Woollam on Tongaat latest: Auditors must be more Bloodhound, less Labrador

In a superbly researched Financial Mail cover story this week, editor Rob Rose leads one to the obvious conclusion that Tongaat CEO Peter Staude bet the proverbial farm – and the integrity of the group's financials – on a rebound in the sugar price that never came. That aligns with the view of former banker Dave Woollam, a CA, who blew the whistle after unpacking deficiencies accumulated over a decade in the Tongaat accounts. Woollam returned to Rational Radio this week to update us on the latest developments at the once iconic KZN business – and offer insights on the findings by Lord Donald Brydon's commission of inquiry in the UK which is examining how the auditing profession needs to change. – Alec Hogg .Dave Woollam believes the Tongaat story is "worsening" with the "only ray of hope" embattled shareholders and staff that new CEO Gavin Hudson and his team will produce an operational plan to return the business to profitability. Unfortunately, lots more dirt is likely to emerge as the forensic audit digs deeper, further damaging the reputation of a company whose credibility is "in tatters"..___STEADY_PAYWALL___.He dismissed a conspiracy theory doing the rounds in KZN that aggressive accounting treatment by Tongaat's new CEO and, in particular, his young CFO Rob Aitken are designed to cheaply deliver valuable assets to competitors. Aitken was formerly at Tongaat rival Illovo Sugar, which is owned by Associated British Foods..ABF has been earmarked as the most likely beneficiary of the Tongaat fallout especially if it is forced to offload valuable assets in Zimbabwe and Mozambique. Woollam rejects this talk, saying that he has interacted with and is impressed by Aitken "a very smart young guy with a lot of integrity.".On a broader scale, the impact of corporate disasters like Tongaat should not be under-estimated as they affect the overall risk premium investors demand from South African equities, something which "should worry all players in the market." The fault does not only lie with auditors, but the structure: the external auditing process which has become overly complex and lines of responsibility too vague..As a result of this, too much of the auditing process now involves judgement. To illustrate the point, Woollam said Saica's accounting standards handbook required to publish a company's set of financials now runs to about 2,000 pages..Such complexity, Woollam says, provides those wishing to manipulate the financial results "a really wide open field to play games and use their own superior technical knowledge to bully auditors into submission.".Woollam reckons the UK's commission into auditing practices, chaired by Lord Donald Brydon, is a step in the right direction..Among its recommendations are splitting a firm's auditing and advisory businesses; more accountability around the appointment of auditors and their independence; and ensuring there are two audit firms involved in public company audits – a Big Four firm and one of the smaller audit partnerships..Although he welcomes these moves, Woollam reckons a dollop of scepticism would go even further – "we need auditors to be more Bloodhound and less Labrador."

Woollam on Tongaat latest: Auditors must be more Bloodhound, less Labrador

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