Keeping things cosy
What it means when audit firm partners sit on boards of their corporate clients
The strong relationship between major audit firms and the boards of companies they audit could discourage action against them
For decades, qualification as a chartered accountant (CA) hasbeen considered a passport to secure employment in the top echelons of the corporate world. It is the most common qualification found on the boards of JSE-listed companies.Equally inevitable, given it is one of the “big four” audit firms, is that former KPMG partners will feature prominently among board members with CA qualifications.
That former KPMG partners serve on the boards of companiesaudited by KPMG may be one of the reasons a decision to fire thescandal-prone firm is proving difficult.Another reason is that changing external auditors is not something to be done lightly, particularly when there are limited options.Research conducted last year by the Independent Regulatory Board for Auditors (IRBA) found that 25% of the JSE top 40 companies have appointed, as chairs of their audit committees, members who were previously employed by the externalauditor, thereby “creating a threat to the independence of theauditor appointed”.The study also found that CFOs of 18% of the top 40 companieswere previously employed by the external auditor.
An IRBA spokesman told the Financial Mail that the findings are
not out of line with similar studies done in major economies. The
dominance of the big four audit firms — KPMG, PwC, EY and
Deloitte — is a global phenomenon.
A recent addition to the list of companies ending their relationship with KPMG is TFG (The Foschini Group), whose CFO, Anthony Thunström , is a former partner of the audit firm.
As the big banks contemplate their future with KPMG, they may also be influenced by longstanding relationships with the firm that may stretch to current board membership.
Standard Bank, which has ties with KPMG stretching back 53
years, has remarkably few CAs on its board. Richard Dunne, who
chairs the audit committee, is one of them. He was Deloitte’s COO before taking up a nonexecutive position at Standard. Fellow independent nonexecutive director John Vice was a partner at KPMG for 39 years.
Nedbank also has just a scattering of CAs on its board.
The board of Barclays Africa is awash with CAs, with more than
half the directors holding an accounting qualification. David
Hodnett, CEO of the SA operations, was a partner at KPMG.
Christine Ramon of the CFO Forum, which has taken a strong
stand against the mandatory rotation of audit firms, urges caution on linking the KPMG matter with mandatory rotation. “We need to wait for the outcome of the IRBA’s investigation ,” she says.