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PwC, KPMG, Deloitte and EY all fail to meet UK watchdog audit quality targets

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Seven of the global biggest audit firms, working in the United Kingdom, including the so-called Big Four – EY, KPMG, Deloitte and PwC yet again, failed to meet the audit quality targets set by the Financial Reporting Council (DRC); UK’s audit watchdog.

The latest audit inspections report for 2018/19, which relates principally to audits of companies’ for results ending December 2017 found that only 75% of FTSE 350 audits reviewed were good or required no more than limited improvements. Although there was an improvement from 73% in the 2017/18 report, none of the seven firms achieved the FRC’s audit quality target for 90% of FTSE 350 audits.

The firms are: Deloitte, KPMG, Ernst & Young, PWC, BDO, Grant Thornton, Mazars. All, except Mazars are represented in Uganda.   

The FTSE 350 are UK’s top 350 listed companies.

The FRC said it had found cases in all seven firms where auditors had failed to challenge management sufficiently on judgemental issues and that “this has been a recurring finding over a number of years.”

The FRC, amongst many other reasons blamed this on “familiarity” that arises “from long-standing audit relationships, particularly if the company comes to be considered as “the client” for the auditor, rather than the shareholder or investor.”

Stephen Haddrill, FRC CEO, said “At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable. Audit firms must identify the causes of their audit shortcomings and take rapid and appropriate action to improve quality. Our latest results suggest that they have failed to achieve this in recent years.”  
 

He said that the FRC would institute stringent targets moving forward.

“For 2019/20, we are extending our 90% quality target for FTSE 350 audits to all audits inspected. We will set a new target for audit firms, for 2020/21 onwards, that 100% of audits inspected should require no more than limited improvement,” he said.

35% of PWC’s audits fail quality test

The FRC reported that 77% of PWC’s audits met the standard (requiring no more than limited improvement), compared with 82% in 2017/18 while only 65% of the FTSE 350 audits met the standard compared with 84% in 2017/18.

“We consider the notable decline in inspection results, particularly for FTSE 350 audits, by comparison to prior years to be unsatisfactory and have required the firm to take prompt and targeted action to address this decline,” said the FRC of PWC’s audits.

At Grant Thornton, the FRC assessed that 50% of reviews were good or required limited improvements, compared to 75% last year. In total, 26% of Grant Thornton’s audits reviewed in the past five years have required significant improvement. 

Although KPMG had improved in their performance- 76% of the firm’s audits met the standard, compared to 61% in 2017/18 and 80% of the FTSE 350 audits were compliant, compared with 50% in 2017/18, KPMG still fell below the required standard.

BDO was the best overall, with a review of the firm’s audits showing that seven out of eight audits reviewed were assessed as requiring no more than limited improvements, the same as in 2017/18.

While back in Uganda, there is no equivalent of the FRC, a number of audit firms have been in the news, notably KPMG and PWC for their involvement in the murky closure of Crane Bank and subsequent sale to dfcu Bank.

In 2017 Bank of Uganda did not license Ernst & Young (EY) to audit financial institutions regulated by it- over unclear reasons.

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Kwame Ejalu’s Kent Holdings, acquires Alexander Forbes’ Ugandan unit; rebrands to Zamara

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Zamara Group’s logo; now the new face of Alexander Forbes Uganda, who have rebranded into Zamara Uganda

Alexander Forbes Financial Services Uganda Limited is now Zamara Actuaries, Administrators and Consultants (U) Limited.

This follows the ongoing exit of the South African financial services group from Uganda and the sale of their 51% stake in Uganda to Kent Holdings Limited- a Ugandan financial services group with interests in insurance brokerage and pensions management.

The two companies affirmed the sale, in a joint statement on August 21st, by Bonga Mokoena the Alexander Forbes Emerging Markets (AFEM) Chief Executive Officer and Kwame Ejalu, the Kent Holdings Limited Chairman.

Kwame Ejalu, the Kent Holdings Limited Chairman wields a rich experience in Uganda’s financial services industry. The Kent/Zamara partnership blends Kent Holdings’ 22 years of local experience and strategic leadership with Zamara’s 23-year African heritage and technical capacity

“Alexander Forbes Emerging Markets (AFEM) and Kent Holdings are pleased to announce that an agreement has been reached on a sale of shares to Kent Holdings Limited. On 2 July 2019, a sale of shares agreement was executed in terms of which, AFEM sold 51% in Alexander Forbes Financial Services Uganda Limited, to Kent Holdings Limited, a co-shareholder in Alexander Forbes Financial Services Uganda Limited,” read the statement.

