Defence advocate Francois van Zyl said Shaik had been unaware of the entries in his annual financial statements for the year ending February 1999 *1 until he received the resignation later of his accountant Celia Bester. In her letter Bester wrote: "I do not agree with the way Paul has handled your individual income and the so-called development costs, which he has written off."

Shaik has been charged with fraud for the write-off *2 of R1,2 million as Prodiba Development costs, the selling of the workshare agreement *2 of Kobifin to KobiIT which resulted in a profit of R3,5 million, and the creation of a non-distributable reserve *2 as well as the revaluation of assets *2.

However, Anthony Gibb, an accountant with the auditing firm David Strachan and Taylor, said he was instructed to make the above journal entries by his seniors, and that had the write-off not happened the company would have suffered "a substantial loss".

Taking into account the accumulated loss of R1,4 million and the recoverability of loan accounts in the names of Shaik, Clegton Investments and Floryn Investments the company would otherwise have been "technically insolvent." Gibb said there was no acknowledgement of a loan document from Shaik relating to his loan account.

He said he put the entries of the workshare and development cost write-off "above the line *2" in the books but was told to put it "below the line *2" by the audit partners. However, this would not have made a difference because it was not taxable income.

Shaik has pleaded not guilty to two counts of fraud and one of corruption. Gibb's testimony relates to the second count of fraud.

Prodiba is the contract which Shaik's company and others won to manufacture South Africa's credit card style drivers licences.

Last week Bester told the court there were no Prodiba-related development costs because their workshare in the contract was only to provide the staff.

On Monday Gibb said he had been instructed on what journal entries to make by audit partners *2, Paul Gearing and Ahmed Paruk, but despite carrying out their orders, he "did not understand the rationale behind it".

He told the court he believed the audit had been conducted according to generally accepted accounting practices. "Everything I did was to the best of my ability *5 in terms of a professional working audit" said Gibb.

Although all steps in the auditing process were normally discussed with the client, Gibb said he had only attended one such meeting where the audit partners and Shaik were present. He could not remember whether the write-off was discussed at that meeting. However they did discuss the reduction of Phambili Gama's salary from R180 000 to R24 000.

At the end of an audit, the audit documents were signed off and sent to the company for the directors or accountants to countersign. In the case of Kobifin the auditors signed off the documents without qualifying why the entries deemed "irregular *4" by the state were made.

The defence previously said Shaik had left the books of his company in the hands of his accountants and auditors who had advised him and that they were responsible for all entries.

Gibb started his testimony on Friday by taking the court through the various documents used during an audit. He continued on Monday by saying Kobifin was considered medium risk in errors from an audit point of view.

He said the company was solvent but unprofitable because of the high cost of tendering for different projects. At the time he was assigned to do the audit Shaik was regarded as a controversial client because of his political ties.

On Tuesday another state witness, Dawid Griesel from Armscor, is expected to take the stand.

With ackowledgement to Wendy Jasson da Costa and Sapa.

*1 This was a very significant period - the year of the Aap *2.

*2 Accounting According to Aap (AAA) *3.

*3 Aap = Ape = Accounting Practice for Enrichment (APE).

Sorry.

*4 Does one get much more irregular than this, Gaap?

*5 Desperately avoiding PAAB *6.

*6 Should anyone have any further queries regarding the administration of GAAP, they can contact :

Caroline Garbutt or Jane O'Connor at the Public Accountants' and Auditors' Board (PAAB).

Jan Dijkman of the South African Institute of Chartered Accountants (SAICA)
Telephone: 011 621 6600; Fax: 011 622 3321