Johannesburg - Deloitte Africa has broken its silence on Steinhoff and says it is confident in its conduct as the global retailer's auditor. The company also maintains that the various probes into Deloitte's audit opinions of the contentious financial statements are appropriate, given the alleged accounting irregularities at Steinhoff.
Deloitte raised a series of questions about Steinhoff’s 2017 financial statements before finalising its audit opinion and decided, together with the international furniture retailer, that these should be answered by an independent investigation.
“Raising these questions prior to finalising the audit is an example of a good audit process, and we believe that we have done the right thing by raising our questions,” Lwazi Bam, the CEO of Deloitte Africa told Fin24 in an exclusive interview.
The Dutch Authority for the Financial Markets (AFM) announced in December that it would probe the Dutch branch of Deloitte & Touché, which had issued a clean opinion of the 2015/2016 Steinhoff financial statements. The AFM said that the 2016 financial statements no longer met the requirements as per Dutch law. Following that, Deloitte withdrew its approval for Steinhoff to use its audit opinion.
Deloitte SA faces an investigation by the Independent Regulatory Board for Auditors (IRBA) for the company’s audit opinions for Steinhoff for 2014, 2015 and 2016.
The global furniture and durable goods retailer is headquartered in Stellenbosch, South Africa and registered in the Netherlands. It’s dual listed on the Johannesburg Securities Exchange (JSE) and the Frankfurt Stock Exchange (FSE).
Over 85% of Steinhoff’s market value has been wiped out since December, when it said it wouldn’t be able to publish its 2017 financial statements and the CEO Markus Jooste resigned, citing "accounting irregularities". The board has since announced that the 2016 and 2015 financial results will also need to be restated and can’t be relied upon.
No comparison to KMPG
Commenting on Deloitte’s role in the Steinhoff saga for the first time, Bam said that the investigations by the IRBA and AFM are to be expected.
“Deloitte is fully cooperating with the IRBA and the AFM and will continue to fulfil its ethical, legal and regulatory obligations. We remain committed to delivering on our professional responsibilities and acting in full compliance with regulatory and professional standards.
“At this stage it is unclear when the 2017 [and the restated prior years] audited consolidated financial statements will be completed," he said. Bam added that it depended on the successful completion of the PricewaterhouseCoopers (PwC) investigation into the matter.
He dismissed comparisons between Deloitte in relation to what has transpired at Steinhoff and KMPG, the auditing giant caught at the centre of state capture allegations involving the controversial Gupta family, saying that the basis of the investigations into Deloitte’s role are in no way similar.
“When you have an incident like this, it is unfortunate, it is difficult, not just for Deloitte but for the country, we understand that it has a huge impact. There’s a vested interest and concern from the country’s perspective. But in terms of Deloitte’s commitment to quality, ethics and commitment to always acting with integrity, I am not concerned," he said.
Deloitte SA is also feeling the heat for its role as African Bank’s auditor ahead of the 2014 collapse of the lender. The auditing firm will face a disciplinary hearing by IRBA later this year, based on a referral by the regulator’s disciplinary advisory committee.
“Deloitte’s own investigations support the findings and causes as reported by the Myburgh Commission of Inquiry in May 2016. Deloitte is fully cooperating with the IRBA and is providing the IRBA with all the information and documentation in its possession in order to facilitate a speedy resolution of this matter," Bam said.
13 000 Hlumisa and Eyomhlaba shareholders are suing Deloitte and the African Bank Investments (Abil) board for R2.1bn. The former Abil empowerment partners also filed a complaint with IRBA against Deloitte. In court papers, they blame the loss of R41bn on the bank’s directors and Deloitte in the alternative.
The Myburgh Commission found in 2016 that members of Abil’s board failed in their duties to manage and protect the lender and that its business was conducted negligently in certain aspects, before its failure in 2014.
Deloitte joins two other of the ‘Big 4’ companies in the auditing profession who are in the crosshairs of the regulators.
KPMG is being probed by IRBA after it admitted to wrongdoing in September 2017 for its audit opinion of the Gupta family businesses and for writing a report for the South African Revenue Services (SARS) which it admitted was partially faulty.
PwC was fined R200 000, of which R50 000 was suspended, by IRBA in October 2017 for overlooking South African Airways (SAA) procurement failures and their work was also found not to have met international standards on auditing.
Bam admits that the auditing profession itself is facing much scrutiny and needs to have a “much broader discussion” around the nature of audit, the role of the auditor, the role of management and importance of good governance.
“As a profession, we are continuously looking at how to improve the way in which we audit so that we remain relevant to the changing times, to a world where things are becoming more complex, and things are becoming more cross border and yet you still have to deal with the sovereignty of the various governments," he added.
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