Barclays decision threatens KPMG SA
The bank’s board says it wants to ditch the auditors, who will lose R138m in annual fees
KPMG is on the ropes. The auditing firm lost its biggest private sector client yet on Thursday — and with it about R138m in annual audit fees.
The more than 200 employees who worked on the Barclays Africa account face losing their jobs after the bank’s board decided to ditch it as an external auditor.
Barclays Africa shareholders will vote on the recommendation later in May. It comes weeks after VBS Mutual Bank was added to the list of KPMG’s audit failures.
The move threatens the future of KPMG SA, which has already lost several private- sector clients and can no longer do work for the government after the auditor-general dropped it in April.
It is also the latest blow to the audit profession, which is facing a growing number of investigations in SA and globally.
The Independent Regulatory Board for Auditors, which fined PwC in 2017 over its audit of South African Airways, is investigating Deloitte’s audit of Steinhoff and KPMG’s work for Gupta-family companies, the South African Revenue Service and VBS.
Business Day understands that about 250 individuals worked on the Barclays Africa account, raising concern as to whether KPMG, which employs more than 3,000 people in SA, will have to retrench staff.
“We constantly keep under review the resourcing of the firm in relation to the work we are doing,” a KPMG representative said by e-mail.
The firm could stand to lose about half the R277m that Barclays Africa paid its two auditors in 2017.
The other firm is EY, according to the company’s latest financial statements.
Other banks may yet follow suit. Nedbank would recommend the reappointment of KPMG to shareholders for the 2018 financial year, it said in a statement on Thursday.
CE Mike Brown previously said Nedbank planned to review the relationship in 2019 once its separation from parent, Old Mutual, was complete. Standard Bank and Investec have both said that they were awaiting the outcome of independent investigations of KPMG before deciding on their future relationships with the firm.
Meanwhile, Barclays Africa — which appointed KPMG as joint auditor as recently as 2017, following its former British parent’s decision to bring to an end PwC’s 120-year audit tenure — might find itself in a tight spot as it looks to replace KPMG.
The Reserve Bank requires commercial banks to have two external auditors. The Bank had no plans to amend that policy, deputy governor and registrar of banks Kuben Naidoo told Business Day.
At the same time, the Companies Act limits the extent to which audit firms can provide nonaudit services to companies that they audit, while mandatory audit-firm rotation will require companies to change their external auditor every 10 years come 2023.
EY is already a joint auditor, while PwC and Deloitte are respectively providing assurance and consulting services to Barclays Africa, limiting the extent to which they can provide audit services.
This leaves second-tier audit firms, which for the most part lack the expertise, to look after the big banks.
Only SizweNtsalubaGobodo, the country’s fifth-largest audit firm, said it was ready to take on the audit of a big-four bank.
The firm had been building its strength in this area since being appointed auditor of the Bank more than 10 years ago, CEO Victor Sekese said.
Grant Thornton and BDO previously said they did not have the expertise or capacity to do a big-bank audit.
Mazars said that it was considering the secondment of partners from its African and European banking divisions to develop its local banking service line.