20001511302000213360Business communicationsThis paper will discuss the role of auditing in accounting in Southern Africa. It will further highlight some of the most recent scandals revolving around auditing, particularly in South Africa and Botswana, with the view to highlight some of the conflicts that arise from ethical and objective auditing. I propose recommendations that could help salvage the reputations of audit firms that have recently been involved in a scandal.6900096000Business communicationsThis paper will discuss the role of auditing in accounting in Southern Africa. It will further highlight some of the most recent scandals revolving around auditing, particularly in South Africa and Botswana, with the view to highlight some of the conflicts that arise from ethical and objective auditing. I propose recommendations that could help salvage the reputations of audit firms that have recently been involved in a scandal.
730005519420centerThobo Darius Sekgabo2420096000Thobo Darius SekgaboContents TOC o “1-3” h z u INTRODUCTION PAGEREF _Toc521043872 h 2AUDITING PAGEREF _Toc521043873 h 2SCANDALS PAGEREF _Toc521043874 h 2KPMG and the Gupta family PAGEREF _Toc521043875 h 2KPMG AND KINGDOM BANK AFRICA (KBAL) PAGEREF _Toc521043876 h 3DELOITTE & STEINHOFF PAGEREF _Toc521043877 h 4OBJECTIVITY PAGEREF _Toc521043878 h 4THREATS TO OBJECTIVITY PAGEREF _Toc521043879 h 4SELF-INTEREST THREAT PAGEREF _Toc521043880 h 4THE FAMILIARITY OR TRUST THREAT PAGEREF _Toc521043881 h 4INTIMIDATION THREAT PAGEREF _Toc521043882 h 5SELF-REVIEW THREATS PAGEREF _Toc521043883 h 5WHAT CAN THEY DO TO SALVAGE THEIR REPUTATIONS? PAGEREF _Toc521043884 h 5ACKNOWLEDGE THE ISSUE PAGEREF _Toc521043885 h 5KNOW YOUR FRIENDS PAGEREF _Toc521043886 h 5CREATE EMPATHY PAGEREF _Toc521043887 h 5References PAGEREF _Toc521043888 h 6 INTRODUCTIONAccounting is an art that helps us in determining our financial details, i.e., the operating profit, financial position by identifying, measuring, recording, classifying, verifying, summarizing, interpreting and communicating data such as account balances, credit ratings and any other monetary facts about a person or an organization CITATION The04 l 1033 (The Institute of Company Secritaries of India, 2004). In order for accounting to be effective there are measures that need to be put in place to ensure objectivity and reliability, one such being audits.AUDITINGIs an analysis of a company’s financial statements by an independent, qualified, accountant who signs off on whether or not the financial statements properly reflect the current financial position the company and have been prepared properly CITATION Tay10 l 1033 (Taylor ; Osborne, 2010).
It can also be defined as the standardized and impartial analysis of financial statements, records, operations and performance of an organization CITATION The04 l 1033 (The Institute of Company Secritaries of India, 2004).An accounting audit is ensures that a company is not only truthful, factual, with its financial statements but its operations work properly. Auditors can either work in the organization as an internal auditor or for another, more specialized, organization as an external auditor CITATION Sym18 l 1033 (Symes, 2018).
An audit assures the public that the funds invested in a company are being used as was intended, and not other activities, and that the financial paper work, invoices/receipts, match up with the statements, abolishing any chance of fraud and/or incompetence from overstating the businesses worth.SCANDALSA good reputation is arguably the most valuable assets of an auditing firm, but when an auditor’s impartiality is compromised, can have very negative outcomes for their clients and business and in extreme situations raise doubt about a countries financial systems. One example being KPMG South Africa’s involvement in a political scandal involving one of the country’s most powerful family, the Guptas.KPMG and the Gupta familyKPMG’s South African Branch has been under suspicion of having facilitated the Gupta family’s tax evasion and corruption. While KPMG denies the allegations they do admit that they missed several flags in the Gupta family’s accounts.
CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).The Guptas are a very powerful family with close links to the president of South Africa Jacob Zuma, that allegedly have influence over the government, policies and dictates high level governmental appointments in exchange for business opportunities. CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).KPMG had audited the Gupta’s companies for 15 years, finally terminating their relationship with them in 2016 in the midst of growing concerns about the family’s connection to Zuma CITATION Cot17 l 1033 (Cotterill ; Marriage, 2017). KPMG’s involvement in the 2013 wedding of Vega Gupta in Sun City, which was allegedly funded using tax payer money by laundering money, allegedly millions, through one of the Guptas companies, Linkway Trading Ltd, has put them subject of an enquiry by the Independent Regulatory Board for AuditorsCITATION Hos17 l 1033 (Hosken & Quintal, 2017). As auditors of Linkway trading, KPMG failed to see any illegal or suspicious activity in the company’s statements, additionally four high ranking members of KPMG had attended the wedding CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).Another allegation was brought up because of their involvement with the Gupta family in the acquisition of Optimum Coal Mine from its parent company Glencore. KPMG claims they provided limited transactional support and that during this they had been made aware of information about the Guptas that would have brought their integrity into question, but had not even considered it when assessing whether they would work for the Guptas CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).
An additional scandal, unrelated to the Guptas scandal, was when they made a report that they submitted to the South African Revenue Service(SARS) had been used as evidence that Finance Minister Pravin Gordhan knew of a rogue intelligence unit in SARS, which led to the termination of finance Minister Pravin Gordhan, on the ground that he knew and was involved the rogue unit, since the report was proven false SARS is pushing for KPMG to be blacklisted from all government business CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).As a result of the scandal KPMG has lost several of its audit contracts in South Africa, with even more contemplate on whether to break ties with them, and they have had to lay off workers so a loss of their other contracts would likely result in them going bankrupt CITATION Sho17 l 1033 (Shoaib, KPMG rocked by South African corruption scandal, 2017).KPMG AND KINGDOM BANK AFRICA (KBAL)During the temporary management period, after KBAL shut down, managers found out that the bank’s asset base had eroded severely, resulting in liquidity problems CITATION Neh15 l 1033 (Nehanda Radio, 2015). The bank was placed under liquidation by the bank of Botswana after it was revealed that their assets exceeded their liabilities by $17 million CITATION Neh15 l 1033 (Nehanda Radio, 2015) CITATION Sun17 l 1033 (Sunday Standard, 2017).KPMG had failed to recognize that Kingdom Finance Holding Limited (KFH), the parent company of KBAL who also provided most of KBAL’s negotiable certificates of deposits (NCDs), was not a registered bank but a related entity. KPMG on top of that failed to realize that KFH was financially stressed thus not able to meet its obligations with KBAL CITATION Sun17 l 1033 (Sunday Standard, 2017).A liquidator of Kingdom Bank Africa, John Little, accused KPMG of negligence as they had continued to sign off on the financial statements of KBAL, even after it collapsed years back.
Little has since filed a lawsuit of close to P200 million, on the behalf of the creditors of KBAL, furthermore the lawsuit states that KBAL continued trading years after its insolvency back in 2010 because KPMG falsely reported it as solvent CITATION Mel17 l 1033 (Melema, 2017).DELOITTE ; STEINHOFFDeloitte South Africa has been investigated since 2016, because of its audits of retail giant Steinhoff International for years ending 2014, 2015 and 2016. Steinhoff reported that they found errors in their books that prevented them from publishing their financial statements for 2016 and 2017, following the announcement their share prices plummeted by 80% two days later, the extent of the errors have not been released. They then hired Pricewaterhousecoopers (PWC), one of the big four and competitor to Deloitte, to review their accounts. CITATION Sho18 l 1033 (Shoaib, Deloitte South Africa investigated over Steinhoff audits, 2017).
OBJECTIVITYObjectivity is a state of mind that excludes bias, prejudice and compromise and that gives fair and impartial consideration to all matters that are relevant to the task in hand, disregarding those that are not CITATION DiG13 l 1033 (Di Grabriele ; Ojo, 2013).The need for auditors to be objective emerges from the fact that many of the important issues involved in the preparation of financial statements do not relate to questions of fact but questions of judgement. Conflicts which compromise this principle are known as threats to objectivity.THREATS TO OBJECTIVITYSELF-INTEREST THREATThis becomes apparent when an auditor has one client that constitutes most of their income, they would be less likely to present a professional opinion as they would be to scared that their client would leave them CITATION Par15 l 1033 (Parker, 2015).
