Two senior executives at Botswana supermarket chain Choppies Enterprises Ltd. are suing former auditors PwC for 653 million rand ($40 million) for not signing off on the company’s 2018 accounts, which led to a share price collapse.
Choppies Chief Executive Officer Ramachandran Ottapathu and Executive Director Ismail Farouk allege that PwC didn’t complete the audit in part to pressure the company to hire PwC director Rudi Binedell as head of finance, according to a statement issued on behalf of the directors. The duo filed the lawsuit at the High Court in Gaborone, Botswana’s capital.
Choppies said in September 2018 that it was working with PwC to assess a number of past accounting practices, including around previous acquisitions, that needed independent verification and legal analysis. That would delay the release of earnings, the retailer said.
“PwC confirms that it is currently embroiled in legal proceedings with two directors of our erstwhile client, Choppies Enterprises, which action is defended by PwC,” Gaborone-based director Binedell said in an emailed response to questions. “Out of respect for the court’s process we do not believe it appropriate to comment publicly.”
While the lawsuit criticizes PwC for being too tough on a client, auditing firms around the world are more often being scrutinized for taking to long to uncover fraud, such as at German payments giant Wirecard AG. In South Africa, the role of accountants was questioned amid the scandal that led to the near collapse of retailer Steinhoff International Holdings NV in late 2017, while KPMG’s work with a family found to be involved in state corruption was also heavily criticized.
PwC’s decision had far-reaching consequences for Choppies, which was suspended from Johannesburg’s stock exchange after the earnings delay. Ottapathu was ousted for his role in the debacle, but was reinstated after a probe by Ernst & Young found that he had done nothing wrong.
The shares lost about two-thirds of their value between September 2018 and their suspension on Nov. 1 of that year. The stock is still not trading in South Africa, but was reinstated on the Gaborone Stock Exchange in July. Ottapathu and Farouk are both shareholders.
“There was such a drop in share price due to the delay announcement,” Ottapathu said by phone. “That is the damage that we are claiming.”
Following the accounting issues, Choppies sold supermarkets in South Africa and said it will focus on expansion in Botswana. PwC was replaced as auditor by Mazars, which holds the same role at Steinhoff.
— With assistance by Janice Kew, Tony Aarons, and Peter Chapman