African Bank Deloitte
The disciplinary hearing into Deloitte Africa’s audit on African Bank ahead of its collapse in 2014, which starts on Monday, is an unprecedented move by the Independent Regulatory Board for Auditors (Irba).
Although the Audit Profession Act allows for disciplinary hearings in public, this is the first open to the public. It comes as regulators across the globe are under pressure to deal with corporate accounting scandals involving the big four accountancy firms: Deloitte, E&Y, KPMG and PwC.
Last week, the UK financial regulator called for an inquiry into whether the big four should be broken up.
It comes at a particularly difficult time for Deloitte as the firm is under scrutiny for its work at Steinhoff International.
In early December 2017 the Steinhoff board announced it had uncovered evidence of “accounting irregularities” and had appointed PwC to investigate at least three years of financial statements and annual reports.
Industry insiders say a key consideration in both companies was the CEO’s dominance and the possibility that he held too much sway over the auditors.
The hearing has been set for four days in March and may continue in June and July after an investigation by Irba, which began in December 2014 and was finalised in 2016. “The draft allegations were approved and submitted to Deloitte in December 2016, Deloitte responded in June 2017,” said Irba CEO Bernard Agulhas.
The evidence and response were tabled with the Irba investigating committee in October 2017. Agulhas said not all investigations proceed to a disciplinary hearing.
If matters are not dismissed due to insufficient evidence they can be recommended for a consent order or, in serious cases, a disciplinary hearing.
That the disciplinary advisory committee opted for a disciplinary hearing open to the public reflects the pressure the authorities are increasingly under to be seen to be taking action against powerful parties regarded as complicit in irregularities dogging the private and public sector.
Lwazi Bam, CEO of Deloitte Africa, said his firm and the two respondent partners, Sihlalo Jordan and Danie Crowther, took the matter seriously. Bam said it was important that the process was fair and complied with all the elements of natural and administrative justice.
“Deloitte has no reason to doubt the skill, competence or independence of the two respondent partners involved in the 2013 audit of African Bank and remains of the view that the audit was carried out with due professionalism.” Bam noted that the Myburgh Commission of Inquiry into the causes of the failure of African Bank made no adverse findings about the way Deloitte fulfilled and complied with its legal and professional obligations as auditors. He said Deloitte’s own review and investigation supported this.
Myburgh’s report does refer to criticism expressed by African Bank executive director Nithia Nalliah about Deloitte’s acceptance of the bank’s accounting policies, pointing out Deloitte accepted that they “were such to allow an unqualified audit report”.
Myburgh responded: “The primary responsibility for the fair presentation of financial statements is that of the directors of the company. That was in fact acknowledged by Abil (African Bank Investments) and the bank in annual reports.”