Why KPMG’s Gupta woes are not over
The Companies and Intellectual Property Commission is monitoring audit firm to ensure appropriate action is taken against any errant directors
KPMG’s troubles are mounting as it appears the audit firm could be facing a damaging public rebuke by the Companies and Intellectual Property Commission, which is responsible for monitoring compliance with the Companies Act.
The commission has indi-cated it is monitoring the KPMG board to see that it takes appropriately decisive action against its three directors if there is evidence they have failed to uphold their fiduciary duties.
If it is dissatisfied, the commission has the power to invoke section 22 of the act relating to the prohibition of reckless trading. This allows it to issue a compliance notice requiring KPMG to cease trading.
It also appears KPMG, which is being investigated by the Independent Regulatory Board for Auditors for its Gupta-related work, has failed to submit its annual financial statements to the commission. Section 33 of the act obliges companies to file a copy of their annual financial statements with the commission. Failure to do so could trigger a compliance notice. The company did not respond to requests for comment.
The commission became aware that KPMG had not filed annual financial statements, while it was looking into possible contraventions of the act, including dereliction of directors’ duties in the wake of the leaked Gupta e-mails.
The commission has been engaging with the KPMG board since the end of July, when leaked e-mails raised concerns about contraventions of the act.
The e-mails indicated KPMG was aware that Gupta family firms were categorising the Gupta wedding costs as business expenses.
The e-mails describe how the money flowed from the Free State government via an agricultural project, to bank accounts in the United Arab Emirates and back to Gupta business accounts in SA. It appears KPMG was aware of the payment flow, but did not raise any concerns.
In an e-mailed response to Business Day on Thursday, Asogaren Chetty of the commission’s governance, surveillance and enforcement division, said the commission had drawn KPMG’s attention to section 76(3) of the act related to standards of directors’ conduct.
The act required that "a director of a company, when acting in that capacity, must exercise the powers and perform the functions of a director in good faith and for a proper purpose: in the best interests of the company and with a degree of care, skill and diligence".
Chetty said the commission had noted that KPMG had suspended three partners (directors) connected to the Gupta matters. The commission "is engaging with the attorneys representing KPMG on these issues", said Chetty.
He said it was focusing on the actions of the directors in relation to their fiduciary duties.