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JSE to determine facts over Sygnia and Deloitte break up

Fund manger could face sanctions or fines if found to have misled shareholders about the reasons for the audit firm’s sudden departure.
Sygnia CEO Magda Wierzycka. Deloitte has rejected claims made by its former client, saying they contain ‘factual inaccuracies’. Picture: Supplied

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.

Read: The corporate scandals keep on coming

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.

Read: Steinhoff, Tongaat woes raise South African auditor scrutiny

“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.

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It’s very simple: Did Deloitte not know, or did they? Were they complicit or incompetent? If it’s the former, they’re criminals and if it’s the latter, they should be barred from practicing.

Like the rest of us; Deloitte is chasing targets in a depressed economy.

In the pursuit of these targets; shortcuts are taken. We see this in government, police , building inspectors … where the law-enforces are themselves complicit.

Sad , very sad.

True, but the auditing racket likes to portray itself as a profession. If I go to a professional like a doctor, I expect him to tell me the real story, even if it’s bad news. If he can’t make a correct diagnosis, he’s incompetent and unprofessional. If he scams my medical aid, he’s a criminal and can’t then use the depressed economy as an excuse. In either case his license needs to be taken away.

If auditors cannot pick up vast ** like Enron, Steinhoff or Tongaat, or if they notice something is amiss but then hush it up, they can’t call themselves professionals. If a doctor acts in this way, he should get scrapped from the register. Why are Deloitte and others allowed to get away with this? It’s high time a company like Deloitte is barred from operating if they continue to behave either unprofessionally or criminally.

Lets see what the facts are before jumping to any conclusion.

I have just heard too many rumbings to make me believe all is as it seems at Sygnia.

Also, I personally wonder why ol’ Magda is always so very vocal about everthing, except when she is praising herself…. When someone carries on like she does, I always think “Thou doth protest too much, me thinks….”

If only she gave as much attention to running her businesses as she does to posting on twitter she may find that her businesses are more acceptable to shareholders. All her comments have a habit of affecting the pricing of Synia shares, and Sygnia ETF

Spelling – Sygnia

Do you reckon she tried to convince Deloitte that buying Louis Vuitton handbags on Sygnia’s account was actually a capital good?

More likely expense allocation between funds and operations…If I had to guess where the difference of “opinion” lies…

I think there is an element of truth to this facetious comment. Would not surprise me to learn that Deloitte had serious reservations about certain transactions and the treatment thereof.

Just look at the disclosure in the last annual report on related party transactions and the property Sygnia rents from Magda and Simon. Sygnia provides the loans to buy the property, then rents it back from Magda and Simon at what appears to be an extremely favorable return for the latter parties. Hardly seems to be an arms length commercial transaction.

Deloitte … smoke before the fire?

Here is what she should have twitted:

“We criticise Fund Managers for their poor performance in understanding basic business signals such as cashflow. We apologise for the shocking research we published and for falling hook, line and sinker for the charms & gifts & golf events of large firms on the JSE”.


yet somebody that recently punted the “hire an extra gardener” solution for turning SA’s economy around would not come up with that tweet! no

Magda is forever trying to pick up brownie points and get as much free publicity as possible. She even held Steinhoff paper in her portfolio. An opportunist of note.

What all this proves is that we have flawed accounting reporting standards. Change them to make them understandable and insist on having a reconciliation for “fair value adjustments” so that the end user can get back to actual results before the fiddling.

Tongat-Hullet is definitely guilty of over valuing assets but this was only made possible by IFRS requirements of fair value reporting. Nothing to do with auditors.

The JSE is a toothless watchdog.

JSE is not a watchdog it is a stock exchange

What we need to understand with modern accounting is the principle of “fair value”. Let me explain.

A used car dealership has in stock a 1962 Ferrari 250 GTO that it bought 50 years ago for R25K. The strategy with regards to this stock on hand was to offer it for sale at 5% than market value, so it never sold.

The company decided to transfer the car out of stock on hand to a long term investment – why not? Certain classic cars such as the GTO do rise in value.

In May 2018 a identical example sold for USD 48.4 million which @ R14.50 / USD gives a Rand value of R 702 million. The car is still unsold at the end of May 2018, which coincidentally, is also the financial year of the company.

The previous year the “carrying value” was R 108 million.

The company adjusted the carrying value by passing a journal entry of R 594 million, debiting stock on hand and crediting retained income. Because of the value of the journal entry, the profit for the year was R2 million, after the fair value adjustment the profit for the year was R704 million. The following year the value of the GTO dropped to R682 million so an adjustment of R20 million was put through turning the actual profit of R2 million to a loss of R18 million – and this is precisely what happened to Tongat Hullet – the property valuation (and other matters unknown) dropped the retained income by some R3,5 to R4,5 billion.

The auditors are guided by the independent valuations provided by management to ascertain the correctness of the entries. While auditors do try to verify valuations to seem if they are reasonable, a rogue valuator or a change in economic climate can easily render a valuation useless.

