Shareholder rebellion at Investec over KPMG reappointment

International specialist bank and asset manager Investec has been forced to defend its decision to reappoint KPMG a one of the group’s joint auditors in South Africa, after 19.5% of shareholders voted against the proposal at the company’s AGM

KPMG’s South Africa firm has been under fire in recent months after a string of scandals, including controversy over its audit work for companies connected with the Gupta family, a ban on handling public sector audits and disciplinary action against two partners over audit failures at a bank.

Investec has taken the unusual step of publishing additional information about its intention to retain KPMG, saying its audit committee had ‘spent a lot of time during the course of the year on matters pertaining to audit quality and auditor independence’.

The company has been audited by EY for 17 years, and additionally by KPMG for the past 13 years. It paid the two firms £8.9m and £4.6m respectively in 2018. Investec is listed on both the London and Johannesburg exchanges.

In its statement following the AGM regarding what it described as ‘the challenges experienced by KPMG Inc. in South Africa’, Investec said it had initiated ‘a number of processes’ to ensure and confirm audit quality, and that separate audit committee and board meetings were held to consider and conclude on the group's approach to these matters.

The lender reported holding a number of meetings with local and international KMPG leadership, and said KPMG International was requested to put additional KPMG international file and technical reviews into place. Partners from both Ernst & Young LLP and KPMG International attended meetings to outline the enhanced and additional cross reviews that had been undertaken.

Investec said: ‘The board's decision to retain KPMG Inc. as one of the group's joint auditors in South Africa was not taken lightly. The board is concerned about the failures of KPMG's internal controls and procedures as acknowledged by them.

‘Of greater concern is the significant negative impact this has had on the country's audit profession, individual lives and the South African economy. Investec is a company that is strongly committed to its core values which require Investec employees, clients, suppliers and service providers to uphold the highest standards of ethical behaviour.

‘The board requires KPMG International to hold individuals and KPMG Inc. accountable for involvement in the events that have taken place in South Africa with respect to their firm.’

Investec’s statement also makes clear it expects KPMG International to support KPMG locally to ‘ restore and rebuild confidence in KPMG South Africa’ and says it will continue to monitor the situation closely.

It concludes: ‘The audit committee chairman discussed these matters at length with the group's largest shareholders in South Africa. Shareholders appreciated the amount of time and work that the audit committee had dedicated to these matters and understood the group's position in this regard, however, some of them have been guided by their own internal policies with respect to voting on this resolution.’

Report by Pat Sweet

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