Why didn’t the Auditor qualify SAA’s annual report?

3 October 2016

Given the internal SAA Treasury memo issued in August 2016, well ahead of the Auditors signing off on the annual financial statements, it is peculiar that the Auditors did not qualify SAA’s annual report, as this could have material bearing on South Africa’s impending credit rating adjustment.  

The DA will write to the Independent Regulatory Board for Auditors (IRBA) to request that they conduct an investigation into the failure of the SAA auditors to qualify the 2015/16 SAA annual financial statements. The Directors Report, signed by Dudu Myeni, that asserts that SAA remains a going concern for the 12 months from the date of approval i.e. from the 18th of September 2016 would seem to be a misrepresentation of the going concern status.

The Auditors only signed the 2015/16 Independent Auditors’ Report on the 30th of September 2016, the same day that the report was due to be tabled in Parliament and was no doubt signed under pressure from SAA in order to meet the 30th of September deadline commitment given to Parliament. 

The Auditors did not include any qualification of the going concern assumption by SAA, this despite SAA Treasury itself some two months previously apparently issuing an internal memo that points out that the R 4,7 million government guarantee would not provide sufficient funding to meet loan repayments as well as working capital requirements and that a guarantee of R7.0 million was what was required for the 2016/17 year.

The question then becomes on what basis was the auditor’s decision not to place a qualification on the SAA going concern assumption in their report on the SAA 2015/16 annual financial statements made?

There are already questions as to why the Auditors did not qualify the 2014/15 financials if for no other reason than that there was a material violation of section 55(1)(d) of the PFMA when the financials were not submitted to National Treasury within five months of the year end and in fact were submitted some 16 months after year end or over a year late.

The DA notes media reports that SAA, despite having been given an additional R4.7 billion government guarantee, remains in serious financial trouble and now needs an additional R2.3 billion just to continue trading for the 2016/17 financial year that ends in a mere six months’ time- 31 March 2017.

International ratings agencies are keeping a keen eye on State-Owned Enterprises (SOE) as they prepare to finalise their pending ratings assessment of South Africa. These agencies have indicated that the way that SOEs such as SAA are dealt with will have a material bearing on the outcome of their assessments.

SAA is showing no prospects of becoming profitable and therefore being able to repay the loans taken out on the back of the now R19 billion and potentially R21.3 billion government guarantees. South Africa is already staring a ratings downgrade in the face and an additional government guarantee of R2.3 billion rand for SAA will simply increase the possibility of such a downgrade.

SAA continues to lurch from one crisis to another and another guarantee bailout of R2.3 billion is just not on.

Issued by Alf Lees, DA Deputy Shadow Minister of Finance, 3 October 2016