It does not really matter who the auditors are – the end result would have been the same.

But the fact remains that in spite of an overvalued balance sheet in the case of the car dealership there is no cash to show for it. Only when the asset is sold will a profit and consequent cash flow be realised.

So, should we be revaluing assets to stratospherical levels when there is no expectation of a deal? Is the revaluation real? Would you invest in this used car dealership when it only makes an actual profit of R2 million p.a. or would you be blinded by a valuation that has resulted in an increase in the retained income of hundreds of millions?

You be the judge.

Thanks for this; just to clarify:

” independent valuations provided by management ” are these independent valuation provided by totally independent professionals sourced by management or valuations actually provided (made up?) by management themselves?

If it is independent professionals are they not potentially liable?

Management appoints “qualified independent valuers”. They are supposedly independent because, either than the valuation fee, they have no links to the entity. Management valuations carry no weight and cannot be used in the preparation of financial statements.

If you have an adventurous valuator, he could easily come up with a defensible, note the word defensible, valuation at the time of the valuation. If a more conservative valuator was used and the valuation provided does not come up to management’s expectations, there is nothing stopping management from getting another valuation. In practice there is a cozy relationship between valuators and management.

Property valuators are the worst. Firstly they do not use the Discounted Cash Flow (DCF) method but rather other criteria that’s simply too long to list. I have had personal experience where I have valued property on a strictly DCF basis and the valuer arrived at a valuation amount some 18% greater than mine – guess how delighted management was? Very. Because now equity rises.And your boss tells you that you are an idiot … knowing full well what the real value is.

If financial statements are prepared on the basis of valuations to arrive at fair value, then perhaps the valuer’s details should be published in the Annual Financial Statements and this would make them more wary of possible repercussions which at present simply don’t exist.

As long as the valuer can prove his sums at the time of the valuation,so called defensible valuation, then he or she is untouchable.

That is why I am so wary of property companies – they fudge their financials to make them look good and do so with impunity. Remember Resilient? and Viceroy, the crowd that exposed Steinhoff? Well, Resient (along with the other REITS) took a knock from which they have not recovered. So we can now say with confidence that some time back REITS were (definitely) overvalued but are probably fairly valued now.

And so it is the case with Tongat-Hulet. Their vast property portfolio underpinned their equity. But it goes further. TH’s management became enamoured with property and forgot their primary business – sugar. The greedy little pigs engaged in mutual back-slapping at just how clever they were until the economic climate turned and the property valuations proved to be wrong. And guess what? Management’s bonus are based on yearly results and they tend to be juicy.

We need more shareholder activism to reign executives who don’t deliver.

I why ifrs fair value is a terrible idea and why we should stick with equity accounted earnings. Can put director valuations in the notes and show massive earnings when there’s actual cash flow hitting the accounts. Let the traders speculate as to whether a realization is realistic, not the auditors.

Anything but directors’valuations, they simply have too much to lose. Historical cost based accounting MUST become a reporting requirement, then by all means indulge in the IFRS crap.

Do you how difficult it is to strip out the fair value and other adjustments? Almost impossible if the AFS are opaque. Then you have idiots that report in billions, yes ASPEN does it. Do you know how many millions are lost in the rounding alone? never mind the valuation of intangibles, medical patents. The JSE needs to tighten up on disclosure and I don’t mean compliance with IFRS.

More importantly look at the tax calculation and reconciliation as it will disclose actual profits. That was always the problem with Steinhoff – impossible to reconcile reported profits to taxable profits. and this is how you would have picked up warning signs.

Just look at the cash flow statements (all 7 years of them) instead of the income statement. Easy.


What we should show on the face of the new IFRS is to distinguish:

Within Equity the revaluation reserves separate from you know, actual realized after tax profits.
Within Assets the cost and separately the revaluation amount.

While we are at it, what I would also like is to be able to track in a company the value of its share capital contributed and shares repurchased but cancelled. Apple will soon have repurchased more than the total value of share capital and profits. So it will show negative Equity the way things are done. It would be massively meaningful. Now imagine how a desktop jockey mba stock analyst deals with Apple’s infinite debt:equity ratio… alarm bells, claxons!

There is a long list of things we need to see that would be more meaningful than what we receive in those expensive 75 page glossy AFS now. Whether fun damagers will understand is another issue, but at least then those that do understand will have the data.

And that is why share buybacks should be abolished. They destroy shareholder value.

Share buybacks are supposed to shore up share prices. In practice it rarely happens.

If a company has extra cash and cannot invest internally at a rate higher or equal the required ROE, then it should return the cash to shareholders by means of a dividend. After all share value, fo minority shareholders, has two components – share price increase and dividends paid.

The JSE, who have not showered themselves in glory either with inaction or complicity through inaction with listed company scandals, should be the ones to receive sanction.

May the alternate stock exchanges behave more ethically.

