Now that PwC has dumped Group Five over fears of heightened risk, eyes are on the struggling company’s next auditors.
Group Five, the once-iconic construction company that is in business rescue, says it has begun the search for new auditors.
The Independent Regulatory Board for Auditors (Irba) said Group Five must appoint new auditors within 40 days, as required by the Companies Act.
“PwC’s reasons for resigning relate to the resignation by a number of nonexecutive directors of Group Five, and the resignation by a number of senior executives and key finance staff members, which has increased the risk of continuing as external auditors,” Group Five said.
In June, Group Five announced the resignations of board chair Nonyameko Mandindi, nonexecutive director and former CEO Michael Upton, and nonexecutive directors Edward Williams and Cora Fernandez.
PwC resigned as auditor of the company for the financial year that began on July 1 2018.
Chartered accountant and commentator Khaya Sithole said the departure of key personnel at Group Five was likely to weaken the integrity of the information auditors receive from the company. Auditors are there to keep a check on the management.
“They rely on the information received from management. So if there is high turnover of key people, there is loss of institutional knowledge which escalates risk,” Sithole said.
“If key executives leave, who will take full responsibility for the information in the 12 months? If they cannot get the comfort from management, auditors should turn to the board for insight,” Sithole said.
In Group Five’s case, there are also question marks about the stability of the board after the recent departure of the nonexecutives. “That is very risky,” he said.
PwC has declined to comment on its reasons for ditching Group Five. PwC Africa risk and quality leader Coenraad Richardson said the company is bound by the auditing profession’s rules regarding client confidentiality.
“The rules prohibit us from commenting on matters relating to clients,” Richardson said.
Irba CEO Bernard Agulhas said the risk attached to a high turnover of directors, and particularly finance staff, relates to record keeping and accurate preparation of the financial statements.
Agulhas said the body encourages auditors to fully comply with the international auditing standards, the Auditing Profession Act and the Irba code of professional conduct when assessing the risk of continuing with a client engagement.
“If the auditor assesses that it is not possible, with safeguards, to deliver a quality audit then they should decline the engagement in accordance with the guidance provided in the quality control standards and the code,” he said.
Acceptance and continuance procedures are conducted annually prior to accepting an appointment for a further year.
He said “due to client confidentiality” registered auditors are not required to disclose the details for declining an engagement except to the incoming auditor.
Sithole said PwC is required by law to conduct a handover to whoever Group Five’s new auditors will be. “And [PwC] must answer the question — is there any reason for the new auditor not to take the job?”
Sithole said Group Five’s chances of landing one of the other so-called big four auditors — KPMG, EY or Deloitte — are slim. This opens the door for a smaller auditing company to fill the gap left by PwC.
“I have previously raised the risk posed by the overconcentration [of work] in the big four auditing firms. The smaller auditing companies will welcome the opportunity to work for a listed company. This is an ongoing risk in the profession,” Sithole said.