Absa will ‘reconsider’ KPMG relationship

Absa Bank says it is “continuously reconsidering” its position with under-fire auditing firm KPMG South Africa, as more information becomes available on the group’s involvement with the controversial Gupta family, and the motivations behind its ‘rogue SARS unit’ report.

Of South Africa’s so-called ‘big four’ banks, FirstRand is the only one not to make use of KPMG’s services. The other banks – Barclays Africa and Absa Bank, Nedbank and Standard Bank – have all indicated that they are either actively reviewing their relationship with the auditor, or are waiting for all investigations to play out.

KPMG International announced last month (22 September) that it was conducting a full and independent investigation into its local operations.

The firm has been accused of turning a blind eye to alleged money laundering taking place between Gupta-linked companies, which allowed the family to pay for a R30 million family wedding in 2013.

It has also been criticised by SARS for “illegal and immoral” acts relating to the withdrawal of a report into the “rogue SARS unit”, which was used to hound former SARS officials, including former finance minister Pravin Gordhan.

KPMG said the report did not pass internal quality standards and could not be relied on, while SARS said that the report was its intellectual property and was accurate.

The auditing firm has since apologised to those implicated in its report.

In a statement on Monday, Absa said that “the behaviours underlying the allegations in these reports are in conflict with our values”.

“We acknowledge the involvement of and the steps taken by KPMG International so far in this matter,” it said.

These include the publication on 15 September 2017 of their internal investigation report which “contains deeply concerning acknowledgements” relating to the conduct of some senior people in the firm, adherence to quality standards, and the judgment underlying some of the decisions taken, the bank said.

“We note the steps taken by KPMG International and the local firm so far which include the installation of a new leadership and instituting a further, independent investigation.

“We also welcome the investigation that has been undertaken by the Independent Regulatory Board for Auditors (IRBA).”

Absa pointed out that a multitude of factors come into play when appointing, terminating or changing auditors, including considerations of audit quality and independence.

This process includes consultation with primary regulator, the South African Reserve Bank, which requires two joint auditors for the major South African banks.

The SARB has indicated that it will await the outcomes of further independent investigations before making further decisions or pronouncements.

“We have asked for and received assurances of additional support and quality reviews from KPMG International in relation to audit work done for BAGL.

“Given that some investigations and reviews are underway we will continuously reconsider our position as more information becomes available,” Absa said.

KPMG has reportedly gained support from the SARB, with sources telling Reuters on Friday that the central bank wanted to protect the firm to ensure market stability in the country.

According to Reuters, sources said the bank told top lenders on Friday that it could not fire KPMG as its auditor, as it could undermine financial stability.

KPMG is one of only four auditors with enough depth to jointly audit the four largest banks, and no bank may drop or hire an auditor without the central bank’s approval, the report said.

In effect, the Reserve Bank is saying KPMG is “too big to fail”, the sources said, and this is the message that it is taking to the banks in its discussions with them.

The banks and SARB declined to comment.

Meanwhile, the Independent Regulatory Body for Auditors (IRBA) and the Companies and Intellectual Properties Commission (CIPC) also have ongoing investigations.

Read: Reprieve for KPMG as it gets backing from auditor general and Reserve Bank: report

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Absa will ‘reconsider’ KPMG relationship