Magda always reminds me of Miranda in the move Devil Wears a Prada

Magda has a history of attacking the JSE when she doesn’t get her way – think of her crazy plan of listing a Bitcoin ETF right at the peak of the bubble and then whinging on Twitter and in the Business Day when the JSE said no. Mark my words: when the JSE rules in favour of Deloitte on this issue Magda’s going to say it is a witch hunt against her for being critical of the JSE in the past.

“Auditing firm Deloitte has replaced all senior auditors, including partner Gavin Kruger, on the audit of sugar giant Tongaat Hulett.”

“Deloitte was also Steinhoff’s auditors for years, before that company went into meltdown at the end of 2017.”

Yeah, Deloitte. The white lamb. How dare anyone question them.

Sadly the quality of some of the reporting in the financial press is very poor. Sensation sells ‘papers’ and an empty barrel like Magda makes the right noises for lazy and incompetent reporters.

Chris, you are a brave man…..

Looks like my comment have been removed!
But let me say it again. Perhaps women don’t belong in the boardroom. Or as CEO’s or as ministers.

Actually they are far better than men but are totally overridden by their testosterone charged counterparts. In my (male) opinion they make far better accountants. I have great respect for my female colleagues as they are more rules bound and don’t fudge.

Rules-based? This isn’t US GAAP.

My fellow woman trainees were indeed better auditors than myself and other males in the office (for the most part). It’s a very sweeping statement.

However, where I found females to really struggle on audits, was the complete lack of interest shown in the markets, which leads to accepting client support which was absurd.

IFRS is solid, we just have 20 year-olds that don’t know how to implement it. And when they do, the manager on the audit or the client shoot it down, so their Hermanus mortgage is not ruined.

@Quidditch or whatever.

Why not?
Does “Steinhoff” indicate that men don’t belong in the boardroom?

Thieves and crooks dont belong in the boardroom whatever the gender.

or stupid. Madga is one sharp lady who has beaten the big boys at their own game and now they are suurgatte.

I remember some years ago we had lunch with the auditors. The topic of military service came up and each of us around the table told where we did our national service. The audit partner blatantly said he bribed some guy R200 to take his name off the computer database, hence he never did military service. Coincidentally he was an audit partner at KPMG and now he is at Deloitte. So much for ethical behaviour to say you bribed a government official when the rest of us just did what we had to do or face going to jail.

Perhaps he was more ethical than the rest of you who actually served in the apartheid regimes military and carried out their ill deeds.

We protected this country from communist expansion and I will always be proud of that. Unlike our neighbouring countries Mozambique and Angola, South Africa avoided mankind’s worst blunder called “communism”. Nothing to be ashamed of.

One can only assume that the irony is lost on you with respect to your example of ethics.

What a ridiculous, petty post. If we were to judge everyone draft dodging or “inhaling” there wouldn’t be anyone available to run anything.

That partner had vision, I salute him. Why would anybody be proud to serve an apartheid army?

I stand corrected by CA’s still in practice but what I remember from my board exam many moons ago is that auditors are not allowed to disclose the reason that they terminate an engament. Not a level playing field really then, Magda can have a go at them via twitter or through one of her countless media sycophants, but Deloitte is barred from making any real comment in response

Interesting that the JSE is happy to investigate a small spat like this when there are bigger wars to fight like possible insider trades in both Steinhoff and Tongaat.

Could this be a mysoginystic reaction to something that doesn’t hold much value in real terms! Pick a fight with an Institution run by a women and punish them as a smokescreen for what they should be doing to the big fish? And what better excuse than it all happening under the helm of another woman so no one can point fingers!

Interesting how women are taking the fall for everything going wrong at the moment – Magda for Auditors malpractice, Meng Wenzhou for the Huawei debacle, Theresa May for Brexit, Angela Merkel for the rise in Nationalism and Carrie Lam for the latest Hong Kong revolution!
Just an observation….I don’t expect to get many votes for!!!

I worked at Deloitte. They are not covering themselves in glory, I grant you that.

However, that is another issue.

Magda’s spiel has run its course. A walking contradiction.

She wanted to list a Bitcoin ETF at the top of the cycle. Her Sygnia ETF (which she bought from Deutsche Bank) still have a Total Expense ratio of 0.86%. This is absolutely criminal. The only way to reduce this is to use the Sygnia platform. Sure, Magda people should just move their holdings to your platform.

Oh yeah, she also spends at least 2 hours a day on twitter (Surely a conservative guess). Why would anyone want to invest with Sygnia?

I for one hope she gets slammed by the outcome with Deloitte, based on how irresponsible she is. Maybe run he company that you get paid for by shareholders.

Yeeeah just read all these idiots slagging of Magda Wierzycka, let me put this simply so you idiots get it. She does more to create honest, transparent, financial services in one afternoon, than you fools will do in your life time. I suggest you losers get of your buts and do something positive for a change, you pathetic bunch of keyboard warriors.

End of comments.





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