Ann Crotty Writer-at-large
KPMG SA. Picture: Alon Skuy
KPMG SA. Picture: Alon Skuy

Days after the release of the auditor-general’s damning report on South African Airways (SAA), which has grim implications for PwC, the Securities and Exchange Commission (SEC) has censured KPMG SA for "improper professional conduct" and forced the auditing firm to pay a $100,000 penalty.

KPMG Zimbabwe, which was also implicated in the charge, agreed to pay an additional $141,305.

The censure from the SEC, which is responsible for protecting the interest of investors in US-listed entities, relates to work done on a US-listed Canadian company operating in Zimbabwe. The SEC charged KPMG SA with relying substantially on work done by its Zimbabwean affiliate to complete their audit.

Although KPMG SA is registered with the Public Company Accounting Oversight Board (PCAOB), its Zimbabwean associate is not and is therefore not allowed to participate in the audit of a US public company.

The securities commission said this violated Public Company Accounting Oversight Board (PCAOB) standards requiring sufficient analysis and inquiry when using the work of another auditor. "It is in the best interest of Main Street investors that all firms substantially involved in the audit of a public company are properly registered with the PCAOB so that they are subject to the oversight necessary to ensure accuracy and prevent fraud," said Scott W Friestad, associate director of the SEC’s division of enforcement.

He said the unregistered auditors performed significant audit work outside the PCAOB’s regulatory purview and the principal auditors had failed to consider the registration status of these firms.

A spokesman for KPMG SA said on Wednesday they had reported the matter to the SEC in 2016, as soon as they identified it. Deloitte & Touche and BDO faced similar charges for their involvement in the audit work and paid penalties of $99,057 and $50,000, respectively.

Payment of the fines was made without admitting or denying the findings.

The SEC’s charges come at a time when not only KPMG SA is in the firing line — for work done on behalf of the Gupta family and the South African Revenue Service — but PwC is also expected to be slammed for its work on SAA after a damning report on the airline’s 2017 accounts by the auditor-general.

The auditor-general qualified his audit opinion for a variety of reasons including the failure to maintain complete record of irregular expenditure and fruitless and wasteful expenditure.

The report also raised issues with SAA’s record of property, aircraft, equipment and inventory. The report is expected to raise questions about how PwC was able to give SAA clean audit opinions for each year between 2012 and 2016.

A recent report by global accounting watchdog the International Forum of Independent Audit Regulators indicates that problems with auditors are not restricted to SA.

The report identified serious problems at 40% of the audits the regulators had inspected in 2017.