"Sygnia CEO Magda Wierzycka fired auditor KPMG in 2017 for its role in state capture. This earned her almost heroine-like status among some in the business community for taking a strong and courageous stand against corruption. Now the same board has fired Deloitte, arguing that engagement with the firm is ‘unsatisfactory’ and there is reputational risk associated with it. It is hard not to believe this is the case. Except that something just doesn’t feel right." (Deloitte firing may reveal more than Sygnia would like, Daily Maverick 14/06/2019.)
Is Sasha Planting, author of the piece, an accountant? She wrote:
"Bear in mind an auditor’s job is not to detect fraud, comment on a business’s model or even its viability. It is simply to provide a reasonable assurance that the financial statements are accurate. In order to do this, it has to trust that the information on which the accounts are based (contracts, leases, stock take reports and so on), and which is provided by the client, is accurate."
Is Sasha Planting, author of the piece, an accountant? She wrote:
"Bear in mind an auditor’s job is not to detect fraud, comment on a business’s model or even its viability. It is simply to provide a reasonable assurance that the financial statements are accurate. In order to do this, it has to trust that the information on which the accounts are based (contracts, leases, stock take reports and so on), and which is provided by the client, is accurate."
An auditor's job is to have a high suspicion of fraud and error. That's instilled in his academic and practical training. It's one of the fundamental principles of auditing. From the International Standards on Auditing 240: The Auditors Responsibility to Fraud in the Audit of Financial Statements:
"Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the underlying action that results in the misstatement of the financial statements is intentional or unintentional. Although fraud is a broad legal concept, for the purposes of the ISAs, the auditor is concerned with fraud that causes a material misstatement in the financial statements ... The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management ...
"Responsibilities of the Auditor. An auditor conducting an audit in accordance with ISA is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error ...
"When obtaining reasonable assurance, the auditor is responsible for maintaining professional scepticism throughout the audit, considering the potential for management override of controls and recognizing the fact that audit procedures that are effective for detecting error may not be effective in detecting fraud. The requirements in this ISA are designed to assist the auditor in identifying and assessing the risks of material misstatement due to fraud and in designing procedures to detect such misstatement.
"Professional Scepticism. In accordance with ISA 2005, the auditor shall maintain professional scepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience of the honesty and integrity of the entity’s management and those charged with governance." (Emphasis added).
But Planting says: "In order to do this, it [sic] has to trust that the information on which the accounts are based (contracts, leases, stock take reports and so on), and which is provided by the client, is accurate."
No, no, the auditor trusts nothing. Instead, he determines the reliability of the balances in the financial statements by, on a test basis, examining the transactions and source documents on which it is based, i.e. invoices, contracts, etc. That is what auditing is about - testing the accuracy of the financial balances, taking nothing at face value. Anyone who has worked in accounting or auditing would know this. I wonder if Planting has because it's apparent she doesn't.
She also says it's not the auditor's job to comment on a client company's viability. Wrong again. "Viability" can be understood as the "going concern assumption". ISA 570: Going Concern:
"Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. Financial statements and, in particular, all general purpose financial statements, are therefore prepared on a going concern basis, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
"Responsibility of the auditor: The auditor’s responsibility is to evaluate the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements and conclude whether there is a material uncertainty about the entity’s ability to continue as a going concern that need to be disclosed in the financial statements." (Emphasis added.)
As an article (is it op-ed or investigative?) it's poor too. She starts by questioning Sygnia's firing of Deloitte, and just when it gets interesting - "So let’s take a look at Sygnia" - ends with tame speculation and a backhand - "It would be easy to speculate Sygnia is run as a one-woman show where governance is simply a formality" - implying Wierzycka might be unethical.
What Planting promised, i.e. insight into why Deloitte was fired, fizzles out, going nowhere; another poor journalistic effort, muck-racking really. We're left none the wiser except that according to her Wierzycka - sorry, Sygnia's board under her thumb - is riding roughshod of good corporate governance by firing the auditors. Apparently, she doesn't understand that's the board's prerogative, although it must be done for good reason.
Her bias is clear. She doesn't know why Sygnia fired Deloitte (did she ask?; the JSE is investigating) but that doesn't stop her speculating and casting aspersions, using Wierzycka's tweet as "evidence" of the latter's alleged questionable conduct. And she's dreadfully mistaken if she believes auditors are above reproach.
