewing, and at least one is keeping the firm as auditors.
While audit and advisory firm KPMG comes under fire in public, its clients are considering severing ties. Picture: Nadine Hutton/Bloomberg

Audit and advisory firm KPMG South Africa is in a fight for its life. JSE-listed companies that are externally audited by KPMG are weighing up whether to continue to do business with the firm after it revealed explosive findings from its internal probe.

KPMG admitted on Friday that it missed red flags in its auditing of Gupta family-owned companies and also withdrew parts of its controversial report on the South African Revenue Service’s (Sars) so-called “rogue unit”.

Some JSE-listed companies are not ready to fire KPMG, as Sygnia Asset Management did in July. Instead, they are still studying KPMG’s findings and engaging with the firm’s management led by the newly-appointed CEO Nhlamu Dlomu.

Among the companies is Nedbank, which “welcomed KPMG’s announcement”. Nedbank Group CFO Raisibe Morathi said the bank was digesting the full report and would engage with KPMG on its contents before “deciding on a way forward”.

“We have maintained a dialogue with the highest levels at KPMG throughout this process. Nedbank will continue with its robust internal processes. These governance processes need to be followed when accusations are levelled against service providers and individuals…. We expect our service providers to conduct themselves in an ethical manner,” said Morathi.

The bank has an entrenched relationship with KPMG which has audited its financial statements since 1951 when the bank was formerly known as Nederlandse Bank van Suid-Afrika Beperk. At the time, KPMG was known as Peat Marwick, Mitchell & Co, which later rebranded to KPMG in 1999. 

Other financial services companies that have followed Nedbank’s tune include Absa, Old Mutual, and Investec. The latter said its audit committee, which will be convening this week, will “make a recommendation to the board on how the group should proceed”.

Nedbank, Old Mutual, and Investec are considered to be KPMG’s biggest clients in SA.

When asked by Moneyweb whether it’s reviewing its relationship with KPMG, South Africa’s largest lender Standard Bank didn’t answer directly. Instead, it said: “Standard Bank is committed to doing business ethically and in accordance with all applicable laws and expects all of its counterparties to be similarly committed. We exit relationships where that commitment is lacking.

“Unless it is required by law we don’t comment on individual cases when this occurs.”

Business leaders including Pan-African Investment and Research Services CEO Iraj Abedian and Sygnia’s CEO Magda Wierzycka have been outspoken about KPMG, imploring more directors and companies to sever relations with the firm.

According to an amaBhungane Centre for Investigative Journalism report, KPMG allowed Gupta businesses to divert public money to pay for a family wedding in 2013 – a move that is seen to be aiding and abetting state capture.

KPMG’s future hangs in the balance as it faces two investigations from the Independent Regulatory Board for Auditors and Companies and Intellectual Property Commission, which are probing the conduct of KPMG’s directors and whether the firm flouted regulations in its audit of Gupta-linked companies. Both bodies will continue their investigations despite the conclusion of KPMG’s own probe.

Beyond the financial services sector, the real estate sector on the JSE is also considering dumping KMPG.

Sector heavyweight Redefine Properties, which replaced Grant Thornton with KPMG as its auditor last year, also plans to engage with the auditing firm’s top brass. Redefine’s executive chairman Marc Wainer said he was “shocked” at KPMG’s own findings, especially the part about Sars’ “rogue unit”. Wainer said Redefine cannot dump KPMG at the moment as the company is midway through its year-end financial results audit.

“We will meet with our audit risk committee and management after our results are published in November and decide whether we will continue with KPMG. We have to wait and see what happens as we have to make a decision based on facts and not emotions,” he told Moneyweb.

Growthpoint Properties said its audit committee will make a recommendation to the board “in due course” regarding its relationship with KPMG.

Other real estate companies keeping an eye on the audit firm include Redefine International and Stor-Age.

Time to say goodbye

Other listed companies, however, have decided to draw the line. Following Sygnia, Sasfin Bank announced on Tuesday it was terminating its relationship with the firm. “The decisions were based on the well-publicised concerns recently raised with regard to KPMG,” said Sasfin.

A few minutes later, Hulisani CEO informed the market: “The risk committee looked at various factors, including what’s in the media now about KPMG and the Guptas and we concluded that it would be in best interests of the company to change auditors,” chief executive Marubini Raphulu told Reuters.

