What is professional integrity failure? For instance, at which stage can the lead auditor of a global audit firm discuss his employment with the listed company being audited?
To my mind, and that of the learned High Court judge in Botswana, most certainly not while the audit is in the process of being completed!
Professional integrity failure
The Botswana court judgment says the Choppies audit was tainted by an offer of employment – with share options – that had been extended to the lead auditor, Rudi Binedell.
The comments from the judge were that “…[his] alleged conduct is also an issue. The allegation is that he was not arm’s length in his auditing of the Choppies books as he had been offered a job with significant shareholding as incentive. When this did not materialise, he used his position as the key lead auditor to compromise the publication of the audit report beyond the publication deadline of 30th September 2018.”
He further found that “Prima facie … [his] independence as a dispassionate and professional auditor was impaired once he engaged in potential employment discussions with Choppies. He should have recused himself from leading the audit.”
Reciprocal obligations to complete the audit
“From the audit agreement, the parties had reciprocal obligations,” reads the judgment.
“Choppies had a duty to provide the information. The defendants had an obligation to finalise the audit report within reasonable time. One might also add that [PwC and Binedell] knowing that Choppies was a listed entity were aware of the timelines of the Botswana Stock Exchange.
End result: suspension of listing
The net effect of the delayed audit was “The suspension of Choppies shares that arose from the non-publication of the financial statements damaged Choppies reputation….”
The two largest shareholders of Choppies – Ram Ottapathu and Farouk Ismail – are suing PwC and Binedell as a result of the delayed publication of Choppies financial results.
It will be interesting to see what the court judgement at the trial – set for May 2022 – delivers.