The group has confirmed that its audit committee will be meeting tomorrow (Wednesday) to “consider the statement and make a recommendation to the board on how the group should proceed”.
KPMG is currently joint auditor with Ernst & Young to Investec’s business interests in Southern Africa and Mauritius, collectively known as Investec Ltd. Investec Ltd is listed on the Johannesburg Stock Exchange.
The two firms earned a combined fee income of £10.5m from Investec Ltd in the year ended 31 March 2017, of which £1.6m related to non-audit services.
EY is sole auditor to Investec plc, which is the controlling company of the group’s non-Southern African businesses and quoted on the London Stock Exchange under a dual listed company structure. The Big Four firm also audits the combined group accounts, a role that it has held since the UK listing in 2002.
Investec has taken the decision to review its 20-year relationship with KPMG in the light of the scandal that is currently engulfing the firm in South Africa.
Last week, most of the firm’s senior management quit over its links with the Gupta family who are under investigation over allegations of political corruption.
Chief executive Trevor Hoole, chairman Ahmed Jaffer, COO Steven Louw and five other senior partners resigned after an internal report found that the firm had missed warning signs in the audits of Gupta-controlled companies.
The internal probe did not find any evidence of illegal behaviour or corruption by KPMG partners or staff but it did unearth “work that fell considerably short of KPMG’s standards”.
In a statement last Friday, the firm admitted that there were “certain red flags that came to KPMG South Africa’s attention regarding the integrity and ethics of the Guptas that were not appropriately considered and addressed at that time.
“Had one or more of those red flags been heeded, KPMG South Africa would have stopped working for the Guptas earlier.” In fact the firm only cut ties with companies controlled by the family in 2016.
The internal investigation also found significant problems with a controversial report the firm produced for the South African Revenue Service (SARS).
Yesterday SARS commissioner Tom Moyane said the agency would report KPMG to finance minister Malusi Gigaba because he wants him to blacklist the firm for its “unethical” and “unlawful” behaviour. And South Africa’s ruling African National Congress party said it wants KPMG to account for “its involvement in what appears to be politically motivated immoral and unethical conduct”.
Investec is not the only large KPMG client to review its relationship with the firm. ABSA, which is part of the Barclays banking group, issued a statement saying it was looking at the issues involved. Its review, a spokesperson said, “is going through ABSA’s internal processes and no decision has yet been made”.
KPMG International has not yet responded to economia’s request for comment.