On an October Monday morning four years ago, Richard Boro Ndungu, a partner at audit firm KPMG Kenya, was informed by the chief executive that an investigation was being launched over his conduct.
The CEO, Josephat Mwaura, asked him to hand over his mobile phones and laptop so they could be forensically imaged to determine whether allegations that Mr Ndungu had engaged in misconduct were true.
The exchange kicked off a chain of events that led to the partner’s ouster from the firm and a protracted legal suit that has revealed the cushy perks of senior executives in the ‘Big Four’ audit firms.
Other firms that dominate audit jobs locally are Pricewaterhouse Coopers (PwC), Ernst and Young, and Deloitte. Read More
Last month, the High Court ruled that KPMG Kenya was liable to pay Ndungu at least Sh257 million in lost profit as well as general and special damages.
While KPMG could appeal the decision in coming weeks, the legal fray has thrown the curtain open on the earnings by top executives of large firms that audit the country’s listed companies.
In the first place, the income of the Big Four have been shrouded in mystery. The firms are not listed on the Nairobi Securities Exchange (NSE) and are thus not compelled to publish their annual financial results.
At the same time, their registration status as limited liability companies means they are shielded from much scrutiny and regulatory demands on public filing from the Capital Markets Authority (CMA) compared to listed firms.
However, a back-of-the envelope computing of the audit fees paid by listed firms paints a picture of huge revenues earned by the firms.
For example, in 2019, the top four listed firms – Safaricom, KCB Group, East African Breweries and Equity Bank – paid a combined Sh193 million in fees to the top audit firms.
These earnings are cascaded down the company hierarchy with the top executives earning a slice of profit from each audit gig, as well as generous bonuses periodically depending on the performance of the business.Before Richard Ndungu vs KPMG Kenya reached the High Court, the parties went before a court-appointed arbitrator to settle the dispute.The arbitrator awarded Ndungu over Sh450 million in general damages, including Sh97 million in earnings for the period between September 1, 2015 and August 31, 2017, plus Sh32 million in profit share.Ndungu also sought to be refunded Sh1.9 million in personal expenses he said he incurred in the […]