JSE-listed companies are divided on KPMG relationship

Audit and advisory firm KPMG South Africa is in a fight for its life. JSE-listed companies that are externally audited by KPMG are weighing up whether to continue to do business with the firm after it revealed explosive findings from its internal probe.

KPMG admitted on Friday that it missed red flags in its auditing of Gupta family-owned companies and also withdrew parts of its controversial report on the South African Revenue Service’s (Sars) so-called “rogue unit”.

Some JSE-listed companies are not ready to fire KPMG, as Sygnia Asset Management did in July. Instead, they are still studying KPMG’s findings and engaging with the firm’s management led by the newly-appointed CEO Nhlamu Dlomu.

Among the companies is Nedbank, which “welcomed KPMG’s announcement”. Nedbank Group CFO Raisibe Morathi said the bank is digesting the full report and would engage with KPMG on its contents before “deciding on a way forward”.

“We have maintained a dialogue with the highest levels at KPMG throughout this process. Nedbank will continue with its robust internal processes. These governance processes need to be followed when accusations are levelled against service providers and individuals…. We expect our service providers to conduct themselves in an ethical manner,” said Morathi.

The bank has an entrenched relationship with KPMG which has audited its financial statements since 1951 when the bank was formerly known as Nederlandse Bank van Suid-Afrika Beperk. At the time, KPMG was known as Peat Marwick, Mitchell & Co, which later rebranded to KPMG in 1999.

Other financial services companies that have followed Nedbank’s tune include Absa, Old Mutual, and Investec. The latter said its audit committee, which will be convening this week, will “make a recommendation to the board on how the group should proceed”.

Nedbank, Old Mutual, and Investec are considered to be KPMG’s biggest clients in SA.

When asked by Moneyweb whether it’s reviewing its relationship with KPMG, South Africa’s largest lender Standard Bank didn’t answer directly. Instead, it said: “Standard Bank is committed to doing business ethically and in accordance with all applicable laws and expects all of its counterparties to be similarly committed. We exit relationships where that commitment is lacking.”

“Unless it is required by law we don’t comment on individual cases when this occurs.”

Business leaders including Pan-African Investment and Research Services CEO Iraj Abedian and Sygnia’s CEO Magda Wierzycka have been outspoken about KPMG, imploring more directors and companies to sever relations with the firm.

According to an amaBhungane Centre for Investigative Journalism report, KPMG allowed Gupta businesses to divert public money to pay for a family wedding in 2013 – a move that is seen to be aiding and abetting state capture.

KPMG’s future hangs in the balance as it faces two investigations from the Independent Regulatory Board for Auditors and Companies and Intellectual Property Commission, which are probing the conduct of KPMG’s directors and whether the firm flouted regulations in its audit of Gupta-linked companies. Both bodies will continue their investigations despite the conclusion of KPMG’s own probe.

Beyond the financial services sector, the real estate sector on the JSE is also considering dumping KMPG.

Sector heavyweight Redefine Properties, which replaced Grant Thornton with KPMG as its auditor last year, also plans to engage with the auditing firm’s top brass. Redefine’s executive chairman Marc Wainer said he was “shocked” at KPMG’s own findings, especially the part about Sars’ “rogue unit”. Wainer said Redefine cannot dump KPMG at the moment as the company is midway through its year-end financial results audit.

“We will meet with our audit risk committee and management after our results are published in November and decide whether we will continue with KPMG. We have to wait and see what happens as we have to make a decision based on facts and not emotions,” he told Moneyweb.

Growthpoint Properties said its audit committee will make a recommendation to the board “in due course” regarding its relationship with KPMG.

Other real estate companies keeping an eye on the audit firm include Redefine International and Stor-Age.

It’s time to say goodbye

Other listed companies have decided enough is enough though. Following Sygnia, Sasfin Bank announced on Tuesday it was terminating its relationship with the firm. “The decisions were based on “the well-publicised concerns recently raised with regard to KPMG,” said Sasfin.

A few minutes later, Hulisani CEO informed the market: “The risk committee looked at various factors, including what’s in the media now about KPMG and the Guptas and we concluded that it would be in best interests of the company to change auditors,” chief executive Marubini Raphulu told Reuters.

Safe for now

Some other companies, like multi-national gold miner Gold Fields, will retain KPMG as their auditor but will be keeping a close eye on developments. “The Gold Fields board of directors has considered the matter and will be closely following future developments in this area. KPMG remain the company’s external auditors.”

This is a developing story.

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