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Sat 9 Mar 2019 01:00 AM

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No time to slow down: KPMG Lower Gulf's Nader Haffar

Despite fallout from the Middle East's biggest financial scandal in over a decade, the CEO of KPMG Lower Gulf, Nader Haffar, says his company needs to move ahead at full speed

No time to slow down: KPMG Lower Gulf's Nader Haffar
Haffar has previously studied at Harvard and Columbia and is a 25 year advisory veteran

As soon as Arabian Business sits down with Nader Haffar. it is obvious he knows there is a big elephant in the room. KPMG as a company is “healthy and growing”, the accountancy firm’s CEO in the UAE and Oman, tells us. All very well, but we need to address some bigger issues first.

“We have 1,200 employees right now, we’re training 90 Emiratis to be auditors and might possibly train 500 more, we’re posting double-digit growth in the UAE, even more if you account for KPMG across the region, and we’re considering moving all our employees into a larger space in One Central. Basically, KPMG is healthy, touch wood.”

We work with multi-billion dollar organisations that want to improve themselves, or get out of troubled waters

These are all highly commendable and are normally high on the agenda, but not this time.

“Do we have to?” he quips when asked about what happened with the spate of bad news the firm encountered last year. But he doesn’t evade the questions. “I know you have to ask,” he says.

The firm last year found itself awkwardly, and some would say curiously, standing amid the wreckage of what used to be Dubai’s star private equity investor and the developing world’s largest, The Abraaj Group.

KPMG is the smallest of the Big 4 accounting firms that audit the vast majority of all listed companies globally

Making matters worse, in an unrelated development, Oman’s Capital Markets Authority in November suspended the firm from pursuing new clients for “major financial and accounting irregularities” in accounts which KPMG had audited three years earlier.

With all that on the table, few other CEOs in his position would allow themselves to speak so freely about what could best be described as a challenging time for an organisation. But Haffar is either terrifically media-trained or bulletproof in his conviction: “Professional services are high-risk. Something is constantly going wrong, everywhere, all around the world. It’s because we’re always in the thick of it. We work with multi-billion dollar organisations that either want to improve themselves, or get themselves out of troubled waters. That’s the environment we work in, and you better love it if you choose to be in it.”

In an innovative environment you might have a situation, whether at KPMG or any other firm, that an employee did not do the right thing

Industry heavyweight

There’s truth to Haffar’s statement about professional service providers as stewards for the world’s biggest companies. Collectively known as the Big 4, KPMG, PwC, Deloitte, and EY (formerly Ernst and Young) provide financial auditing services for more than half of the world’s listed companies including 95 percent all of listed companies in the US and the UK. In 2018, they generated upwards of $148bn in revenue, roughly the equivalent of the GDP of Kuwait.

There’s also truth to them courting controversy everywhere in the world. Outside of the Gulf, KPMG is under scrutiny in the UK, where the Financial Reporting Council has said the quality of the firm’s services have “deteriorated unacceptably”. Its competitors are facing the music too; PwC bungled up its envelopes so badly at the Oscars in 2017 that the wrong movie ended up announced as Best Picture winner. At the same time, Deloitte has been fined a total of $2.5m this year for compromising the independence of its audit statements, stemming from Malaysia’s 1MDB bank scandal, and three years ago EY paid $9.3m in fines in the US because of “improperly close friendships” with senior executives at a client’s firm in New York.

After taking 16 years to build a $14bn business, financial malfeasance allegations unravelled Arif Naqvi’s Abraaj in just three months when it filed for provisional liquidation in June 2018

Appointed in October, three months after Abraaj had filed for provisional liquidation, Haffar as chief executive plays in equal parts the role of a statesman, defense counsel, and change agent. He’s not an auditor by forte; his specialty is advisory services, or management consulting as it is known outside the industry. And the primary reason anyone hires consultant is because through top-notch business school smarts and a lifetime of carrying an external point of view, hey “improve businesses, or get them out of the woods,” says Haffar.

“In an innovative environment you might have a situation, whether at KPMG or any other firm, that an employee did not do the right thing,” he says. “But you have to see how a firm responds, because that is very indicative of how it plans to move forward. At KPMG, for instance, it isn’t a cliché for us, that anything that does not sit well with our values is a no go.”

The audit function used to be the Big 8, the Big 6, then the Big 4. And it all changed for very good and fundamental reasons

He’s also quick to defend the profession even as it operates across KPMG’s competitors. “The audit function is going through a lot of changes. It used to be the Big 8, then the Big 6, then Big 4. And it all changed for very good and fundamental reasons. In the environment right now, the demand on quality and transparency is growing. And we understand that, we are transforming our business to make sure we can cater to this. The profession itself is historically very challenging, and was so particularly in 2018. But we are fully transparent and cooperating with all organisations to help us come to a very clear understanding of what’s happening,” he says.

KPMG itself has initiated a review into its audit practice and related corporate governance standards to determine how best to avoid incidents of the nature last year, where it’s statements have been accused of missing details that could have helped detect the alleged breach of fiduciary trust at Abraaj earlier, thus preventing its spectacular implosion. The firm’s global leadership is also vocal in saying it needs to improve the quality of its audits.

Auditing is a high-risk profession where decimals of difference carry significant weight, says Haffar

“So far, I can share that none of the reviews we’ve had to go through highlighted any major issues for the firm,” he says. “We’re quite comfortable with our position and continue to be transparent and cooperative. The review is still going on, it’s very detailed and rigourous. But we continue to be assured about our position.”

Unfortunately, in the region, a key issue the profession faces is that, unlike in the US, where after the 2002 Enron Scandal and subsequent decimation of accounting firm Arthur Anderson the Public Company Accounting Oversight Board now regulates auditors, firms here are only loosely regulated by guidelines from the Abu Dhabi Accounting Board and Dubai Financial Services Authority (DFSA).

I don’t think the competition would enjoy, as we would not, to see our profession not doing well

It’s a key factor towards why skittish investors are even more averse to providing private equity-based financing in a region that already ranks among the weakest markets in the segment in the world. Only recently, after exhaustive investigations, is the DFSA taking further steps “to strengthen our supervisory oversight going forward,” it recently said in a statement.

It isn’t unreasonable to expect that only a handful of professionals would call for more oversight of their industry, be they auditors or management consultants. Haffar is of a similar opinion when he insists that it is in the best interest of the firms in the business to stick to best practices in the industry.

Dubai Financial Services Authority (DFSA) has begun tightening its guidelines for regulated auditors in the UAE

“I think it’s important for the profession to continue to focus on quality and address issues of transparency and move forward. I don’t think the competition would enjoy, as we would not, to see our profession not doing well. We all hire the best talent to operate very successful organisations led by very smart people. The profession is in good shape, it just needs to reinvent itself,” he says.

Moving forward

The firm, according to him, continues to “maintain the confidence of financial services organisations and leaders around the world, something that continues to grow for us. That’s why it is anticipating double digit growth over the next four years and why it has “no reason to slow down.”

We’re quite comfortable with our position and continue to be transparent and cooperative

The question of “improving on quality and addressing issues of transparency” continues to loom as the company tries to move forward, according to Haffar. “But if that means we need to work harder for our clients, well then so be it,” he says. “That’s what we do for a living. And there is no time for us to take a backseat.”

Enron’s collapse in 2002 is what spurred the Big Five accounting firms to shrink to just four

Only 16 regulated firms are permitted from auditing publicly listed companies in the UAE

KPMG Lower Gulf includes the firm’s audit, tax and advisory operations in the UAE and Oman

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