IRBA must investigate whether SAA auditors were negligent – Alf Lees

DA says ratings agencies must do their imminent assessments with full knowledge of the extent of mismanagement of airline

DA files affidavit to IRBA questioning SAA’s audit report

17 October 2016

The DA has couriered an affidavit of complaint to the Independent Regulatory Board for Auditors (IRBA) that requests that IRBA investigate whether or not the SAA auditors were delinquent in their audits of the SAA 2014/15 and 2015/16 annual financial statements.

The SAA auditors failed to qualify the “going concern” assumption contained in the SAA annual financial statements despite a SAA Treasury memo dated the 23/08/2016 to the SAA directors  that stated that the proposed R 4,7 billion government guarantee would not be sufficient to ensure that SAA was able to continue trading until the end of the 2016/17 financial year. 

Clearly if this were the case the “going concern” assumption made by the SAA directors was not appropriate, i.e. SAA will not be able to continue trading for a period of 12 months from the date of the SAA directors approval, being the 18/09/2016. This memo was dated some 37 days before the auditors signed their audit reports.

On the basis that the “going Concern” assumption made by the SAA board of directors was not appropriate and in terms of the International Auditing Standard 570, the SAA auditors should have included a qualification to state as much in their audit report. This they did not do and they must now justify on what basis they accepted the SAA directors “going concern” assumption despite the written assessment apparently submitted to the SAA directors by the SAA Treasury. What due diligence was done by the SAA auditors that led them to conclude that the SAA directors “going concern” assumption was appropriate?

Further failures on the part of the SAA auditors seem to be that they failed to include a qualification in their auditors' report that the SAA directors were in violation of section 55(1)(d) of the Public Finance Management Act 1 of 1999 by not submitting the 2014/15 annual financial statements within five months of the year end and had not submitted these statements some 12 months after the last legally allowed due date. In addition the SAA auditors failed to include a qualification in their auditors’ report on the basis that the directors of SAA were in violation of section 61(7) of the Companies Act by not having had an AGM once every calendar year with the last known AGM having taken place some 20 months ago on the 30/01/2016.

It is of concern that the 2014/15 and 2015/16 SAA annual reports were approved and signed by the new directors who were appointed on the 01/09/2016. Despite the fact that the new directors had just taken up their board positions they did not approve the annual reports until the 18/09/2016 some 17 days after their appointment. The new directors had a fiduciary duty to ensure that the annual reports that they approved were factual and that any assumptions attributed to them were appropriate. A question that must be asked is whether or not the new SAA board was misled or kept in the dark by reappointed Board Chair Dudu Myeni and/or the SAA auditors?

The DA trusts that IRBA will act swiftly and diligently to deal with our complaint in order to ensure that the ratings agencies may do their imminent assessments with full knowledge of the extent of mismanagement of SAA.

Issued by Alf Lees, DA Deputy Shadow Minister of Finance, 17 October 2016