2. Listed Companies

3. The JSE’s IFRS Monitoring Processes – The Audit Committee’s Friend or Foe? Linda de Beer Chairman: Financial Reporting Investigation Panel 5 th Annual Audit Committee Conference

4. (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? 5 th Annual Audit Committee Conference Agenda

5. ► 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 5 th Annual Audit Committee Conference Why IFRS Monitoring by the JSE?

6. 5 th Annual Audit Committee Conference Why IFRS Monitoring by the JSE?

7. 5 th 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

8. 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 5 th Annual Audit Committee Conference Current IFRS Monitoring Regime

9. 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) 5 th Annual Audit Committee Conference Current IFRS Monitoring Regime

10. 2011201220132014 Letters of query40685967 Cases closed immediately16141918 Number of AFS reviewed56827885 5 th Annual Audit Committee Conference Pro-active Monitoring Stats

11. Analysis of cases closed2011201220132014 Forced corrections (restatement, correction in next year, etc.) 14191823 Smaller disclosure issues15283336 No issues, but potential areas of improvement 16313325 5 th Annual Audit Committee Conference Pro-active Monitoring Stats

12. ► 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 5 th Annual Audit Committee Conference FRIP Stats

13. ► 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) 5 th Annual Audit Committee Conference Findings – Current Hot Topics

14. ► 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 5 th Annual Audit Committee Conference Audit Committee Response

15. ► 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 5 th Annual Audit Committee Conference Audit Committee Response

16. 5 th Annual Audit Committee Conference The Audit Committee’s Friend or Foe? ?