BUSINESS LIVE / 21 MAY 2018 - 05:55 / MBUSISWA NGCOBO
The recent crises present an opportunity to tackle economic transformation and restore credibility in the sector
Recent developments in the accounting and auditing profession are a cause for concern for the country. As the developments have a significant effect on market and investor confidence in SA, the Association for the Advancement of Black Accountants of Southern Africa (Abasa), as a significant stakeholder in the accounting and auditing profession, needs to actively engage all other stakeholders in tackling the issues.
Since the collapse of African Bank in 2014, the Steinhoff developments, the KPMG debacles linked to Linkway, the collapse of VBS and the recent debacle around Nkonki, which has resulted in the liquidation of this black-owned firm, there has been great discomfort in the sector and the financial markets. We believe significant reforms aimed at protecting the public, investors, pensioners and shareholders, who rely on the credibility of the information coming out of many sources within our financial system, should be facilitated by all stakeholders.
Such market failures are not new in the global financial services sector, but a great opportunity exists for SA to demonstrate its leadership by introducing fundamental reforms that tackle market confidence and further look to reposition the country’s rankings in terms of the credibility of its financial system and its auditing and accounting sector.
As witnessed in the 2008-09 US failures in the bond market, which had a ripple effect on the global financial system, SA was able to avert some of the negative consequences of the global economic meltdown due to its well articulated and executed vision of introducing policy instruments that sought to protect the country’s financial system, and ultimately its citizens.
There is an opportunity herein for SA to show leadership on the global stage in how it solves the challenges in the auditing and accounting sector, through sound and prudent policy instruments to ensure the sustainability of our financial system, guard against market concentration and improve independence in the sector.
We believe some of the amendments to the Auditing Professions Act of 2005 suggested by the Independent Regulatory Board for Auditors (Irba) are warranted, and we look forward to the open participation process to provide our input to the proposed legislative amendments, also aimed at improved governance.
We are disappointed by the recent announcements relating to the liquidation of Nkonki, a historically black female chartered accountant-owned firm, which had been an exemplary symbol of the strides made by black accountants since the beginning of democracy.
Since the news of the liquidation of the Sunninghill office became public knowledge, our approach has been to engage with the leadership of Nkonki to ensure the training contracts for the prospective black chartered accountants are not in jeopardy. This is critical to our founding mandate to ensure we have a constant and growing stream of black chartered and professional accountants.
We are satisfied that the South African Institute of Chartered Accountants (Saica) and Black Chartered Accountants Practitioners, via the leadership of Victor Sekese, together with other large firms in the sector, have availed their capacity to assist with absorbing the trainees to ensure that historic efforts to create auditing and accounting capacity among endogenous black firms is not lost.
We have offered our support to the black professionals within KPMG since 2017, and we are watching the developments that will emanate from the findings of the Irba and Saica investigations
We remain supportive of the untainted management of the company and have offered our support to them should they seek to explore other avenues to find amicable ways to preserve the legacy of this historic institution.
This also gives rise to a discussion the sector needs to have about creating more opportunities for black firms to audit JSE-listed companies as well as banks, as there is now a vacuum in the market, which presents a risk of over-concentration. This is a real opportunity to tackle economic transformation in the sector, and we call upon all market participants to consider this proposal and for us to form partnerships to deliver on this ideal.
We have offered our support to the black professionals within KPMG since 2017, and we are watching the developments that will emanate from the findings of the Irba and Saica investigations.
It is important to highlight a contrast in how the KPMG and Nkonki matters have played out in the market. The fact the auditor-general’s pronouncements regarding terminating work for a black firm have resulted in its liquidation is an indication of the low levels of private sector support for black firms, which leaves them over-reliant on state business.
On the other hand, that a firm such as KPMG has a more diverse client base due to extensive private sector support provides a clear demonstration of how much more work still needs to be done to bring about transformation in the sector and tackle the issue of market concentration by the big firms.
We are also hopeful that KPMG will revisit its position as the external auditors of Saica as it begins its internal reforms and allow for more independent processes to proceed and conclude timeously.
We remain very watchful over the outcomes of the Irba inquiries into the conduct of Deloitte auditors in the audits of African Bank and Steinhoff. It is our view that the issue of reforms in the auditing sector need to be tackled to guard against the implications of a lack of auditor independence.
Quantifiably, the collapse of African Bank led to the Reserve Bank’s injection of R5bn to keep the bank afloat. In addition, the Public Investment Corporation (PIC) and other banks contributed to recapitalising the bank so it could regain its footing. As a result the bank is now fully operational and has appointed a new CEO.
While this is a better outcome than liquidation, it is important to ensure we engage in conversations about what led to the initial problems with the bank and then ensure they are never repeated. The PIC’s loss of billions from the Steinhoff collapse also demonstrates the real cost to society and the government, signifying again the need for serious reforms in the professional services field.
As we continue to engage with the Bank, its efforts to ensure that medium-sized and large black audit firms are assisted to enter and participate meaningfully in the audit market of banks and the greater financial services sector and JSE bode well for addressing the vacuum in the market and furthering the country’s broad-based black economic empowerment, affirmative action and economic transformation agenda.
The recent advertisement on social media depicting a series of events and programmes facilitated and supported by Saica leaves a lot to be desired in terms of the body’s commitment to gender and racial transformation, and goes against its public pronouncements on its commitment to nation building.
As the only professional body recognised by Irba to train auditors in SA, Saica is an important pillar in the country’s financial system and rapid efforts to ensure the full and conclusive transformation of this body and its management structures will significantly advance the country’s transformation imperatives.
The auditor-general is a significant institution within the public sector governance platforms as an oversight body, and also a very important organ to ensure the realisation of the country’s economic transformation agenda, as outlined in the policies of government. Its recent decision to terminate the contracts with KPMG and Nkonki is a significant step towards pushing the profession to reconsider its processes, and fundamental reforms may yet result from this.
We think this represents an opportunity for engagement across a wide body of stakeholders to ensure the issues raised by the office of the auditor-general when it pronounced on KPMG and Nkonki are not replicated.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER