The Institute of Certified Professional Accounts of Kenya (ICPAK) is investigating directors of Ernst & Young (EN) for allegedly cooking books of accounts of the collapsed Uchumi Supermarket.
According to the accountants’ watchdog, the directors at the firm reviewed Uchumi’s audit reports of 2014 and 2015 amid claims the audit firm abetted fraudulent transactions involving the retailer’s former managers amounting to over Sh1.9 billion.
“We are doing our independent probe on the EY directors who were involved in the exercise. The matter is before the disciplinary committee of ICPAK but I cannot disclose the number of individuals because this will be pre-judicial,” ICPAK chief executive officer Edwin Makori said.
However, Makori did not give timelines on when ICPAK is likely to complete the disciplinary hearings.
This comes after the Capital Markets Authority (CMA) was given a greenlight by the Court of Appeal to investigate the firm over the fraudulent claims.
This is after the audit firm failed to demonstrate that the CMA breached its right to fair hearing when it summoned E&Y executives in 2016 to shed light on Uchumi’s 2014 and 2015 audit reports, following a probe by KPMG.
A forensic audit report by KPMG showed that Uchumi’s accounts for financial years 2010 to 2014 prepared by E&Y as the retailer’s auditors at the time contained misleading information.
The capital markets regulator also claimed the audit firm may have knowingly allowed the publication of untrue figures in an information memorandum used in Uchumi’s 2014 rights issue that raised Sh1.6 billion, more than the Sh896 million target.
The audit firm is in the spotlight for questionable asset sale and leaseback deals totalling Sh1.1 billion and spending of Sh895 million raised from a rights issue in 2014.
A Sh350 million asset sale and leaseback deal with RentCo East Africa is one of those highlighted in the suit papers.
Additionally, the CMA says details of Uchumi’s financial standing were faked in the information memorandum published to the public during the 2014 rights issue.
If E&Y is found guilty, it will be required to compensate investors who acquired Uchumi shares based on the discredited prospectus, and restrictions in auditing listed firms.