Barclays, one of KPMG’s major financial customers, joins more than 10
other clients including the South African government and broker Sasfin
in breaking ties with KPMG South Africa. AFP PHOTO | BEN STANSALL
Summary
- The decision will test South African regulators’ conviction that the big four auditing firms are key pillars of financial stability, and raises further questions about the survival of the local unit of the global accountancy business.
- The auditor has struggled to retain clients since 2017 due to work done for a company owned by the Gupta family.
- KPMG’s own investigations found flaws in work it did for the Gupta family and the national tax agency.
Barclays Africa Group, South Africa’s second-biggest lender by
market value, dropped KPMG as its joint auditor on Thursday, joining a
host of local clients breaking ties with a company caught up in
scandals.
The decision will test South African
regulators’ conviction that the big four auditing firms are key pillars
of financial stability, and raises further questions about the survival
of the local unit of the global accountancy business.
Barclays,
one of KPMG’s major financial customers, joins more than 10 other
clients including the South African government and broker Sasfin in
breaking ties with KPMG South Africa.
The auditor has
struggled to retain clients since 2017 due to work done for a company
owned by the Gupta family - who have been accused of using their links
to former president Jacob Zuma to amass wealth - and more recently for
small lender VBS Mutual Bank.
The Guptas and Zuma have denied any wrongdoing.
KPMG’s
own investigations found flaws in work it did for the Gupta family and
the national tax agency. It has said it is cooperating with authorities
and addressing its shortcomings.
Last straw
The
latest scandal, in which a top KPMG auditor failed to disclose a loan
from a small bank he was auditing, was the last straw for Barclays
Africa, whose board had proposed a month ago that KPMG be reappointed as
its joint auditor along with EY at a shareholder meeting later this
month.
“Subsequent to the release of our AGM notice,
the board has carefully evaluated the on-going and more recent
developments and decided that it is no longer able to support the
reappointment of KPMG,” the bank said in a statement.
KPMG South Africa said it was disappointed by, but accepted, the decision.
Barclays
Africa said it would start the process of appointing a second auditor
from the beginning of next month, when KPMG completes work on its 2017
financial statements.
But that appointment will have to
be approved by the South African Reserve Bank, which has been keen to
keep KPMG as an auditor for the country’s big four banks.
Central bank spokesman Jabulani Sikhakhane did not immediately respond to a request for comment.
Under
South African rules, lenders must appoint two joint auditors from the
big four: KPMG, EY, Deloitte and PricewaterhouseCoopers.
To
stop the relationships from getting too cosy, they have to rotate
auditors every five years. Remove one firm from the pool and the system
grinds to a halt.
KPMG is also a joint auditor for Standard Bank and Nedbank, both of which considered ditching KPMG as auditor last year.
Standard
Bank said it would assess recent negative media statements about KPMG,
while Nedbank did not immediately respond to requests for comment.
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