KPMG has nothing to fear in the face of a toothless Irba

KPMG SA has virtually nothing to fear from its regulator if it is found guilty of a bad audit of Gupta-linked company Linkway Trading.

Last month the Independent Regulatory Board for Auditors (Irba) said that it will investigate the 2014 audit of Linkway, the company alleged to be involved in the Gupta wedding scandal.

But the announcement is unlikely to have left Linkway’s auditor, KPMG SA, in any state of concern. The reason? Irba is a toothless chihuahua of a regulator. One merely has to look at how it has punished errant auditors in the past. Or, rather, how it hasn’t really punished them.

Auditors who are found guilty of misconduct are typically ordered to pay a relatively tiny fine, which seldom exceeds R200 000. Fines against auditors are limited by the Auditing Profession Act.

Most importantly, the auditor’s misdeeds are almost never exposed to public scrutiny. This, despite the fact that Irba’s Disciplinary Advisory Committee has the power to name and shame errant auditors in matters of high public interest.

Some media attention has been given to the fact that Irba has the power to suspend an auditor’s registration or remove his or her name from the register. But this seems extremely unlikely to happen.

Moneyweb recently asked Irba what the longest suspension it has ever imposed.

Irba did not answer the question directly.

It responded: “The most severe sanction would be the cancellation of the registration of the registered auditor concerned and removal of his or her name from the register. The sanction of suspending the right to practice as a registered auditor for a specific period is generally not used.”

From this answer it seems reasonable to infer that Irba has never suspended a registered auditor for any period of time.

Furthermore, even if Irba imposes the most severe sanction and removes an auditor from the register, it would only be the “individuals under investigation”, and not the audit firm, as a media report claimed recently.

Irba’s latest newsletter provides insight into the relatively light punishment auditors receive for bad behaviour.

The newsletter states that Irba’s Disciplinary Advisory Committee concluded 20 matters by consent order. A consent order is effectively an admission of guilt.

Not one of the errant auditors is identified. Irba merely describes their transgressions in broad terms, without even stating the year in which the offences were committed.

Even though some serious transgressions are recorded, the highest fine levied is R150 000, of which R50 000 was suspended for three years on condition that the respondent is not found guilty of unprofessional conduct committed during the period of suspension. No costs order was granted either.

Those hoping for a speedy resolution to the KPMG matter may also be disappointed. Moneyweb is aware of a complaint laid against an auditor in 2010. The complainant was only notified in 2015 by Irba that it intended to discipline the auditor concerned. To this day the complainant is unsure if the auditor has actually been disciplined.

Irba explains that the investigations and disciplinary process are complex and lengthy. “It is also important that Irba follows its due process. Reaching conclusion on matters can therefore take time.”

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