Listed Companies

The JSE’s IFRS Monitoring Processes – The Audit Committee’s Friend or Foe?

Linda de BeerChairman: 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?

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