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Listed Companies
The JSE’s IFRS Monitoring Processes – The Audit Committee’s Friend or Foe?
Linda de Beer
Chairman: Financial Reporting Investigation Panel
5th Annual Audit Committee Conference
(These are my personal views, not those of the JSE)► Why IFRS monitoring by the JSE?► The current IFRS monitoring regime?► Findings – current hot topics► What should audit committees do:
► When faced with a pro-active monitoring enquiry?► When a matter is referred to the FRIP?► To avoid IFRS non-compliance?
5th Annual Audit Committee Conference
Agenda
► 2001 World Bank review identified weakness in SA financial reporting structures, including lack of implementation monitoring ito accounting standards
► Therefore shortcoming in regulatory framework filled by JSE/SAICA initiative
► GAAP Monitoring Panel established in 2002► Reactive/complaints driven process► Mandate built into the JSE Listings Requirements at the time
5th Annual Audit Committee Conference
Why IFRS Monitoring by the JSE?
5th Annual Audit Committee Conference
Why IFRS Monitoring by the JSE?
5th Annual Audit Committee Conference
Why Monitor IFRS Compliance?
Listed companies: high
quality financial
reporting Confidence in SA
capital markets
Greater foreign
investment
WEF #1 Ranking
Overall benefit to SA
society
Pro-active monitoring (since 2011):► Reviews every listed company at least once in five years► Risk based approach – not full IFRS disclosure checklist,
but focus on areas where:► Specific accounting standard concerns exist► Consideration of issues driven by business environment► Matters peculiar to entity circumstances
► Collaboration with UJ► Communication with issuers
5th Annual Audit Committee Conference
Current IFRS Monitoring Regime
Financial Reporting Investigation Panel:► Advices JSE on possible non-compliance with IFRS, e.g.
► Complex technical matters► Disagreement between the JSE and issuer on a specific matter
► 16 panellists from preparers, auditors, academics, etc.► Review committee formed per case:
► +/- 5 panel members without conflict► Names not disclosed to JSE or issuer
► Short turn around time (+/- 1 month)
5th Annual Audit Committee Conference
Current IFRS Monitoring Regime
2011 2012 2013 2014
Letters of query 40 68 59 67
Cases closed immediately 16 14 19 18
Number of AFS reviewed 56 82 78 85
5th Annual Audit Committee Conference
Pro-active Monitoring Stats
Analysis of cases closed 2011 2012 2013 2014
Forced corrections (restatement, correction in next year, etc.)
14 19 18 23
Smaller disclosure issues 15 28 33 36
No issues, but potential areas of improvement
16 31 33 25
5th Annual Audit Committee Conference
Pro-active Monitoring Stats
► Approximately 60 cases since inception in 2002► Positive trend over time iro blatant disregard for IFRS► Positive trend over time that deterrent role is fulfilled► Conclusion that matter is not material / needs not
correction – very rare
5th Annual Audit Committee Conference
FRIP Stats
► Slopping/inconsistent drafting and disclosure► Presentation of financial statements (IAS 1) – accounting
policies, lack of disclosure of significant judgments► Cash flow statements (IAS 7)► Income taxes (IAS 12)► Earnings per share (IAS 33) and Headline Earnings Circular► Financial Instruments (IAS 32, IAS 39, IFRS 7)► Impairment of assets (IAS 36)
5th Annual Audit Committee Conference
Findings – Current Hot Topics
► What are you doing to ensure IFRS compliance:► Cannot only rely on auditors► Must have in-house company skills► Cannot only rely on auditors and FD► Need IFRS skills on audit committee► If in doubt, consult
► Be aware of issues identified in annual pro-active monitoring report
► Be aware of new and complex IFRS areas
5th Annual Audit Committee Conference
Audit Committee Response
► If pro-active monitoring enquiry is made:► Be honest – results in consistent answers► Consult where needed► Put corrective action in place
► If elevated to FRIP:► Take it seriously► Be open/transparent/honest► Put corrective action in place
5th Annual Audit Committee Conference
Audit Committee Response
5th Annual Audit Committee Conference
The Audit Committee’s Friend or Foe?
?