Auditing firm KPMG South Africa has suffered major fallout since it emerged that it was embroiled in a corruption scandal involving the Gupta family, the extent of which has been outlined in a report by the Independent Regulatory Board for Auditors (IRBA).
The report states that KPMG has lost 20 listed audit clients in South Africa since the start of 2017, including the likes of Barclays Africa, Sasfin, and Sygnia.
The IRBA said that since it started tracking audit firm rotations in January 2017, a total of 12% of JSE-listed companies, or 43 audit clients, have rotated their audit firms, with 33% (14) of these citing Mandatory Audit Firm Rotation (MAFR) as the reason for initiating the rotation.
Termination was given as the reason for 28% (12) of the rotations, making MAFR the most cited reason for rotation.
The new rules require listed companies to change auditor every 10 years from 2023 onwards.
“We anticipated that there would be a number of early adopters following the issuing of the rule in June 2017, but we are encouraged that a third of the rotations in the last 18 months noted MAFR for the reason for early rotation.
“While we recognise that some of these early rotations citing MAFR may also have been driven by other concerns around KPMG, it is important to note that only five of the 14, which gave compliance with MAFR as the reason for seeking new auditors, were actually KPMG audits,” said Bernard Agulhas, CEO of the IRBA.
The third most cited reason was that the audit was put out to tender with 19% (8) of the rotations giving this as the primary reason for seeking a new auditor.
While these companies did not specify that MAFR was a reason for rotating, at least in some of the cases it is likely that the effective date of 1 April 2023 for mandatory rotation of audit firms where tenure exceeds ten-years may have been a factor in the decision to put the audit out to tender early.
During 2017, a total of 19 audits rotated, while in the first six months of 2018, this has shown growth of 26% to 24, the watchdog said.
The Financial Times reported that KPMG lost 20 listed audit clients locally, while picking up one new client, with PwC picking up 11 new clients, while losing four. Deloitte gained a net five new clients, while EY made a net gain of one.
KPMG said: “We expected to see a reduction in the number of audit clients as a result of the impact of mandatory audit firm rotation. We also lost a few clients as a result of the issues faced over the past year.
“However, we are now in a more stable position and are seeing some significant wins. We remain absolutely committed to our clients and colleagues and are confident that we have taken the right steps to help restore the firm to health.”
In June, KPMG unveiled plans to cut 400 staff in response to a reduced number clients.
“If this pace of growth continues into the second half of the year we could see that as many as 36 audits have rotated by year end. The UK experience of audit tendering reflected a similar growth pattern on voluntary tendering ahead of the implementation date for mandatory tendering,” said Agulhas.