Picture: istock
Picture: istock

BDO is gearing up to audit banks and challenge the big four’s dominance in financial services.

Brussels-headquartered BDO is an international network of tax, accounting and advisory firms in 162 countries.

It employs 74,000 staff and posted global revenue of $8.1bn in 2017.

A deal between BDO SA and Grant Thornton, which would add the latter’s Johannesburg office to BDO following the integration of its Cape Town and Port Elizabeth arms, would create SA’s largest mid-tier accounting firm, with turnover in excess of R1.2bn, the companies said on Friday.

The transaction, which would create a firm of 1,500 staff, would position BDO as a "credible alternative to the four largest auditing firms in SA".

These are Deloitte, KPMG, PwC and EY.

BDO planned to build a financial services practice, attracting a core team of about 10 people, CEO Mark Stewart told Business Day on Monday.

As BDO bolsters its capacity, KPMG said in June it would lay off as many as 400 of its employees. That is in addition to the roughly 800 individuals who have voluntarily left the former Gupta auditor since September 2017, bringing its workforce down to 2,200.

The audit and accounting professions are in profound turmoil following a string of scandals, including at Steinhoff, state power utility Eskom, Gupta-linked businesses and VBS Mutual Bank, that have trashed their public image.

BDO had "approaches all the time" from former KPMG staffers, said Stewart.

"That would be the obvious place for us to look [to build] capacity," he said

Arguably, the embarrassments plaguing the big four — Deloitte is being probed for its role in the audits of African Bank and Steinhoff, while PwC was fined for shoddy audit work on South African Airways – could benefit smaller firms.

We hope that the market is kind to us and realises that we’ve created capacity to take on work which we wouldn’t have been able to do previously
BDO CEO Mark Stewart

Banks will probably be more open to mid-tier firms, considering that Reserve Bank rules require the country’s five largest banks to have two auditors checking their accounts, while the Companies Act prohibits firms from performing audit and advisory work for the same client.

Mandatory audit firm rotation, which will force companies to switch auditors every 10 years starting in 2023, will further open the market.

BDO is not the only mid-tier auditor with growth ambitions. Earlier in 2018 Grant Thornton International said the Durban and Pretoria offices of its South African member firm would join black-owned SizweNtsalubaGobodo (SNG) to create SNG Grant Thornton.

The merged entity would have more than 1,000 professionals and generate annual turnover of R750m.

The transaction between BDO and Grant Thornton was expected to be effective during the fourth quarter of 2018.

"We hope that the market is kind to us and realises that we’ve created capacity to take on work which we wouldn’t have been able to do previously," Stewart said.

The development was a key part of BDO’s business strategy, both in SA and globally, to double the revenue of the organisation by the end of 2018.