African Rainbow Minerals opts to cut KPMG
The move was spurred by concern over KPMG’s governance and ethics compliance as well as allegations regarding the lawfulness of its conduct
The KPMG outlook became even bleaker on Monday as African Rainbow Minerals (ARM) announced it was terminating its services as an internal auditor.
The move by ARM is potentially more damaging than those of other firms that terminated KPMG’s services as an external auditor. “An internal auditor is much more embedded in a company’s operations than an external auditor. They usually have offices on site,” said one corporate accountant. Internal auditors are expected to pick up fraud and check on the security of a company’s financial and accounting systems.
ARM’s most recent annual report states that KPMG performs a number of reviews to assess the adequacy and effectiveness of systems of internal control and risk management. KPMG, ARM’s internal auditor since 2004, also plays a critical role in overseeing the company’s risk management strategy and provides the board with independent assurance.
In addition, KPMG is involved in auditing the incentives in ARM’s short-and long-term executive remuneration awards. ARM’s external auditor is EY, while PwC advises the firm’s remuneration committee.
On Monday, ARM issued a statement saying it had noted with concern the questions raised about KPMG’s governance and ethics compliance as well as allegations regarding the lawfulness of KPMG’s conduct.
“The ethics, governance and quality of the South African auditing firms have been globally respected for many years.
“It is extremely important that the behaviour and conduct of our auditing companies continue to justify the respect, trust and confidence that they have earned,” said Jongisa Magagula, the company’s investor relations’ spokesman.
The mining company has terminated all the services provided by KPMG.
The move could see the opening up of a new front in the battle being fought by KPMG to hold on to its clients.