Kent Holdings, previously owned 49% of the Ugandan operations.  

The statement however said that “the sale of shares agreement is subject to fulfilment of conditions precedent.”

“The terms and conditions of the sale agreement remain confidential,” both executives announced, but confirmed that Alexander Forbes has effected a name change and will now be known as Zamara Actuaries Administrators and Consultants (Uganda) Limited.

The name change was gazetted on 17th July 2019.

“Alexander Forbes Financial Services (Uganda) Limited, has been by a special resolution passed on 10th July 2019 and with the approval of the registrar of companies changed its name to Zamara Actuaries Administrators and Consultants Limited- 17th July 2019,” reads General Notice No. 762 of 2019, extracted from the Gazette.

Miriam Ekirapa Musaali, the Zamara Uganda Chief Operating Officer. She possesses over 11 years in Uganda’s capital markets industry- where she rose to the Director Market Supervision role at Uganda’s capital markets regulator – Capital Markets Authority, from whence she became the Alexander Forbes Uganda (Now Zamara Uganda) COO and Head of Business for slightly for slightly over 2 years. She says, the name change shall not in any way impede the quality of service as the team remains the same “enthusiastic, energetic, creative” team.

In a separate announcement, media announcement run in the local dailies, Zamara also confirmed their entry into the Ugandan market, promising that they called “fresh perspective in the delivery of financial services in Africa.”

Who is Zamara?

According to their media announcement, the Zamara Group is a specialised financial services group providing actuarial advice and retirement administration solutions in financial services, umbrella retirement solutions, investment and risk sectors to individuals, corporates, parastatals and retirement fund clients. 

The firm currently administers assets in excess of KSh. 280 billion an equivalent of UGX 9.995 trillion and is the only actuarial, consulting, accounting and pension administration firm in Kenya to be ISO 9001:2015 certified.

Zamara Group Executive Director , James Olubayi

Uganda is the sixth Zamara operation after Kenya, Nigeria, Rwanda, Tanzania and Malawi. Zamara started operations in Kenya over 23 years ago as Hymans Robertson and later changed to Alexander Forbes (East Africa) Limited before renaming to Zamara Actuaries, Administrators and Consultants Limited, following the exit of Alexander Forbes from the Kenyan market in 2017.

For four consecutive years, Zamara, their umbrella fund, the Zamara Fanaka Retirement Fund (formerly Alexander Forbes Retirement Fund) and Zamara Vuna Pension Plan (formerly Alexander Forbes Vuna Pension Plan), Zamara’s individual pension plan have been variously awarded in Kenya’s Think Business Awards.  

A brand that embodies a fresh perspective on the delivery of financial services

Commenting on the entry of Zamara into Uganda, Kwame Ejalu, the Kent Holdings Chairman said: “We are enthusiastic about this partnership between Kent Holdings and Zamara Group as it marks the entry into Uganda, of a formidable brand that embodies a fresh perspective on the delivery of financial services in Africa. This partnership blends Kent Holdings’ 22 years of local experience and strategic leadership with Zamara’s 23-year African heritage and technical capacity, to deliver innovative and excellent services to our clients, underpinned by simplicity, empathy and trust,” adding: “Zamara Uganda will now add to our portfolio pan-African expertise, actuarial services and other online solutions that we previously did not offer.”

Asked if Zamara had acquired the stake, previously held by Alexander Forbes, he said he would comment on this after “the Alexander Forbes-Kent Holdings transaction is fully complete and all conditions precedent are fulfilled.”

Ejalu however said that Zamara Uganda inherits and will continue to run a managed private pension funds sector in Uganda and managed assets under administration portfolio in excess of UGX380 billion- roughtly 40% sector market share.

James Olubayi, the Zamara Group Executive Director said that the Zamara Group looked at Uganda as “one of the key strategic regions in the market for growth of the group.”

“Zamara aims to elevate the quality of advice and solutions offered to stakeholders and inevitably be a game changer for clients it serves in Uganda. We look forward to the extended partnership with Kent Holdings, clients, stakeholders across Africa,” he said.

