Pretoria – The developments around audit firm KPMG following its implication in state capture has stressed the need to introduce reforms in the auditing and accounting professions, said Deputy Reserve Bank Governor Francois Groepe.
Groepe delivered an address at the Financial Stability Forum at the South African Reserve Bank (SARB) on Thursday evening, where he spoke on the health of the financial sector.
One of the SARB’s functions is to protect and enhance financial stability in the country, in accordance with the Financial Sector Regulation Act 9 of 2017. It released the second edition of the semi-annual Financial Stability Review for the period between January 1, 2017 to June 30, 2017.
Among the findings of the review was that the South African banks remained “healthy and well capitalised”.
However, Groepe pointed out that media reports on KPMG have also placed the banks it audits in the “spotlight”.
“KPMG is the auditor to three of the four largest banks as well as to other banks and insurance companies.
“We are concerned that these developments may pose a risk to financial stability emanating as a result of potential contagion from damage to an individual audit firm’s reputation, which may spread to the entire auditing sector,” he said.
“This could lead to weakening both investor and public confidence in a bank or the banking sector as a whole.”
Groepe said that the SARB welcomed an independent inquiry commissioned by South African Institute of Chartered Accountants (Saica) last week to investigate member employees of KPMG.
Saica had received claims that some of its members employed by KPMG allegedly contravened the Saica code of professional conduct, which led it to launch the investigation, Fin24 previously reported.
The inquiry will be led by Advocate Dumisa Ntsebeza. The inquiry will involve four phases and is expected to be completed within five months.
“We are eagerly awaiting the results of this inquiry and believe that its work is of national interest and hence it would be appropriate not to pre-judge the outcome and to give them the necessary room to conclude their work,” said Groepe.
He explained that there were significant policy considerations about the “potential systemic effect” of large auditing and professional services firms. The situation has brought about a need to reflect on how to strengthen governance and transparency in the auditing and accounting professions.
The reforms include the appointment of independent boards of directors, the publication of audited financial statements and of a so-called transparency report, the prohibition of the performing of certain non-audit services by statutory auditors and fee caps in respect of non-audit services at no more that 50% of statutory audit fees among other things.
“[The reforms] may go some way to contribute towards restoring the public trust in the auditing and accounting professions,” he said.
The Reserve Bank previously said that it has not instructed banks on the actions they should take regarding KPMG.
At the Monetary Policy Committee briefing on September 21, Reserve Bank Governor Lesetja Kganyago said that its interest in the KPMG matter relates to financial stability.
The SARB said it had been engaging with banks and audit firms to understand the context of the matter, to allow it to be “better placed” in managing potential risks to financial stability.
“These engagements have taken place, but at no point did the SARB instruct banks on how they should deal with KPMG,” the bank said.
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