By Ed Cropley
JOHANNESBURG, April 18 (Reuters Breakingviews) - South Africa may be about to experiment with having just three big audit firms. KPMG's future in the country hangs by a thread after it was sacked by the government, its biggest client, following a second scandal in less than a year. Since the demise of Arthur Andersen in 2002, regulators across the world have worried about losing one of the remaining Big Four. South Africa could provide a reluctant test case.
KPMG's position had been under scrutiny since September, when a scandal erupted over its auditing of a firm belonging to the Gupta family, businessmen accused of improper links to then-President Jacob Zuma.
The firm responded by clearing out its predominantly white management and tried to stem the bleeding of clients and partners under new Chairman Wiseman Nkuhlu. The 74-year-old has plenty of clout: he became South Africa's first black auditor in 1976, the year apartheid police shot dead scores of protesting school children in Soweto. He also served as economic adviser to former President Thabo Mbeki.
The latest imbroglio, in which a top KPMG auditor failed to disclose a loan from a small bank he was auditing, suggests the rot is more pervasive. Aside from the loss of government revenue, more partners and other clients may defect.
The widening scandal could also shake the confidence of the South African Reserve Bank (SARB), which has been keen to keep KPMG as an auditor to the country's four big banks. Under SARB rules, lenders have to choose two from the Big Four: KPMG, PricewaterhouseCoopers, EY, and Deloitte. To stop relationships getting too cosy, they have to rotate auditors every five years. Remove one firm from the pool and the system grinds to a halt.
Standard Bank, Barclays Africa and Nedbank thought hard about ditching KPMG as an auditor last year, before acquiescing to the central bank's wishes. The pressure to let the axe fall will be greater this time round. Ambitious black-owned audit firms are keen to step in, but lack KPMG's global reach. Global regulators will be watching closely to see whether South Africa decides it is possible to manage with the Big Three.
- South Africa's Auditor General on April 17 terminated all contracts with auditing firm KPMG over several scandals that have cast doubt over the international audit firm's professional and ethical conduct.
- Two KPMG partners resigned after facing disciplinary charges over their failure to disclose financial interests in connection to VBS Mutual Bank, which was placed under curatorship, the company said on April 14.
- KPMG has been under scrutiny since 2017 over work done for a company owned by the Gupta family - which has been accused of improper links to former President Jacob Zuma.
- South Africa's central bank in September 2017 blocked the country's four biggest banks from firing KPMG as auditor because of the potential threat to financial stability.
JOHANNESBURG, April 18 (Reuters Breakingviews) - South Africa may be about to experiment with having just three big audit firms. KPMG's future in the country hangs by a thread after it was sacked by the government, its biggest client, following a second scandal in less than a year. Since the demise of Arthur Andersen in 2002, regulators across the world have worried about losing one of the remaining Big Four. South Africa could provide a reluctant test case.
KPMG's position had been under scrutiny since September, when a scandal erupted over its auditing of a firm belonging to the Gupta family, businessmen accused of improper links to then-President Jacob Zuma.
The firm responded by clearing out its predominantly white management and tried to stem the bleeding of clients and partners under new Chairman Wiseman Nkuhlu. The 74-year-old has plenty of clout: he became South Africa's first black auditor in 1976, the year apartheid police shot dead scores of protesting school children in Soweto. He also served as economic adviser to former President Thabo Mbeki.
The latest imbroglio, in which a top KPMG auditor failed to disclose a loan from a small bank he was auditing, suggests the rot is more pervasive. Aside from the loss of government revenue, more partners and other clients may defect.
The widening scandal could also shake the confidence of the South African Reserve Bank (SARB), which has been keen to keep KPMG as an auditor to the country's four big banks. Under SARB rules, lenders have to choose two from the Big Four: KPMG, PricewaterhouseCoopers, EY, and Deloitte. To stop relationships getting too cosy, they have to rotate auditors every five years. Remove one firm from the pool and the system grinds to a halt.
Standard Bank, Barclays Africa and Nedbank thought hard about ditching KPMG as an auditor last year, before acquiescing to the central bank's wishes. The pressure to let the axe fall will be greater this time round. Ambitious black-owned audit firms are keen to step in, but lack KPMG's global reach. Global regulators will be watching closely to see whether South Africa decides it is possible to manage with the Big Three.
CONTEXT NEWS
- South Africa's Auditor General on April 17 terminated all contracts with auditing firm KPMG over several scandals that have cast doubt over the international audit firm's professional and ethical conduct.
- Two KPMG partners resigned after facing disciplinary charges over their failure to disclose financial interests in connection to VBS Mutual Bank, which was placed under curatorship, the company said on April 14.
- KPMG has been under scrutiny since 2017 over work done for a company owned by the Gupta family - which has been accused of improper links to former President Jacob Zuma.
- South Africa's central bank in September 2017 blocked the country's four biggest banks from firing KPMG as auditor because of the potential threat to financial stability.