Years ago as the new, incoming accounting officer and auditor taking over a client from a big four audit company (hint: not KPMG or PWC) who were also the accounting officers, I saw that they zeroed out the client's entire general ledger balances (they were reluctant to give us the ledger) and passed journals for new closing balances from nothing. When I phoned to ask why, their accountant angrily asked me, "Are you auditing us? Do you know who we are?" Like, how dare you?
The client was a dodgy start-up financial services provider. When we qualified the opening balances because we were unable to verify them (such qualifications by incoming auditors are a formality but this time it was serious), the client complained to the Independent Regulatory Board for Auditors (IRBA) and threatened to sue us (the CEO was a a lawyer). The IRBA rejected the complaint, stating it was sound auditing practice. The client also unsuccessfully pressurised us to present the audited financial statements in a certain way in order to put a positive gloss on it for purposes of submission to the Financial Services Board; a qualification, even a technical one, was problematic.
After our refusal to remove the qualification, which would have been improper (their previous auditors were happy to present an unqualified opinion despite fictitious balances), they fired us and returned to their former auditors stating the latter had "fucked up". No doubt they got their unqualified audit, made-up financial statement balances notwithstanding (that was fraud by both).
"Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the underlying action that results in the misstatement of the financial statements is intentional or unintentional. Although fraud is a broad legal concept, for the purposes of the ISAs, the auditor is concerned with fraud that causes a material misstatement in the financial statements ... The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management ...
"Responsibilities of the Auditor. An auditor conducting an audit in accordance with ISA is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error ...
"When obtaining reasonable assurance, the auditor is responsible for maintaining professional scepticism throughout the audit, considering the potential for management override of controls and recognizing the fact that audit procedures that are effective for detecting error may not be effective in detecting fraud. The requirements in this ISA are designed to assist the auditor in identifying and assessing the risks of material misstatement due to fraud and in designing procedures to detect such misstatement.
"Professional Scepticism. In accordance with ISA 2005, the auditor shall maintain professional scepticism throughout the audit, recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience of the honesty and integrity of the entity’s management and those charged with governance." (Emphasis added).
But Planting says: "In order to do this, it [sic] has to trust that the information on which the accounts are based (contracts, leases, stock take reports and so on), and which is provided by the client, is accurate."
No, no, the auditor trusts nothing. Instead, he determines the reliability of the balances in the financial statements by, on a test basis, examining the transactions and source documents on which it is based, i.e. invoices, contracts, etc. That is what auditing is about - testing the accuracy of the financial balances, taking nothing at face value. Anyone who has worked in accounting or auditing would know this. I wonder if Planting has because it's apparent she doesn't.
She also says it's not the auditor's job to comment on a client company's viability. Wrong again. "Viability" can be understood as the "going concern assumption". ISA 570: Going Concern:
"Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. Financial statements and, in particular, all general purpose financial statements, are therefore prepared on a going concern basis, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
"Responsibility of the auditor: The auditor’s responsibility is to evaluate the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements and conclude whether there is a material uncertainty about the entity’s ability to continue as a going concern that need to be disclosed in the financial statements." (Emphasis added.)
As an article (is it op-ed or investigative?) it's poor too. She starts by questioning Sygnia's firing of Deloitte, and just when it gets interesting - "So let’s take a look at Sygnia" - ends with tame speculation and a backhand - "It would be easy to speculate Sygnia is run as a one-woman show where governance is simply a formality" - implying Wierzycka might be unethical.
What Planting promised, i.e. insight into why Deloitte was fired, fizzles out, going nowhere; another poor journalistic effort, muck-racking really. We're left none the wiser except that according to her Wierzycka - sorry, Sygnia's board under her thumb - is riding roughshod of good corporate governance by firing the auditors. Apparently, she doesn't understand that's the board's prerogative, although it must be done for good reason.
Her bias is clear. She doesn't know why Sygnia fired Deloitte (did she ask?; the JSE is investigating) but that doesn't stop her speculating and casting aspersions, using Wierzycka's tweet as "evidence" of the latter's alleged questionable conduct. And she's dreadfully mistaken if she believes auditors are above reproach.
