Julia Irvine 9 Aug 2019 12:30pm

KPMG and EY targeted in Investec shareholder revolt

Investec shareholders mounted an attack against the reappointment of KPMG and EY as joint auditors at the dual-listed financial group’s AGM yesterday

More than a fifth (20.07%) voted against the reappointment of KPMG South Africa as joint auditor to Investec Ltd, Investec’s South African arm. A smaller number (16.6%) voted against EY as fellow joint auditor while 12.88% voted against EY as sole auditor to Investec plc in the UK.

In the run-up to the AGM, PIRC, which advises investors on investment strategy, raised questions over the Big Four firms’ suitability as auditors on the grounds that they had both served as Investec’s auditors for too long.

In South Africa KPMG has been joint auditor for 25 years while EY’s tenure is even longer, at 44 years. In the UK, EY has audited Investec since 1996. “There are concerns that failure to regularly rotate the audit firm can compromise the independence of the auditor,” PIRC said.

PIRC also pointed out that Investec had yet to address adequately a similar vote against reappointment of the two firms at the 2018 AGM. At the time, 19.29% of shareholders objected to KPMG and 13.89% to EY as joint auditors.

In KPMG’s case, there is also likely to have been a backlash against the firm’s recent audit problems and reputational issues in South Africa.

In 2017, the South African practice hit the headlines when seven of its senior executive – including CEO Trevor Hoole and chairman Ahmed Jaffer – resigned after an internal report found they had missed “certain red flags” regarding the integrity and ethics of the now-discredited Gupta family “that were not appropriately considered and addressed at that time”.

The firm found itself embroiled in further scandal over a controversial report it had written about the South African Revenue Service and over the collapse of audit client VBS Bank, and it started to haemorrhage clients.

Investec was one of the few major clients to stand by the firm. However, in its post AGM statement, it made it clear that it would be talking to shareholders about its continuing relationship with KPMG, in compliance with the UK corporate governance code. This states that where resolutions receive more than 20% of votes against, the company must engage with shareholders and discuss what it intends to do.  

“The audit committee identified audit quality as a key audit matter as defined by auditing standards and accordingly spent considerable time gaining assurance in this regard and included specific additional procedures to satisfy itself regarding audit quality, audit firm transparency processes, auditor independence and objectivity and auditor rotation planning, where Investec Ltd is and intends to remain compliant with the mandated requirements around mandatory audit firm rotation,” Investec said.

“Regarding KPMG Inc, a number of specific additional processes both at a local and international level were implemented to ensure and confirm audit quality.”

It also stressed that it had discussed the issues “at length” with its largest shareholders. It added that it would issue an update about KPMG in six months.