Jenitha John resigns as CEO of the Independent Regulatory Board for Auditors (Irba), Deloitte agrees to pay R1.3 billion compensation to Steinhoff claimants on a no-blame basis, and KPMG undertakes not to provide non-audit services to JSE-listed companies that it audits.
The common thread in these three developments is a profession that is devoid of self-awareness and has done so much harm to itself – and the public it is supposed to serve – that it hardly deserves to survive.
The very fact that John applied for the CEO position at Irba automatically rendered her inappropriate for it; only in the contrived world of finance could we be expected to believe Deloitte is innocent, even as it dishes out R1.3 billion to ‘victims’; and how is it possible that KPMG or any audit firm is still allowed to provide non-audit services to its audit clients?
It is utterly astounding that these flawed institutions are able to peddle expensive consultancy services to their wealthy audit clients.
And not only peddle those services but claim there are no conflicts of interest or that any that might exist are well-managed.
The lack of self-awareness in the profession is astounding.
Irba’s error in judgement
But getting back to John and her controversial tenure as head of Irba. It is of course important to point out that John has been found guilty of absolutely nothing by either a regulator or a court.
But for eight long years she was at the scene of what you might call a long-running ‘audit crime’. Refusing to acknowledge any responsibility for what played out at Tongaat while she was chair of the audit committee reflects a grim lack of self-awareness and leads to a logical conclusion that would upend corporate governance.
“Non-executive directors are required to probe, challenge and monitor assurance providers to determine the veracity of information presented at board meetings – and it can be proved that Tongaat’s audit committee did just that,” John told the Financial Mail earlier this month.
If that is indeed so, then – given the long-running nature of the life-threatening accounting problems at Tongaat – perhaps it is time to scrap the pretence of board oversight altogether.
Would things have been much worse at Tongaat if there had been no board? (Likewise at Steinhoff.)
We hardly need reminding that no director has been held to have had any responsibility for any wrongdoing at a JSE-listed company.
The problem for Irba is that as a regulator with limited resources, perception is crucial.
In a perfect world, the mere expression of concern by Irba should be sufficient to rein in aberrant behaviour at audit firms keen to protect their reputation.
Of course we’re not in a perfect world. As we know from former Irba CEO Bernard Aghulas’s efforts to introduce mandatory audit rotation, even before John’s appointment any muscle-flexing by Irba was met by a concerted pushback from audit firms keen to protect their turf rather than their reputations.
As for the notion that South Africa’s audit profession was ranked number one in the world, the World Economic Forum survey that produced that headline-grabbing claim wilts under any sort of scrutiny. Indeed it’s the sort of claim that requires a lack of self-awareness to be attributed with much value.
Good luck to Nonkululeko Gobodo and Roy Andersen, the Irba caretakers appointed by Finance Minister Tito Mboweni. It is still very early days but they have gotten off to an encouraging start.
And then there’s Deloitte’s Steinhoff ‘deal’ …
In this imperfect world it is evidently acceptable for those in authority to present a contrived solution involving a hefty payment without any admission of guilt. So again, nobody is responsible.
Over at KPMG things look a tad more hopeful
Chair Wiseman Nkuhlu and KPMG South Africa CEO Ignatius Sehoole deserve commendation for trying to halt the audit profession’s spiral into ignominious irrelevance. Given the imminent existential threat it faced, it’s tempting to say Nkuhlu and Sehoole had no choice. Perhaps.
Their plan to stop providing non-audit services to the firm’s large listed audit clients reflects the realisation that few outside the audit profession believe the inevitable consequences are manageable. And as Sehoole says, it’s only a matter of time before regulators demand this, which means that by being a little ahead of the pack KPMG may be able to claw back some of the market share it lost when it got embroiled in state capture.
It’s time the audit profession realised that losing a reputation is a bit like Ernest Hemingway’s description of going bankrupt – it happens gradually, then suddenly.