KPMG focused on rebuilding public trust
CAPE TOWN - KPMG SOUTH Africa last year turned down four private and listed companies as clients because they did not meet the accounting firm’s criteria on its duty to the public interest.
This was according to chief executive Ignatius Sehoole, who wrote in the firm’s third integrated report for its 2020 financial year released yesterday that “our first duty to the public interest is becoming second nature at KPMG”.
This was after a tough three years at KPMG following its confession in 2017 that it published a misleading report on the South African Revenue Service (SARS), doing work for the Gupta family and turning a blind eye to corruption as an auditor for the collapsed VBS Mutual Bank. Some of the biggest companies in South Africa replaced KPMG as its auditors due to the scandal.
Since then, as evidenced in the latest integrated report, the firm had focused on improving cultural transformation, audit quality, and restoring trust and social appreciation, which, in turn, had increased governance oversight and driven industry change.
On cultural transformation, an independent non-executive director had been appointed to chair the nomination and remuneration committee.
In addition, a partnership with the Association for the Advancement of Black Accountants in Southern Africa had been established to work with smaller firms to build their capacity and deepen transformation.
There had also been a significant improvement in audit quality reviews, as well as the addition of second line of defence audit reviews.
For example, 93 percent of audit engagement reviews were found to either be satisfactory or required only some level of performance improvement, versus 85 percent in 2019 and 75 percent in 2018.
None of the unsatisfactory ratings was for audits of listed or other public interest entities.
Creating transparency and co-operation with inquiries around legacy issues and restoring trust with regulators had since also become “a guiding principle”.
The firm recently became the first in its sector to move away from non-audit services to audit clients listed on the JSE.
“We have co-operated extensively with all the inquiries related to legacy issues. Our CEO has continued to work on restoring trust with the regulators, particularly the JSE, South African Reserve Bank and Independent Regulatory Board for Auditors (IRBA),” said chairperson Wiseman Nkulu in the report.
He said IRBA had concluded its investigation into the “Gupta entities’” audit engagements as they related to KPMG SA. The regulator’s review of certain engagements performed involving one practitioner however was still in progress.
In terms of issues related to VBS Mutual Bank, the accounting firm continued to co-operate with the Hawks.
“The ex-KPMG partner who was engaged with the relevant audit has been charged, the matter is now before the courts and we trust will be addressed accordingly.”
The KPMG report said the IRBA investigations into the former KPMG SA director and lead partner who had prepared the Sars report was ongoing.
In April 2018, KPMG SA started an additional programme of audit quality file reviews focused on assessing each audit partner.
“The IRBA investigations department...concluded its investigation into the programme during January 2021. While it was highly unusual for an audit regulator to seek to impose charges based on the findings resulting from an internal quality performance review process, in the spirit of respect and co-operation that KPMG SA has built with the IRBA under the new leadership of the firm, the firm agreed to working with IRBA and the partners to find a solution to conclude on these matters of the past rather than proceeding through lengthy legal processes which do not serve the audit profession and the public interest,” the report noted.
“Consequently, 10 partners currently employed by the firm consented to charges raised by the IRBA, which resulted directly from the findings identified in the programme.”
“We are pleased that the investigations into the programme, insofar as it relates to the individual partners, have now been concluded with our regulator,” KPMG said.