Tears flowed, staff members were allowed to knock off early and management encouraged the use of counselling services in painful behind-the-scenes events at KPMG South Africa last weekend, as the auditing firm counted the cost of its 14-year association with the Guptas, which threatens to push it to the brink of collapse.
That the company faces an uncertain future became apparent to employees when they attended a staff briefing at its Parktown offices.
Usually, staff briefings at the firm are dull events and employees prefer to skip attendance and follow updates from the comfort of their work stations.
But this briefing was a sold-out affair.
Staff members filled two auditoriums at Wanooka Place and Crescent to listen to an address by three senior executives on the troubles faced, the leadership changes and the new and difficult path it would have to walk.
"People were crying and we were allowed to knock off early and management also encouraged us to seek counselling services," an employee said.
"It was just a cloudy atmosphere. There is concern that if the firm becomes smaller, people will have to leave.
"If there are no clients, there might be a need to let go of staff. So everyone is wondering if clients will stand by us. Does one jump ship now and start looking for a job elsewhere?"
Four officials - a KPMG International representative, a KPMG South Africa board member, new CEO Nhlamu Dlomu and her predecessor, Trevor Hoole - took to the stage at the staff briefing.
The KPMG International representative set the ball rolling and announced the findings of the parent company on the work done, and condemned it for falling short of expected standards.
The buck was then passed to the board member, who announced the resignations of the firm's top brass and named the new appointees tasked with leading the company's turnaround.
In her inaugural address, Dlomu urged her troops to be strong at this difficult time.
"But the former CEO, Trevor Hoole, didn't speak. You could just see that it was all too much for him. He just stood there," said the KPMG employee.
Series of missteps
At the heart of KPMG's pain is its association with the Gupta family, but the latest misstep by the South African unit adds to a growing series of scandals that have plagued its wider global operations.
It has fumbled in the US, where it was fined $6.2-million (about R82-million) last month for the gross overvaluation in 2011 of the assets of Miller Energy Resources, an oil and gas company.
Before that, six of its employees in the US - including the head of audit - were fired for having had advance warnings of inspections by the US accounting watchdog.
In May, the UK's Financial Reporting Council launched an investigation into KPMG's role in the cover-up of Rolls-Royce accounts between 2010 and 2013.
Richard Murphy, professor of practice in international political economy at City University of London and director at Tax Research, said that although KPMG had set itself up as different firms in different locations to avoid financial risk, reputational risk would still stick to the brand.
"KPMG can't just say KPMG South Africa is not part of KPMG as a whole when it suits it, as it might do now, but have it looking like every other part of KPMG on every other occasion.
"The risk that KPMG will suffer global reputational risk is real in that case," Murphy told Business Times.
"KPMG is, for example, under considerable scrutiny over its audit practices in the UK and maybe the risks of moral hazard and undue influence it might have had there too. It's rare that an event is a tipping point in itself - even Enron built on other concerns about Arthur Andersen - but this case is serious for KPMG."
Global accounting watchdogs do not appear to be swooping in just yet on KPMG over the "unethical work" done by its South African unit and the overall effect this was likely to have on the auditing profession.
David Bowden, spokesman for the Association of Chartered Certified Accountants, said it would be inappropriate to comment given that a regulator was looking into the matter.
Peter Timberlake, head of communications at the UK's Financial Reporting Council, told Business Times in an e-mail thatit "has been aware and in contact with KPMG and relevant regulators and continues to monitor the situation".
A modern-day Enron
The woes of KPMG have brought back memories of the demise in 2002 of Arthur Andersen, the 90-year-old Chicago auditing firm that once was a member of the global "big five" auditing firms.
It gave up its licence to the US Securities and Exchange Commission after its involvement in the cover-up of Enron's books.
Before then, it already had a string of accounting scandals with Sunbeam Corporation and Waste Management Inc - before the ultimate fall from grace.
Where once it had a workforce of about 85000, these days it is a small unit of about 200 people.
Its global assets and operations were sold off to the big four; PwC, Deloitte, EY and KPMG. In South Africa, KPMG bought Andersen's assets.
Industry commentators said a collapse of KPMG's local unit would likely have far-reaching consequences for the stability of the financial services sector in South Africa, which relies on the services of the "big four" as joint auditors.
"If this had to happen [collapse] then the scale of risk to KPMG increases. That's because they cannot afford to not have a South African partner; that will seriously impact their business elsewhere and harm their role in the audit market, which is already vulnerable," said an industry expert.
"They are the smallest of the big four and the message it would send out would seriously add to the reputational damage. I am sure they are working like fury to avoid this.
"If it happens, KPMG will probably fall far behind its competitors."
Second-tier black-owned audit firms such as SizweNtsalubaGobodo are tipped to be the next in line to benefit from the demise of KPMG South Africa. When KPMG dropped Oakbay last year, SizweNtsalubaGobodo stepped in as auditors.
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