THE FAMILIARITY OR TRUST THREATThe auditor may become influenced by their clients personalities and qualities, because of a possible long standing relationship between them, and as a consequence supportive to their interests, such as the case when high ranking KPMG members attended the Gupta wedding in 2013 CITATION All02 l 1033 (Allen ; Siegel, 2002).INTIMIDATION THREATThe possibility that the auditor may be frightened by a threat, by an over-whelming personality or by other pressures, actual or feared such as bodily harm, the spreading misinformation about that auditor or drop them so they lose business CITATION All02 l 1033 (Allen ; Siegel, 2002).SELF-REVIEW THREATSThe auditor reviews their own work, or that of their organization. This is difficult as it is harder for one to evaluate their work, or the work of their organization without bias CITATION All02 l 1033 (Allen ; Siegel, 2002).WHAT CAN THEY DO TO SALVAGE THEIR REPUTATIONS?ACKNOWLEDGE THE ISSUEIt is important to recognise the issue as soon as possible. Set up a task force, of a minimum of 3 people, with full authority to act on the behalf of the company, it should be able to work without internal bureaucracy and fast enough to respond to social media and news articlesKNOW YOUR FRIENDSContact all of your business associates, find out who is running with the news, am d tell them your side of the story.
In short drum up an army of ambassadors and arm them with tools and talking points so they can represent you to the communityCREATE EMPATHY Forget about advertising, it is a complete waste of money because few people will trust you anyway. Instead, overreact in favour of your clients and/or their consumers. Ask yourself what you sould offer the consumers, direct financial compensation or indirect financial compensation, free audits for all affected peoples. But be careful as too quick a decision to give financial compensation can be viewed in a bad light by the public, you’re trying to buy their forgiveness.
References BIBLIOGRAPHY Allen, W. T., & Siegel, A. (2002). Threats and Safeguards in the Determination of Auditor Independence. Washington Univercity Law Review, 519-539.Cotterill, J.
, & Marriage, M. (2017, September 15). KPMG South Africa executives dismissed over Gupta scandal. Retrieved from https://www.ft.com/content/ce8ddb84-9a01-11e7-a652-cde3f882dd7bDi Grabriele, J., & Ojo, M. (2013, March 11).
Objectivity and independence: the dual roles of external auditors and forensic accountants. Retrieved from https://mpra.ub.uni-muenchen.de/44954/1/MPRA_paper_44954.pdfHosken, G.
, & Quintal, G. (2017, September 10). KPMG’s fingerprints all over the Gupta empire. Retrieved from https://www.
(2017, October 4). KPMG Botswana responds to latest ‘auditing scandal’. Retrieved from https://www.africanindy.com/news/kpmg-botswana-responds-to-latest-auditing-scandal-11484845Nehanda Radio. (2015, June 19).
Botswana shuts down Kingdom Bank. Retrieved from http://nehandaradio.com/2015/06/19/botswana-shuts-down-kingdom-bank/#sthash.noFhD6XA.dpufParker, A.
(2015, January 6). 6 key threats to auditor independence. Retrieved from https://www.intheblack.
com/articles/2015/01/06/6-key-threats-to-auditor-independenceShoaib, A. (2017, December 20). Deloitte South Africa investigated over Steinhoff audits. Retrieved from https://www.accountancyage.com/2017/12/20/deloitte-south-africa-investigated-steinhoff-audits/Shoaib, A. (2017, Sep 27). KPMG rocked by South African corruption scandal.
Retrieved from https://www.accountancyage.com/2017/09/27/kpmg-rocked-south-african-corruption-scandal/Sunday Standard. (2017, October 02).
INSIDE KPMG, KINGDOM BANK ACCOUNTING MESS. Retrieved from http://www.sundaystandard.info/inside-kpmg-kingdom-bank-accounting-messSymes, S. (2018, August 2). What Is the Function of an Accounting Audit? Retrieved from https://smallbusiness.chron.
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(2010). External Auditing. Worcester: Osborne Books Limited.The Institute of Company Secritaries of India.
(2004, july). Fundementals of accounting and auditing. Retrieved from https://www.icsi.edu/docs/webmodules/publications/FULL%20FAA%20PDF.pdf