The unprecedented move by the Independent Regulatory Board for Auditors (Irba) in hauling auditing firm Deloitte into an open disciplinary hearing for its audit into unsecured lender African Bank will face more delays in its completion.
What was meant to be the start of the hearings on Monday turned into Deloitte’s submission of an application to postpone the continuation of proceedings to August and September, instead of complying with Irba’s set period of June and July.
Michael van der Nest SC, advocate for Deloitte, told the Irba-mandated hearing that it’s not the auditing firm’s intention to descend the hearings into further delays, but its suggested time-frame will allow the matter to proceed “in the most efficient way”.
This is Irba’s first disciplinary hearing that is open to the public and comes at a time when global auditing firms including Deloitte, KPMG, and PwC are under intense scrutiny. Deloitte also came under fire for its work on Steinhoff International, which is fighting for survival after admitting to accounting fraud.
Deloitte has proposed for a disciplinary hearing that will run for “four or six weeks” concurrently between August or September, while Irba’s hearing was initially set for four days in March and set continue in June and July.
If Irba proceeded with its initial days for the disciplinary hearings, then the body that regulates the local audit profession is unlikely to complete the proceedings in 2018, said Van der Nest.
Irba’s investigation into Deloitte’s auditing of African Bank – which collapsed on August 10 2014, after it was placed under curatorship by the Reserve Bank – began in December 2014 and was finalised in 2016. The draft charge sheet containing Deloitte’s allegations of misconduct was approved and submitted to the firm in December 2016. Deloitte responded to the allegations in June 2017.
Deloitte was the auditor of both unsecured lender African Bank (now renamed Residual Debt Services) and its JSE-listed parent company African Bank Investments (now renamed African Phoenix Investments). Irba might reprimand Deloitte if it’s found guilty of misconduct, impose a fine, suspend its right to practice or remove the firm its registrar.
The disciplinary hearing might hear the testimony of Deloitte’s 11 witnesses, some of whom are based overseas, while Irba has earmarked three witnesses. Banking and auditing experts are expected to testify at the disciplinary hearing, including that of Deloitte, the Reserve Bank, International Financial Reporting Standards, and African Bank officials.
In justifying the postponement, Van der Nest, said some key witnesses were not available to be cross-examined at Irba’s hearings in June and July. They include Deloitte senior partners Sihlalo Jordan and Daniël Crowther, who are scheduled to attend global board meetings.
Some of the Deloitte advocates are also not available to cross-examine witnesses.
Deloitte’s Van der Nest accused Irba of repeatedly ignoring its requests to postpone the disciplinary hearings and only delivered its charge sheet at the eleventh-hour.
“On September 1 2017, we wrote to Irba to propose hearing dates that work for everyone. Irba never engaged with us on the four to six weeks proposed [postponement between August and September].”
Essentially, Deloitte argued for the postponement on grounds of procedural fairness.
Alan Dodson SC, the chairperson of the hearing, ruled in Deloitte’s favour, postponing the June and July proceedings. Instead, the hearing will proceed for three days in March 2018 and continue for the next 23 days between September, October, November, and December.
Dodson said the ruling was based on the administration of justice and procedural fairness in at least allowing Deloitte’s attorney’s to cross-examine witnesses.
Irba CEO Bernard Agulhas, said he was disappointed by the postponement of the hearings as the audit regulator is facing pressure from the public and Parliament to act swiftly.
“We don’t know what other issues might come out of the hearings that might delay it further. We have 150 investigations ongoing and we cannot drag out all cases,” said Agulhas.
He added that the reasons granted by Deloitte for the postponement were not acceptable – particularly that key senior partners have meetings scheduled and thus cannot testify at the hearings.
The hearing continues on Friday.