South Africa’s big audit firms were plunged into chaos during the state capture years as unscrupulous partners signed off on misleading audits or turned a blind eye to corruption in order to line their pockets.
Deloitte Africa is one of those audit firms that was not left unscathed by this malpractice, which eventually saw the company’s audit quality outcomes declining to 50% in 2019.
One of the biggest scandals to hit the firm was signing off on irregularities in Tongaat Hulett financial statements from 2011 to 2018, which inflated the sugar giant’s financial position by almost R12 billion.
This resulted in the suspension of trading in Tongaat’s shares in 2018 after news of the irregularities sent its shares into free fall.
The KZN-based sugar company then filed a R450 million civil claim against some of its own former executives for the inflating of profits.
This prevailing environment of aiding and abetting the capture of both public and private institutions prompted Deloitte to go through a process of deep introspection in 2019.
As a result, Deloitte embarked on an ambitious programme called “Future Fit project”, setting itself a goal to improve its audit quality back to 100% by 2025.
Deloitte wanted to be in a position where every single file reviewed by the Independent Regulatory Board of Auditors (IRBA) would receive a rating of either good or acceptable.
So when Ruwayda Redfearn – the first female CEO of Deloitte Africa and its fourth consecutive black CEO – was announced in November 2021, the firm’s audit quality had increased to 78%.
However, there was still much more to be done since audit quality is multi-dimensional at Deloitte, with measurement metrics spanning across all its service lines – audit and assurance, risk advisory, consulting, tax and legal and financial advisory.
Speaking exclusively to “Business Report” this week after the release of their Transparency Report, Redfearn said she made it her business that every single person at Deloitte became obsessed with quality.
Redfeard said she believed this was the most fundamental principle required to turn around the 70-year-old company’s fortunes and win back the public trust within five years.
“The first thing that we did was we set the tone at the top, and audit quality, not just in audit business, but in every single business, quality became the number one key performance criteria for me,” Redfearn said.
“And then it became just being very intentional. It became about understanding what we needed to do in order to achieve positive quality outcomes.”
As a result of these interventions, Deloitte Africa has seen a pleasing improvement in its IRBA results on the selected and inspected audit engagement to now reach its goal of achieving a 100% audit quality outcome.
It hasn't been an easy journey for both Deloitte as a company and for Redfearn on a personal level as certain sacrifices had to be made to regain confidence.
One of those sacrifices was to choose the firm’s clientele carefully and reject some, especially public entities, in spite of the tight competition in the profession.
“As much as we want our clients to choose us and we want to compete on quality, one of the levers is us choosing our clients. So our client acceptance and retention processes are very stringent,” Redfearn said.
“We want to make sure that we are associated with the right clients. So, one of the statistics that you will find in the Transparency Report is that we actually declined to either continue with or to propose about 6% of public interest entities as a result of the Future Fit exercise.”
Deloitte’s Transparency Report said the firm has not discovered any evidence to support the criminal charges brought against its former partner who audited Tongaat Hulett.
However, Redfearn said they now have a zero-tolerance approach to any breaches of the company’s ethics or values, and they have since put together an accountability framework.
“This is not about a stick approach for me. It is about making sure that we continue to believe that the work that we do matters,” Redfearn said.
“Our role is to uphold trust, and it is to contribute towards public confidence.”
It is through such interventions that Deloitte saw a 100% improvement in the audit quality of selected and inspected audit engagement files over the past few years.
In addition, the regulator also made no findings on the firm’s systems of quality control and quality management.
“We've actually achieved that now in 2022. So 100% of the files that were reviewed by the regulator in 2022 received either a good acceptable rating,” Redfearn said.
“It’s taken place three years ahead of the target we had set ourselves for 2025.”
BUSINESS REPORT