Lwazi Bam. Picture: FINANCIAL MAIL
Lwazi Bam. Picture: FINANCIAL MAIL

Auditing firm Deloitte's first public transparency report, released on Thursday, shows that it refused to work with more than 170 entities in the current financial year. Some of the companies were implicated in state capture, it said.

The firm, which was auditing Steinhoff and African Bank when irregularities were uncovered, said it had re-examined its client book and would think twice about working with some of the flagged companies in future.

“Our stance is that no one client is worth our entire reputation,” Deloitte CEO Lwazi Bam said on Thursday. “Where we’ve felt that the risk was too high, particularly where we felt the levels of governance were not at a level we were comfortable that if issues arose we’d have people charged with governance supporting our position, we have walked away.” 

Deloitte’s report shows that in 2018, the firm declined audit contracts to the value of R31m due to various concerns. It declined a further R100m for consulting and forensic work, but mostly because of its own capacity and experience concerns. The company also disclosed that 10 of its staff members received financial penalties for not disclosing their financial interests in time. But none of these interests was in companies that they were auditing.

Bam said the firm recognised that recent scandals dented trust in the audit profession. In the case of the African Bank and Steinhoff collapses, Deloitte was co-operating with investigators. Two of Deloitte’s audit partners had been charged by the Independent Regulatory Board for Auditors (Irba) for the African Bank collapse, while the regulator’s investigation into Deloitte’s role in the Steinhoff scandal was continuing.

“When you have any corporate failure, it is natural that questions will be asked about what caused it. Was it the auditors? But there are many other reasons that need to be considered … Even the regulator has pronounced that corporate failure does not mean audit failures,” he said.

In African Bank’s case, Bam said that from its own internal assessment Deloitte was comfortable with the audit work it produced, but it would wait for the findings of the regulator’s inquiry. As for Steinhoff, the firm said it was waiting for the PwC investigation to conclude so that the regulator could judge if the firm fell short in picking up concerns it should have.

In countries such as the UK, Japan, Australia and New Zealand, transparency reporting is mandatory. But it isn’t in SA. Irba first considered it in 2017 and then in July 2018 indicated that it might use the expected new International Standard on Quality Management as a basis for prescribing transparency reports in future. But in the short term, compliance is voluntary. 

Irba CEO Bernard Agulhas said transparency reports would become increasingly important for audit committees in assessing their options in the lead-up to mandatory audit firm rotation. The regulator also said the amendment of the Auditing Profession Act was under way and it expected the National Treasury to table outcomes of the comment period in November.