Miriam Ekirapa Musaali, Chief Operating Officer, Zamara Uganda who previously was the Alexander Forbes COO said “We remain the same enthusiastic, energetic, creative team that is committed to serving our clients in Uganda. We will no doubt continue to offer superior consulting, advisory and administration services to pension funds in Uganda and further enhance our offering and advice to truly world class levels.”  

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Stanbic Bank scoops June/July best gov’t securities dealer award

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The Governor Prof. Emmanuel Tumusiime-Mutebile has given an award to Stanbic Bank Uganda (LTD) for being the best performing bank in dealing government securities for the months of June and July 2019. The award was received by Stanbic Bank CEO Mr. Patrick Mweheire during the quarterly Uganda Bankers Association (UBA) meeting at BoU headquarters in Kampala.

Governor BOU Prof. Emmanuel Mutebile(L) and Patrick Mweheire(R), CEO Stanbic Bank Uganda(LTD) at the do

The bank has been recognised by the regulator for its role in the primary dealer system that helps in developing Financial Markets and in reducing the costs associated with issuing Government Securities; through increasing demand, market efficiency, encouraging secondary market trading and improving the quality of Financial Market information.

A primary dealer is a pre-approved bank, broker or financial institution that is able to lend money to the government through treasury bonds and treasury bills. 

Background information on best performing banks in government securities award

In January 2005, the Bank of Uganda initiated the “Award for the Best Performing Primary Dealer in Uganda Government Securities for the Month” to recognize the Primary Dealer that performed best in trading Uganda Government Securities and transmitting information regarding the status of the financial markets to the Central Bank.

A Primary Dealer is any financial intermediary that has signed a Memorandum of Understanding with the Bank of Uganda to execute the following actions on a consistent basis:

§ To participate as counter-party in Uganda Government securities auctions conducted by the Bank of Uganda.
§ To provide the public with prices or yields that they will buy and sell “On-the Run” (the most recently auctioned) Uganda Government securities. i.e. Treasury bills and Treasury bonds on a continuous basis.
§ To provide the public with prices or yields that they will buy Off-the-Run (Other than the most recently auctioned) Uganda Government securities on a continuous basis.
§ To trade with the public Uganda Government securities at the prices or yields that they have quoted.
§ To make available information on the status of the market to the Bank of Uganda on a timely basis.

The points allocated for the Award to the Best Performing Primary Dealer in Uganda Government Securities for the Month are aggregated to determine the winner of the prestigious award.

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dfcu Bank’s H1 profit declines by 14% to UGX35.7 billion

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Interim H1 2019 results for dfcu Bank HY are out, indicating a 14.3% decline in net profit to UGX35.7 billion down from UGX41.6 billion in the same period in 2018.

Deposits declined by 1.5% from UGX2.02 trillion to UGX1.99 trillion while lending went down by 3.8% from UGX1.4 trillion to UGX1.36 trillion.

As a result, the bank’s asset book declined by 2.7% from UGX3.03 trillion to UGX2.95 trillion.

This is the first 6 months of new Managing Director’ Mathias Katamba’s firm grip on the bank, since he assumed full reigns in January this year.

However, compared to December 2018, there was a slight 1.3% growth in assets from UGX2.91 trillion to UGX2.95 trillion. Deposits also registered a slight 0.6% rise to UGX2.02 trillion, from UGX1.97 trillion.

dfcu yet to recover from 2018

dfcu bank, now Uganda’s fourth largest bank with about 10% of industry assets is yet to recover from what analysts say was a hard 2018.

Customer deposits largely remained flat, declining 0.4% from UGX1.99 trillion to UGX1.98 trillion. Lending went down 4.8% from UGX1.33 trillion to UGX1.4 trillion.

Full year profits took a 51.6% hit, reducing from UGX127.6 billion to UGX61.7 billion.

Assets declined 4.7% from UGX3.03 trillion to UGX2.89 trillion.

dfcu’s not-so rosy performance, has had an impact on its share price. Share price rose from UGX681 at the beginning of January 2018, rising 42.4% to hit a climax of UGX970 on 17th July 2018 but closed December 2018 at UGX822.97- a reduction of 15%.

Since the year began, dfcu share price has continued in a free-fall, dropping a further 21%, to UGX650 as of today, August 22nd 2019.   

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