Sunday, January 16

Botswana Court Convicts PwC for Delay in Choppies Audit


The Botswana High Court this week issued a conviction against PwC and auditor Rudi Binedell for delays in publishing the results of the group’s audits that seriously affected Choppies’ share price.

The judge criticized Binedell, who was found to have delayed Choppies Enterprises’ audit report because a job offered to him at Choppies had not materialized.

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Choppies, a Botswana-based supermarket chain with stores throughout the region, is listed on the Botswana and Johannesburg stock exchanges.

Its two largest shareholders, Ram Ottapathu and Farouk Ismail, are suing PwC and Binedell for a combined total of R621.8 million for losses on the Botswana Stock Exchange as a result of the delayed publication of Choppies’ financial results on that exchange. , as well as another R416. 680 for the similar delay on the Johannesburg Stock Exchange (JSE).

They allege that PwC’s actions caused the loss of more than 75% of Choppies’ market value.

Choppies share price on the JSE

Trading in Choppies shares was suspended on both exchanges in November 2018 due to the delay in the publication of its financial results.

Operations at JSE resumed in November 2020 after a two-year suspension.

The stock is currently trading at around 80 cents, a fraction of the peak price of 730 cents reached in 2015.

The Botswana court ruling says that the Choppies audit was marred by a job offer, with stock options, which had been extended to the lead auditor, Rudi Binedell.

Read:

Botswana retailer Choppies plans to exit South Africa market [Aug 2019]
Choppies resumes operations at JSE [Nov 2020]

Driving ‘a problem’

The judgment handed down by Judge Boipuso Tshweneyagae in the High Court of Botswana this week said of Binedell: “…[his] the alleged behavior is also a problem ”.

“The allegation is that he did not rise to the occasion in his audit of the Choppies books, as he had been offered a job with a significant stake as an incentive.

“When this did not materialize, he used his position as a key lead auditor to compromise the release of the auditor’s report beyond the release deadline of September 30, 2018.

“Prima facie… [his] Independence as a dispassionate and professional auditor suffered once he got involved in potential employment discussions with Choppies. He should have refrained from conducting the audit. ”

The ruling details PwC’s defense in the case: The audit contract with Choppies never stipulated an absolute deadline of September 30, 2018 for the audit report. PwC and Binedell argued that the deadline depended on Choppies providing a draft of the annual financial statements for the audit, which it did not happen, and that the supporting information was insufficient to complete the task on time.

Looking for more details

Ottapathu and Ismail brought the case to the Botswana court, seeking “more and better details” on the nature and background of the audit conducted by Binedell and PwC.

This was to remove the element of surprise and ambush in the litigation, allowing the other party to better prepare their arguments.

“Since the audit agreement, the parties had reciprocal obligations,” the ruling reads.

“Choppies had a duty to provide the information. The defendants had an obligation to finalize the audit report within a reasonable time. It could also be added that [PwC and Binedell] knowing that Choppies was a publicly traded entity they knew the deadlines of the Botswana Stock Exchange.

“The plaintiffs [Ottapathu and Ismail] they have the right to ask what information they have not provided to facilitate the audit. This is because [PwC and Binedell] they themselves have introduced the problem of this failure. ”

The judge ruled that PwC and Binedell provide the two shareholders with more details of their defense, saying: “The information requested from the Defendants is necessary for the Plaintiffs to be able to plead and for the court to consider the disputed issues equally.”

PwC was ordered to pay the costs, including the cost of the lead attorney.

Established test date

The judge ruled that the matter will go to trial from May 9 to 20, 2022 and said that the specified deadlines for the information to be provided will not be relaxed.

In a written response to the ruling, Ottapathu told Moneyweb that the damage to Choppies went beyond the delay in the audit.

Ram Ottapathu, Choppies, PWC

Ram Ottapathu, one of the main shareholders of Choppies. Image: Moneyweb

“There was no independent mind behind this audit. Mr. Binedell participated in discussions with independent board members regarding his employment.

“When I didn’t support that, due to the conflict of interest, his behavior changed and all kinds of problems were created,” says Ottapathu.

“The judge determined that he should have recused himself and that ‘When [the job] did not materialize, he used his position as a key lead auditor to compromise the release of the auditor’s report beyond the release deadline of September 30, 2018. ‘

“The suspension of Choppies shares that arose from the non-publication of the financial statements damaged Choppies’ reputation, as well as mine and that of my colleague shareholder, Mr. Farouk Ismail. We estimate that it caused the loss of more than 75% of the market value of Choppies ”.

Choppies appointed PwC as auditor in 2018, with Binedell as lead auditor. “However, he was in discussions with independent board members about his possible job as Choppies CFO with a huge financial incentive in stocks if he joined. This was a conflict of interest that I did not support, ”says Ottapathu.

Read:

Choppies in chaos [Aug 2019]
Board versus CEO in the battle for Choppies [Sep 2019]

PwC responds

PwC issued the following response to the judgment: “PwC Botswana confirms that it has received a court order to present information in relation to its defense at the beginning of the judicial process. The order only asks PwC Botswana to produce information and is not a judgment or decision on the merits of the claim.

“PwC Botswana will comply with the order and produce the information at this stage of the procedure.

“PwC Botswana is confident that the court will ultimately conclude that the delay in completing the audit was due to accounting and governance issues within Choppies that came to light during the audit, resulting in, among other things, the commissioning of two independent investigations by the Choppies Board of Directors.

“PwC Botswana supports the work you did and will continue to defend the claim.”


www.moneyweb.co.za

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