The Johannesburg Stock Exchange (JSE) is investigating whether or not there are inconsistencies in the versions given for the breakdown in the relationship between local fund manager Sygnia and its external auditor Deloitte, which culminated in the latter’s resignation on Tuesday.
The news was announced in a statement on the JSE’s Stock Exchange News Service (Sens) on Wednesday evening, with Sygnia stating that it had informed Deloitte on June 5 that it would be terminating its contract.
Sygnia’s decision to part ways with the audit firm was taken at a board meeting on May 21. “The directors of Sygnia took the decision to look for alternative external auditors given our unsatisfactory engagement with Deloitte and reputational risk associated with the firm,” Sygnia said.
Deloitte would have been formally fired on Thursday when Sygnia’s audit committee was scheduled to meet. However, on hearing of its near demise, the audit firm resigned on Tuesday.
Deloitte immediately fired back by rejecting the “claims” made by Sygnia, saying there were “certain factual inaccuracies relating to the circumstances of our resignation”.
“Whilst as Deloitte we maintain the highest standards of ethical behaviour and client confidentiality, we are of the view that it is prudent in this instance to set the record straight,” said Deloitte, vowing to do so soon.
The writing is on the Twitter feed
On Tuesday evening, Sygnia CEO Magda Wierzycka commented on Twitter that South Africa’s biggest sugar producer, Tongaat Hulett, which has been embroiled in a corporate scandal over unreliable financials, was becoming just like another Steinhoff.
Steinhoff imploded in December 2017 after news of accounting irregularities reportedly dating back to the 1990s hit the public.
“We criticise the ANC for making foreign investors wary of SA. Private sector and their advisors, auditors and other enablers etc. have done their fair share of the same,” Wierzycka fired on Twitter.
Tongaat and Steinhoff used the services of Deloitte as their external auditors. Sygnia was also one of the first corporates to fire disgraced auditors KPMG for their role in State Capture, who have now come under scrutiny for the work they have done for Tongaat. Many have asked how these audit firms – which have been working with the companies for years, decades in some instances – were unable to pick up on such serious misstatements of the financials.
Wierzycka followed with another tweet on Tuesday evening, commenting on the Indian government considering a ban on Deloitte and KPMG’s arm after they were found to have “failed miserably” to fulfil their duties as auditors. “I think South African government could take some pointers from India,” she tweeted.
Behind these remarks lay the fact that Deloitte had resigned from the fund manager on the same day.
Consequences of misleading shareholders
The JSE is now consulting with both parties to establish the facts behind Deloitte’s sudden departure. It would not be drawn on the explanation it had received from the audit company or when the firm had notified the bourse of its resignation.
“The JSE is prohibited in terms of Section 73 of the Financial Markets Act from disclosing confidential information that we obtain in the performance of our regulatory duties,” said John Burke, director of Issuer Regulation.
Should it be found that either party lied to shareholders or that there was non-compliance, Burke said the JSE would enforce its listing requirements and, depending on the severity, issue sanctions or fines in line with its listing requirements.
Sygnia could not be reached for comment by the time of publishing.