More change looming

Dr Len Konar, chairman of ORCA, talks about what can be expected in terms of corporate governance in the days ahead.

“South African corporate failure is a necessary event in business,” says Konar, “and it could be due to the exchange rate, and poor strategy.”

He was speaking at the annual IoD business update conference in Gauteng recently.

Auditors have been seen to be the last line of defence and disgruntled investors starting to say that they should be suited. In the US and UK there is a move to cap there liability.

In the UK there is a move to cap the liability of auditors to twice the fee where there is a failed entity. Added to which Europe is not convinced about quarterly reporting as is the case in the USA.

The idea of more than one auditor is not going down well in Europe, something that is gaining acceptance in Europe and the USA, which highlighted the need for internal auditors in most businesses.

Konar also said that Deloitte and Touche is now the number one accounting firm, which highlights the globalization of accounting firms, no longer associations.

In the EU there are moves afoot that will make it essential that audit firms would also have to be rotated every seven years, while audit partners would be rotated every five years – if the EU gets its way.

The question of directors’ remuneration was touched on, with the EC who put out a paper covering disclosure, and the JSE has also issued some recommendations.

Audit fees are going to be increased in direct proportion to the amount and level of documentation required for international accounting purposes, and he claims that this could increase by as much as 10% to 15%, very shortly.

The NYSE has come out with proposals concerning empowered boards, as has the UK. Boards are only effective if the board is small and cohesive, with skills and can communicate effectively.

Boards should also meet without management present, with a reporting structure in place to report back to management.

Locally there is a recommendation that the board meets with the audit firm once per annum, which has been put to the local Minister of Finance.

The big issues concern the right strategy; enterprise risk management (what’s holding the business back); looking at the risk indicators; earnings management (prudence – Nedcor and their R1.6bn adjustment); fraud and illegal acts (whistleblower policy); the financial reporting environment; complex corporate structures (enron); and specialized and regulated industries.