Since the implementation of the JSE’s Auditor Accreditation model in 2009, the landscape of financial reporting has experienced a continuous evolution. From the introduction of International Standard on Quality Control 1 (ISQC 1) to the strengthening of corporate governance and financial reporting requirements through the Companies Act, advancements have been significant. Audit regulators, led by the Independent Regulatory Board for Auditors (IRBA), have championed initiatives to ensure audit quality, transparency, and ethical standards. Meanwhile, the JSE has steadfastly monitored financial reporting by listed companies to identify potential issues, subsequently introducing additional responsibilities for audit committees and specific management responsibility for the internal financial control environment.
Now, the winds of change blow stronger as the JSE’s proposed amendments for the removal of mandatory accreditation requirements of audit firms, reporting accountants, reporting accountant specialists and IFRS advisors for audit firms registered with the IRBA (or similar regulatory body) are out for public comment.
Brace yourself for a transformative era in financial reporting!
- Accreditation requirement: The requirement for Auditor Accreditation, together with section 22 of the Listings Requirements (Accreditation of Audit Firms, Reporting Accountants, Reporting Accountant Specialists and IFRS Advisers to provide accounting and / or advisory services to applicant issuers) has been removed.
- Auditor definition: The definition of the auditor has been amended to reference both the audit firm and the individual auditor assigned or appointed to perform audits, reviews of financial statements, or other assurance engagements for an issuer.
- Removal of specific roles: The concepts of ‘IFRS adviser’, ‘reporting accountant’, and ‘reporting accountant specialist’ have been eliminated. These definitions have been removed.
- Notification requirements: Notifications regarding the appointment, termination, non-reappointment, or resignation of the auditor must be submitted to the JSE within two business days of the event. In cases of termination, non-reappointment, or resignation, the auditor must provide a letter stating the reasons therefore and details of any reportable irregularities reported to its regulator within the past 12 months. Upon notification to the JSE, the issuer is required to publish an announcement on the Stock Exchange News Service (SENS).
Appointment of auditors: When appointing its auditor, an issuer must ensure that:
- its assurance engagement letter requires immediate notification if the auditor is prohibited from signing the audit report or is no longer registered with its regulator;
- the auditor demonstrates the necessary resources for the engagement;
- the auditor is not prohibited by its regulator from performing the engagement;
- in cases where the assurance engagement is performed as outlined in paragraph 8.45 of the Listings Requirements (ie. reports of historical financial information, pro forma financial effects/financial statements, profit forecasts/estimates and special property forecasts), the auditor can sign the relevant assurance opinion if they have either recently performed a similar engagement or have completed JSE approved training and passed an examination in the last 12 months. However, if the auditor does not meet this criteria, the issuer must appoint an additional individual auditor who fulfils these requirements.
Pursuant to the proposed changes, the responsibilities of the audit committee, in addition to their duties under Section 94 of the Companies Act, require the audit committee to consider certain information when assessing the suitability of appointing an auditor. This information includes:
- the latest results (including related remedial action plan) of all inspections performed by its regulator. The audit committee may accept reports with redacted specific entity provided this does not limit the understanding of their content;
- any new inspection results performed by its regulator between the dates of appointment of the auditor and signature of the audit report on the annual financial statements;
- a summary, by the auditor, of the ongoing communication related to monitoring and remediation as outlined in paragraph 46 of International Standard on Quality Management 1 (ISQM 1); and
- a summary of any completed or pending legal or disciplinary proceedings, as determined by the head of risk or a person with similar authority within the past seven years. Legal or disciplinary proceedings encompass those instituted through any legislation or by any regulatory or professional body.
These responsibilities highlight the audit committee’s role in considering relevant information related to the auditor’s performance, ongoing communication, and any legal or disciplinary proceedings, contributing to effective oversight and decision-making regarding auditor appointments.