CMC Holdings showroom located in Industrial Area along Lusaka Road. The Auto firm is angling for supply of construction equipment in a bid to reclaim the market share it lost following boardroom wars. FILE PHOTO | NATION MEDIA GROUP
Audit firm Deloitte is blaming CMC Motors management for the troubled auto firm’s ‘substandard’ financial statements that has seen it referred to a disciplinary committee appointed by the accounting profession’s watchdog.
Deloitte has been under intense pressure since the capital markets regular CMA filed a formal complaint with the Institute of Certified Public Accountants of Kenya (ICPAK) accusing the audit firm of mishandling CMC’s financial statements.
Deloitte is also accused of misstating the auto dealer’s accounts, thereby inflating its earnings.
But on Friday, Deloitte said that the car dealer’s directors and board intentionally presented falsified documents that the audit firm used as the basis of its opinions.
“We relied on information and records presented by the management and if they had deliberately lied to us, it was not going to be possible for Deloitte or any other auditor to detect the fraud,” said Sammy Onyango, the managing partner at Deloitte.
“CMA (the Capital Markets Authority) detected the alleged fraud either through whistle-blowers or investigators. But as an auditor we are not required to go that path,” added Mr Onyango.
The Deloitte defence echoes that of its rivals, KPMG and Ernst & Young, who on January 17 were cleared of any responsibility for a $1.7 billion (Sh139 billion) accounting fraud at Japan’s medical equipment and cameras, Olympus Corp.
The panel that investigated the Olympus case effectively found that the fraud, identified by a separate investigation as having been hatched by two former top executives in the 1990s to conceal losses, had been too well covered up for the external audit firms to have uncovered it.
Deloitte has been accused of not recognising losses from CMC’s assets that are damaged, failure to disclose in the annual reports the auto firm’s subsidiary in South Sudan, abetting the booking of undelivered vehicle sales as revenues and not capturing interest payments for cars sold on credit.
Deloitte says there was no evidence to show that CMC had established a subsidiary in South Sudan and that booking of undelivered vehicles happened in its first half—a period where the accounts are unaudited.
“The half-year results are the responsibility of the management. It’s not correct to say interests were not being booked on vehicles sold on credit and whose payments were ongoing,” said Mr Onyango.
ICPAK plans to question senior CMC officials over the breaches, including former finance director, Shashi Shah. Compliance
“We have received complaints against Deloitte and a finance director that have been referred to the disciplinary committee,” Ms Caroline Kigen, the chief executive at ICPAK – the accounting watchdog – said.
Deloitte is the second largest audit firm after PriceWaterhouseCoopers (PwC) in Kenya, with blue chip clients like Kenya Airways, Bamburi Cement, ScanGroup, NIC Bank and Centum Investment, and the investigation is likely to shake the core of its business.
The impending inquiry marks the second time one of the Big Four global audit companies will be investigated by ICPAK after that of PwC in the wake of Uchumi Supermarkets near-collapse in 2006. The PWC investigation dwelt on the matter of accounting practice questioning whether the audit firm’s opinions were in step with the set professional standards.
PwC was found to have operated above board.
“Our findings are that, as at March 2010, revenue included vehicles sold but not delivered…this is not in compliance with accounting standards and it led to the net profit being overstated by Sh116 million,” said the CMA investigation report by South Africa’s Webber Wentzel.
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