Kenya’s accountants’ watchdog plans to open an investigation into how auditing firm PKF handled the financial statements of Imperial Bank, which was unexpectedly placed under receivership on Tuesday last week.
The Institute of Certified Public Accountants of Kenya (ICPAK) on Friday said the enquiry will open this week seeking to establish what PKF — as the external auditors at the mid-tier bank — knew about the alleged fraud that led to closure of the bank.
The Central Bank of Kenya said it had closed the lender after learning that “unsafe and unsound business conditions to transact business” existed at Imperial Bank, which had Sh58 billion in customer deposits. PKF, as the external auditors, had a duty to point out such financial malpractices in their reports.
“They will tell us what they knew and whether they highlighted these gaps to the board of directors,” said ICPAK chief executive Patrick Ngumi.
Dr Ngumi said the watchdog will demand the bank’s internal audit report and the management letter — a confidential note prepared by external auditors to a company’s directors highlighting accounting matters ordinarily not included in the annual report.
PKF Kenya chief executive officer Atul Shah declined to comment on this story.
If PKF is found culpable, the audit firm may be hit by a financial penalty and the practising certificates of its partners suspended, ICPAK warned.
PKF Kenya was also the reporting accountants for the financial statements used by Imperial Bank to raise Sh2 billion through a corporate bond which was due for listing on October 13 this year but was suspended indefinitely.
The audit firm earned Sh1.8 million in fees as reporting accountants for the bond issue, while the Capital Markets Authority received an approval fee of Sh2 million or 0.1 per cent of the cash raised.
The impending probe adds to a growing list of audit firms under scrutiny for their alleged role in companies that have been found to have accounting irregularities. Deloitte & Touche — one of the ‘Big Four’ — has been accused of professional misconduct in handling the books of Kenyan companies, including loss-making Mumias, CMC Motors, Tuskys Supermarket and the collapsed Dubai Bank.
PwC was investigated in the wake of Uchumi Supermarkets’ near-collapse in 2006 on whether its opinions were in step with professional standards.
Ernst & Young was earlier this year probed by the Commissioner for Co-operative Development over its role in Mwalimu Sacco’s acquisition of a majority stake in Equatorial Commercial Bank from businessman Naushad Merali.