Years ago as the new, incoming accounting officer and auditor taking over a client from a big four audit company (hint: not KPMG or PWC) who were also the accounting officers, I saw that they zeroed out the client's entire general ledger balances (they were reluctant to give us the ledger) and passed journals for new closing balances from nothing. When I phoned to ask why, their accountant angrily asked me, "Are you auditing us? Do you know who we are?" Like, how dare you?
The client was a dodgy start-up financial services provider. When we qualified the opening balances because we were unable to verify them (such qualifications by incoming auditors are a formality but this time it was serious), the client complained to the Independent Regulatory Board for Auditors (IRBA) and threatened to sue us (the CEO was a a lawyer). The IRBA rejected the complaint, stating it was sound auditing practice. The client also unsuccessfully pressurised us to present the audited financial statements in a certain way in order to put a positive gloss on it for purposes of submission to the Financial Services Board; a qualification, even a technical one, was problematic.
After our refusal to remove the qualification, which would have been improper (their previous auditors were happy to present an unqualified opinion despite fictitious balances), they fired us and returned to their former auditors stating the latter had "fucked up". No doubt they got their unqualified audit, made-up financial statement balances notwithstanding (that was fraud by both).
The industry (it's that rather than a profession) has a poor reputation, repeatedly willing to overlook questionable statements and transactions in order to please clients.
A poor article. It wouldn't pass muster at Bloomberg. It's indicative of the state of South Africa's media and financial journalism. Like most people, media (see here) and politicians included (Helen Zille famously who repeatedly stated the system of public auditors must be changed because it was inconvenient to her then Western Cape administration; also see here and here, here and especially here with her false, ignorant and egregious claim WC government "officials are not prepared to face the risk of the auditor-general’s wrath [sic] for purchasing a solution that does not comply exactly with the specifications or produce the required result), Planting doesn't understand the auditors' role and what they do. It's an ignorance that borders on the reckless and dangerous like in this matter.
In 2018 I emailed Daily Maverick editor Janet Heard questioning contributor Dirk de Vos' uninformed statements about auditing and supply chain regulations (he quoted Zille as an authority; the blind leading the blind). (I also noted an error in the blurb which they corrected. My letter wasn't published, though.) Perhaps the next time they receive an accounting-related submission, unless the writer is an expert, they fact-check it, or better yet, hire a decent financial editor.
Local media self-righteously presents itself as society's moral and ethical guardians and fount of all wisdom, Daily Maverick among the top judging by the smugness and stridency of its content and contributors. The media sits in judgement of the targets of its censure. But never, unless forced to by professional codes of conduct or court judgements, does it retract or admit fault. Planting's article for its factual mistakes and speculative nature ought to be one of them.
A poor article. It wouldn't pass muster at Bloomberg. It's indicative of the state of South Africa's media and financial journalism. Like most people, media (see here) and politicians included (Helen Zille famously who repeatedly stated the system of public auditors must be changed because it was inconvenient to her then Western Cape administration; also see here and here, here and especially here with her false, ignorant and egregious claim WC government "officials are not prepared to face the risk of the auditor-general’s wrath [sic] for purchasing a solution that does not comply exactly with the specifications or produce the required result), Planting doesn't understand the auditors' role and what they do. It's an ignorance that borders on the reckless and dangerous like in this matter.
In 2018 I emailed Daily Maverick editor Janet Heard questioning contributor Dirk de Vos' uninformed statements about auditing and supply chain regulations (he quoted Zille as an authority; the blind leading the blind). (I also noted an error in the blurb which they corrected. My letter wasn't published, though.) Perhaps the next time they receive an accounting-related submission, unless the writer is an expert, they fact-check it, or better yet, hire a decent financial editor.
Local media self-righteously presents itself as society's moral and ethical guardians and fount of all wisdom, Daily Maverick among the top judging by the smugness and stridency of its content and contributors. The media sits in judgement of the targets of its censure. But never, unless forced to by professional codes of conduct or court judgements, does it retract or admit fault. Planting's article for its factual mistakes and speculative nature ought to be one of them.
Footnote: I emailed a shortened version of this article to managing editor Janet Heard for information (they don't publish my letters, especially ones critical of them and the media).
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