The Independent Regulatory Board for Auditors in South Africa is looking to dismantle the oligopoly of Deloitte, PwC, EY, and KPMG, the four big auditing firms. Revelations emerged from testimony before the Zondo Commission of inquiry into state capture in South Africa under the administration of former president Jacob Zuma show that, among other things, Deloitte was accused of failures in the accounting scandal that nearly bankrupted South African-based global retailer Steinhoff, and the quality of auditing work of both Deloitte and KPMG was brought into question in an accounting scandal at the listed agricultural company Tongaat Hulett. KPMG also audited the accounts of the Gupta family, who siphoned billions of dollars out of South Africa through illegally obtained state contracts.
The regulator is now developing guidelines on how firms can perform joint audits to upskill mid-tier auditing firms, and how small auditors can cooperate to handle more complex company audits. Audit firm rotation is due to become mandatory in 2023, and the regulator is strengthening its monitoring role to ensure the large firms will not collude when that happens.
Why It Matters
Part of what allowed the Gupta brothers to so thoroughly rob the South African economy were banking institutions and auditing firms that acted as middlemen for their corrupt business practices. These new regulatory guidelines, intended to curtail the influence and non-accountability of large auditing firms, may serve as a blueprint for action in other African countries, such as Angola, where investigations into the corrupt activities of the dos Santos family have revealed how large auditing firms and global financial institutions facilitated the looting.