Should CPA firms add consulting services to their stable?

Richard Firth

The number of audit firms that are offering consulting and software development services to boost their revenues has been on the rise. Increasingly, these businesses are seizing opportunities to deliver consulting services across the board, including financial planning, tax, due diligence, HR, Information Technology, and suchlike.

The heads of CPA firms see consulting services as a means to give their clients additional value, as well as create new revenue streams. However, they are making a crucial mistake. They are managing these auditing services as if they were consulting practices, which could – and is – causing impact on audit integrity.

So says Richard Firth, CEO of MIP Holdings, who says this should be a major concern to the corporate governance community, boards, audit committees, and their legal teams, considering that key to the integrity of SA’s economy is auditor independence, which puts these services beyond reproach.

He adds that many of the most prominent audit firms have started to provide consulting services to their clients over the past few years, driving concerns that the auditor’s interest in developing or maintaining a non-audit services relationship with their customers could overtake their interest in the primary audit relationship. Moreover, investors are understandably worried that non-audit services, when given to an audit client, create core conflicts that fly in the face of auditor objectivity.

“I would love to see an industry statistic that denotes all listed companies where an audit partner has performed software development work on behalf of their client. Many audit companies can justify technology consultancy as a key delivery in a technology risk investigation and in terms of potential IT security risk aversion. However, when an audit firm provides development capability to a customer, is this not stretching the boundary of audit practises a little too far? I also believe that many of the consultancy practices provided by audit companies are stretching the ever-increasing grey area of audit,” Firth says.

Possibly the most scandalous allegation relating to an audit company is KPMG’s involvement in the wedding of one of the Gupta sons in 2013, which was purportedly funded by R30-million of South African taxpayers’ cash. This was allegedly done by funnelling funds that were meant for poor Free State farmers through Dubai and then bringing the funds back to the country through an organisation called Linkway Trading – a Gupta company. The family is alleged to have claimed these as business expenses, no income tax was paid, and the transactions were signed off by their auditors.

Firth says this is why several nations have put legislation in place to lower any risk of conflict of interest. In the USA, for example, accounting firms are not allowed to provide non-audit services to companies for which they perform audits.

“South African legislation or the audit industry needs to publish a definition of what audit should and should not entail. So far, the law isn’t so strict in South Africa, but given the scandals that have littered the headlines, I wouldn’t be surprised if that changes soon,” concludes Firth.

 



Latest


16 Feb 2021
Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the…

Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the delivery of transition management services across Southern Africa. Under the partnership, Standard Bank’s clients will gain access to Northern Trust’s full suite of transition management services. Transition Management is a…

16 Feb 2021
Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at…

Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at Metope Investment Managers The tax year, along with the deadline for an investor’s maximum R36 000 annual tax-free savings account contribution, comes to an end on the 28 February 2021. Investors…

16 Feb 2021
Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises…

Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises to deliver smoother, more consistent investment returns, despite cyclical turbulence of financial markets. Given last year’s drastic swings in financial markets and continued uncertainty on how the Covid pandemic will…

16 Feb 2021
Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well…

Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well as the uncovered population, in being vaccinated. As the COVID-19 virus continues to spread, a third wave is imminent, should the vaccination rollout not commence soon. Speaking at a recent…


Top stories


10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za