Botswanan supermarket chain Choppies is suing accountants PwC for refusing to sign off on its 2018 accounts. The refusal led to Choppies’ share price falling and its suspension from stock exchanges in Botswana and Johannesburg. Choppies is seeking R653m ($39.2m). The move has come as CEO Ram Ottapathu and founder Ismail Farouk reassert control over the company.
Choppies is suing PwC in High Court in Gaborone. It alleges that one reason PwC didn’t complete the audit was to pressure the company to hire PwC partner Rudi Binedell as Finance Director. Binedell was the Chair of the Botswana Institute of Chartered Accountants (BICA) between 2016 and 2018.
After 10 years, KPMG was dropped as Choppies auditors in January and replaced by PwC. PwC has claimed that there were systemic problems in Choppies’ financial reporting. Binedell has gone on record criticizing Choppies’ financial reporting.
Choppies released its results for the year ended 30th June 2018 in December 2019 and eventually appointed Mazars in February 2020. It then released its FY2019 results in July 2020. For the 2018 results, PwC has said that there were several issues that prevented them from obtaining sufficient and appropriate audit evidence as required by International Standards on Auditing. After the publication of the 2018 results Choppies remained suspended from both stock exchanges. It has resumed trading on the stock exchange in Botswana. Trading has still not resumed on Johannesburg’s JSE.
It has been a tumultuous period for Choppies, which saw CEO Ottapathu suspended from the company he built (although it emerged he did not entirely step away) amid allegations of financial wrongdoings. Ottapathu subsequently returned and won a boardroom battle that saw the Choppies board stacked with allies. Choppies has since sold all its stores in South Africa to shell company Kind Investments (headed by local entrepreneur Rayhaan Hassim), and exited Kenya, Tanzania and Mozambique.
The Choppies lawsuit is a typically bullish play by Ottapathu, who always asserted that he would regain the helm of Choppies and come back fighting. In its latest results, Choppies has revealed that for the year to June 2020 fit grew its revenues by 1%, increased gross profit by 3% raised its gross margin from 22,7% to 23,1%.
To us, the lawsuit feels far fetched and it’s not clear that Ottapathu or Farouk Ismail want to achieve. There seems little doubt that there were significant issues with Choppies’ FY2018 financial reporting. Enough for PwC to step away very early in its relationship with Choppies, for Choppies to take more than a year to issue the results, and for the company to struggle to appoint new auditors for almost 18 months afterwards.
If PwC did want to put Binedell on Choppies board, we wonder if Ottapathu is seeking to embarrass PwC or some other party for why it might have wanted Binedell in Choppies.
But this is speculation. We don’t believe Choppies really wants its financial laundry aired in public again and if it were, KPMG will be pulled back into the frame for the quality of its auditing over that ten year period.