Barclays Africa Group has told shareholders that it will no longer be recommending the reappointment of the Big Four firm as auditors for the 2018 financial year.
In a statement issued yesterday, the group said that following the release of its agm notice – in which it proposed to continue the relationship with KPMG while continuing “to monitor developments” – its board had “carefully evaluated the on-going and more recent developments and decided that it is no longer able to support the reappointment of KPMG”.
The contract will be terminated on completion of the 2017 statutory and regulatory audit and reporting which is likely to be at the end of this month (31 May).
The South African Reserve Bank’s rules require banks to have joint auditors and Barclays will continue to recommend the reappointment of EY for 2018. “We will accordingly start a formal process to appoint a second firm of auditors,” the group said. “In the meantime EY will be the sole auditors.”
Barclays also revealed that it used KPMG South Africa and KPMG International during the 2017 financial year for additional support, enhanced quality processes and quality reviews. “The committee and the board were satisfied with the quality of the audit of the 2017 annual financial statements,” it added.
The news is another blow to the beleaguered Big Four firm as it attempts to halt contagion among its clients.
Since last summer, KPMG has lost a huge swathe of its leadership group, including eight of its senior management team who resigned over the firm’s relationship with the Gupta family.
The newly appointed head of the South African firm, Nhlamu Dlomu, was then forced to make a public apology, telling a committee of the South African Parliament that it was “important for us to acknowledge the mistakes we made in the course of doing our work”.
Since then, it has lost more partners over its audit of failed bank VBS Mutual and has seen prestigious clients such as Witwatersrand University in Johannesburg, South African mining group Rainbow Minerals, waste disposal company Interwaste, and the African unit of insurance company Munich Re and last month South Africa’s auditor general terminated all its public sector contracts.
KPMG said in a statement that it was disappointed with Barclays’ decision but fully accepted it. “We are very proud of the work that we have performed for Barclays Africa Group over many years, and of the diligence and professionalism of the team who served them”, it added.
It went on to say that it had implemented “far-reaching changes” over the past seven months to all aspects of the firm including governance, quality, and risk management, and that work to further underpin the quality of our services and integrity of our professionals was continuing.
“We are confident the steps we are taking to change the firm are the right steps to restore trust in KPMG, and we remain resolute in our determination to achieve this goal.”
It may find that it is too late. Barclays’ is unlikely to be the last client to leave the firm – major institutions like Investec have also been “monitoring developments” since September last year and are likely to reach a decision about their future relationship with the firm soon.