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Steinhoff's financial scandal and sugar maker Tongaat Hulett’s admission it may need to restate results is spurring South African auditors to weigh tougher measures for the profession.
Steinhoff's financial scandal and sugar maker Tongaat Hulett’s admission it may need to restate results is spurring South African auditors to weigh tougher measures for the profession.

Steinhoff, Tongaat woes raise auditor scrutiny

RETAILER NEWS

By Janice Kew, Bloomberg News - Jun 10th, 13:57

Steinhoff's [JSE:SNH] financial scandal and sugar maker Tongaat Hulett’s [JSE:TON] admission it may need to restate results is spurring South African auditors to weigh tougher measures for the profession. 

While auditors are expected to reassure the public that the financial statements they have signed off are reliable, the standards used don’t require them to uncover wrongdoing. That may be set to change.

“It could be time for us to strengthen auditor competencies in the areas of testing for the existence of fraud and corruption,” said Bernard Agulhas, the head of South Africa’s Independent Regulatory Board for Auditors (IRBA). “That’s the expectation from the public.”

Steinhoff in May released its 2017 results, 17 months after Deloitte first flagged a hole in the global retailer’s accounts that whipsawed into a forensic probe and wiped 97% off its market value. The results included a four-page disclaimer from Deloitte on why the firm - Steinhoff’s auditors since 1998 - can’t express an opinion on whether the accounts are free from misstatements; the bottom line of which was that there were just too many uncertainties.

The board, known as IRBA, has also started an investigation into the work Deloitte in South Africa did for Tongaat. Deloitte is reviewing work done for the company and has said there is still no evidence of wrongdoing by the auditors involved.

As one of the key guardians of governance and the last line of defense in ensuring sound financials, auditors also “come in a little late”, Agulhas said, referring to the fact that they are pouring over books and documents prepared by their clients.

To address the expectation gap, IRBA is considering whether to expand the competency requirements of auditors. Also, because there are multiple lines of defense, including management controls and internal audits, the regulator also plans to give South Africa’s finance minister a model for so-called comprehensive regulation within weeks. This would include oversight through the financial reporting chain and may include audit committee members and chief financial officers.

The move would mirror ones taken in the US and UK in response to accounting scandals at Enron Corp. and other companies.

“The reason the profession is currently facing criticism is because auditors have expressed opinions on financial statements saying they fairly present when they did not and can’t be relied upon,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management, who is also a registered chartered accountant. “So the public should expect more.”

Fin24 

Read more about: tongaat | steinhoff | retail | business

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