Monday, January 27, 2020

Does KPMG have questions to answer over Choppies?

Troubled local mass grocery retailer – Choppies Enterprises Limited’s prolonged financial saga is on each passing moment proving to be Botswana’s definitive case study in accounting hi-jinks.

In the latest episode the retailer publicly admits that its annual 2017/18 financial statements have been materially misstated thus causing confusion over the company’s true financial position. The confusion is further cemented by the failure, by the company to publish both the interim and audited financials for 2019.

At the same time, the list of accounting errors in the retailer’s financials, most of which were signed off by a member of the world’s big four auditing firms – KPMG is extensive. 

Despite an urgent need to, KPMG which was dropped as Choppies Auditors and replaced with its direct competitor – PwC in January 2018 is yet to “account” on how it signed off such error ridden financials.

The Choppies financial misstatements happen at a time when the auditing profession is sweating to restore its credibility worldwide after several disasters involving members of the “big four” including KPMG, Deloitte, PwC and Ernest & Young.

The so called big four auditing and accounting firms are now, more than ever facing intense scrutiny from various regulators pertaining to their growing influence over the private and public sectors, with most critics questioning the competition landscape as well as the firms’ independence to deliver judgement without worrying about future contracts.

Although almost all the local units of the big four enjoys management independence from their international counterpart, the reputational risks associated with some of the firms’s names has not gone unnoticed.

For instance, how KPMG thought signing off the error ridden Choppies financials over the years was the right thing to do could be something that the local independent accounting regulating body – Botswana Accountancy Oversight Authority (BAOA) would want to investigate.

Already BAOA is said to have summoned the immediate-past auditors – PWC and chances are that its investigations could lead to another summon, this time of KPMG.

We are going to so a comprehensive review. We will be looking at corporate governance and financial accounting”, Duncan Majinda – BAOA Chief Executive giving a comment on Choppies corporate saga to Sunday Standard sister publication – The Telegraph recently.

The Choppies 2017/8 financial errors that were signed off by KPMG are not the first case in which this international auditing firm has been accused of failing to be the last man of Defence accounting. In 2017, the firm was accused by the then liquidator of the now defunct Kingdom Bank Africa Limited (KBAL) – John Little of misconduct in signing off the books of the banker which collapsed four years ago.

KBAL was in May 2015 placed under liquidation due to insolvency after an audit assigned by Bank of Botswana (BoB) uncovered an over P200 million mismatch between assets and liabilities.

The liquidator stated at the time (2017) that KBAL was already insolvent in 2010, but continued trading until 2014 because over those financial years KPMG falsely reported that the bank was solvent and signed its financials off as a going concern. It emerged in the court records that in 2011, KBAL’s liabilities exceeded assets by about P49 million a year later in 2012 the bank’s liabilities exceeded its assets by about P76 million in 2013 the figure stood at about P190 million. At the date of the liquidation the total liabilities of KBAL were slightly more than P190 million but the liquidator only recovered P 5 million from the bank’s assets. This means the liabilities exceeded assets by about P85 million.

While BAOA  missed the KBAL scandal and might now insist on further investigation of Choppies and its Chief Executive usually referred to as Ram in the local circles, KPMG on the other hand might have to start by explaining whether it feels the need to answer certain questions precisely about Choppies. For instance, one of the questions that the firm might have to answer is whether there are accounting irregularities that it picked up during its years of auditing the mass grocery retailer. At the time of takeover, KPMG’s successor – PWC raised audit concerns and queries pertaining to the Ramachandran Ottapathu led retailer’s compliance with International Financial Reporting Results (IFRS). Consequently, Choppies failed to publish its recently published financial results.

By December 2019 at the time of the release of the Choppies 2018 results, PWC said it cannot express an opinion on them as it could not substantiate their authenticity because it has not been able to obtain sufficient audit evidence to provide a basis for an audit opinion. Could KPMG have had an opportunity to echo same sentiments at some point during its time as Choppies external auditor?

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