'Push the accountability button': SAICA chief hails Tongaat Hulett fine

Sugar cane at harvest.
Sugar cane at harvest.
  • The Johannesburg Stock Exchange fined sugar producer Tongaat Hulett a maximum of R7.5 million and publicly censured it for publishing financial statements that contained errors. 
  • Accounting body SAICA says the fine demonstrates accountability in the scandal-rocked accounting profession. 
  • It will also be investigating the conduct of the accountants involved. 

The South African Institute of Chartered Accountants hopes the maximum R7.5 million fine imposed by the Johannesburg Stock Exchange on Tongaat Hulett for incorrect information on its financial statements will foster accountability and vigilance in the accounting profession, which has been rocked by several scandals in recent years.

Last year, the KwaZulu-Natal based firm was embroiled in a financial scandal that showed accounting irregularities resulting in inflated profits. Its shares plummeted and were subsequently suspended from the JSE for a period of seven months. 

Tongaat Hulett had to include restatements in its annual financial statements for the year ended March 2019 and its unaudited interim financial results for the six months ended September 2019, as previous financial statements had contained "a substantial number of prior period errors," the JSE said.

The material errors were included in certain of its financial reports between 2011 and 2018. In November 2019, the company said it intended to institute civil claims against former top executives, including former CEO Peter Staude.

According to the JSE, the financial impact of the Tongaat restatements of prior period errors in the annual financial statements for the year ended 31 March 2018 were material: total assets decreased by about R10 billion, representing a drop of approximately 34%.

This week, Tongaat Hulett said it accepted the fine and the public censure. 

Integrity of reporting

SAICA Chief Executive Freeman Nomvalo hailed the censure as a "demonstration of accountability" - adding that the regulatory body was also investigating the conduct of the accountants involved in the saga.

Nomvalo told Fin24: 

"When this kind of abuse happens it not only harms investors, it diminishes faith in the integrity of reporting and trust in companies and markets – and this affects everyone."

He added: "We at SAICA are also investigating the conduct of the individual CAs involved because we need to uphold the highest standards of professional competence and ethics."

The professional body has in recent years instituted disciplinary measures against several accountants implicated in misconduct, including the former chairperson VBS Mutual Bank, Tshifiwa Matodzi, and ex-CEO Andile Ramavhunga, for their role in the controversial collapse of the bank.

In February 2019, SAICA resolved to cancel Matodzi's membership with the body, while Ramavhunga is appealing his censure.

Nomvalo said the recent number of governance scandals involving chartered accountants had led to the tightening of the profession's governance codes such as the revision of  by-laws in line with the public interest mandate.

"Now it’s time to implement the new by-laws," he said.

Nomvalo said he was of the view that all stakeholders needed to efficiently play their roles when it comes enforcing standards and companies to account, from investors, fund managers to board of directors.

"If one truly wants to prevent this from happening again, or at least if one wants to make it difficult for criminal conduct to occur, all elements of this oversight ecosystem have to work better."

Accountability button

He did, however, concede that the proximity of the owners of capital and management in unlisted entities does reduce the propensity for 'creative accounting'. 

"The accountancy profession therefore also has to be more acute in its measurement and assurance of the validity of the financial reporting of the full spectrum of organisations, from listed companies to SMMEs."

Since the collapse of Steinhoff International at the end of 2017, the JSE and the auditing profession has faced criticism from investors for not better monitoring the stocks of listed entities.

Asked if it was time to push the panic button on an apparent crisis in the accounting profession, Nomvalo said: "it is time to push the accountability button."

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