Deloitte and KPMG in spotlight as accounting scandal unravels at Tongaat Hulett
JOHANNESBURG - The quality of auditing work of Deloitte and KPMG has once again been brought into question in the unfolding accounting scandal at listed agricultural and agri- processing business Tongaat Hulett.
Tongaat Hulett last month got investors jittery when it said its new chief executive Gavin Hudson had been mandated "to expedite an immediate and comprehensive strategic and financial review with the view to stabilising the business, address the debt levels and set the path towards acceptable returns for shareholders."
Tongaat Hullet further put the market on a tailspin on Friday when it said" certain practices have come to light following the ongoing strategic and financial review of the company." And that it might have to asses the impact on previously reported financial information.
Deloitte in emailed responses said that it was still too early to determine whether the impact relates to previous years or it is developments that would need to be taken into account for the audit of the year ending 31 March 2019.
"We will continue to assess these developments as part of our audit process and will take the developments into account in our audit of the year ending 31st March 2019," Deloitte said.
Deloitte is Tongaat's external auditors.
Tongaat has brought in PricewaterhouseCoopers (PwC) to assist it in its review. The move is eerily similar to the near collapse of Steinhoff.
Steinhoff' in 2017 hired PwC to conduct an independent forensic probe into the multinational retailer after the abrupt resignation of its chief executive, Markus Jooste, after the company's auditors flagged accounting irregularities in its financial statements.
Deloitte was also Steinhoff's auditors.
Steinhoff's Dutch shareholders are suing Deloitte, Steinhoff's directors, accountants and banks involved in the scandal to take responsibility for damages.
Tongaat Hulett internal audit function, is supported by ts internal audit service provider, KPMG. KPMG could not be reached for comment.
John Freedman, a specialist in management and financial responsibility, said that most accounting scandals over the last two decades have centered on fraudulent financial reporting. "Fraudulent financial reporting is the misstatement of the financial statements by company management. Usually, this is carried out with the intent of misleading investors and maintaining the company's share price," Freedman said.
"While the effects of misleading financial reporting may boost the company's stock price in the short-term, there are almost always ill effects in the long run. This short-term focus on company finances is sometimes known as "myopic management."
The recent accounting sagas has seen the Independent Regulatory Board for Auditors seeking to expand its powers to include search and seizure powers when they conduct investigations. These are similar to the powers enjoyed by the SA Revenue Services and the Financial Sector Conduct Authority.