Safe for now

Some other companies, like multi-national gold miner Gold Fields, will retain KPMG as its auditor but will be keeping a close eye on developments. “The Gold Fields board of directors has considered the matter and will be closely following future developments in this area. KPMG remain the company’s external auditors.”

This is a developing story.

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No surprises that Gold Fields wants to keep KPMG. Investigators found that Gold Fields paid a R25-million bribe in shares to ANC chairperson Baleka Mbete in 2013. KPMG should consider dropping Gold Fields as their client in their attempt to rehabilitate their reputation.

Notice Nedbank says their auditors since 1951. Maybe that is why audit rotation is so important. I have some few shares in Old Mutual so I can ask. Do you guys even realise this is a matter of principal. How much damage did the SARS report do to SA economy and enabling state capture. If we can’t get to the queen bee (No 1 and the Guptas’s) yet we have to starve them by starving their accomplishes. If KPMG get off lightly they will not spill the real beans – we gain international pressure – which we need because we are powerless with a captured NPA. All corporates give us a break pls – us normal South Africans are punch drunk – we need your help – SA is fighting for its very life.

yes they must spill the beans…come totally clean.

Some companies won’t take the risk of firing KPMG and employing new auditors. What if new auditors unearth old anti-competitive contracts and practices? What if illegal tax evasion schemes are unearthed and reported? There is just too much the companies stand to lose. Nederlandse Bank van Suid-Afrika Beperk – I rest my case.

I have a solution, why don’t KPMG together with other role players create an super investigation / auditing unit and dig up all the sly skeletons of the Zuptas…only way to redeem themselves.

In his response to the withdrawal announcement by KMPG, Pravin Gordhan actually suggested that KPMG should consider employing the SARS officials who had left as a result of this smear campaign in order to establish an anti-corruption investigative unit within KPMG. That is a very positive suggestion, particularly in light of the fact that there must still be a great deal of honest and capable intellectual capital left inside KMPG which could enhance the efficiency of such an investigative unit. Even better to make this an industry-wide initiative, as you are suggesting.

One would have thought that the previously revered team called the Chickens or Vultures or maybe Hawks – that’s it, Squawks should have half a brain between them to join simple little dots and investigate this mess. Even my gardener has been able to see through all the B/S.
The Hawks have all the resources at their finger tips including access to Judges etc to get warrants and wiretaps etc. Hell look at how they managed to arrest one of their own Gen Booysens in DBN on a trumped up charge.

Keep in mind Zuma has his thumb on Hawks, intelligent services, police and SANDF etc. this is his most important trump card.

The listed companies who say that their audit committees will make a recommendation to their boards, are practicing proper governance. Knee-jerk reactions are the luxuries of arm-chair critics. Interrogate – YES. Apply pressure – YES. But above all, apply proper governance in your own domain.

It will be interesting to see which JSE companies elect to keep KPMG close, particularly those with long term relationships. Does a change in auditor cause more concern for management than tainting their reputation by associating with accountants that have brought the whole auditing profession into disrepute. I can think of only one reason why management would choose KPMG over protecting their reputation.

My Views:

I think, we all have got a better chance to getting an infection from a ”meat eating bacteria’ ‘in our big toes, than Investec dropping KPMG. The risk of dropping KPMG is just too high, methinks.

The pressure methinks will increase exponentially from the Randgold minority shareholders to uncover KPMG’s and Investec’s shenanigans with regards to the JC ”audit” of the last 10 years – the so-called Kebblegate and Investecgate sages, methinks.

Investec just cannot run the risk of new auditors uncovering and unearthing the true extent of the debilitating theft of Randgold’s listed portfolio, including the Randgold Resources shares, as was KPMG as the auditor of both the thief and victim and the main beneficiaries of the theft proceeds.

”When a man comes to me for advice, I find out the kind of advice he wants, and I give it to him”

Josh Billings (1951)

Surely the JSE should be kicking KPMG SA off its list of auditors accredited to audit JSE-listed companies?

The correct slogan: “At KPMG our (lack of) values make us different”.

It appears to me that KPMG is under the impression that all it has to do is PAY BACK (SOME OF) THE MONEY and all will be forgiven. That’s like the bank robber who later gets caught and simply returns the money to the bank and without any jail time!! I’ve no doubt that what we see here is just the tip of the iceberg and that KPMG has many, many more irregularities yet to be uncovered (and probably so do other “trusted” auditor organisations).

End of comments.

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