Automated compliance is a bottom-line benefit

South Africa has an unpleasant reputation of being a crime-ridden society. Despite this image, when it comes to corporate governance and securities regulations, the country does not have to take a back seat to anyone.

The Johannesburg Stock Exchange (JSE) is home to over 400 companies which produce financial statements every six months for the perusal of stockholders and other interested parties. To prevent any misrepresentation or hiding of the facts of the status of a company at a point in time, the JSE will be taking steps to ensure its listed entities’ financial statements comply with the globally recognised International Financial Reporting Standards (IFRS).

IFRS “are principles-based Standards, Interpretations and the Framework (1989) adopted by the International Accounting Standards Board (IASB)”. It is driven by the need for more transparency and comparability among companies in a global economy. These principles state that a financial statement “should be a true and fair representation of the business affairs of the organisation. As these statements are used by various constituents of the society / regulators, they need to reflect the true view of the financial position of the organisation”^[1].

To ensure its listed companies meet these high standards, the JSE has announced that the financials of every company will be reviewed at least once every five years. This is in addition to existing review mechanisms that are already employed to deal with complaints and queries.

In its announcement of this new proactive reviewing policy, the JSE said, “This additional monitoring will give shareholders the benefits of a better regulated market. ... The JSE will drive the process with the Financial Reporting Investigation Panel (FRIP) and the initial assistance of the University of Johannesburg. In due course the review process may be expanded with the assistance of other universities.”

Ross Hampton, director for CQS says the onus is now on listed entities to make sure their financials meet the IFRS standards.

“This means retaining additional staff with the appropriate skills to dot every i and cross every t, as well as continually ensuring they stay abreast of the latest requirements of the framework,” explains Hampton. “Alternatively, businesses can invest in financial software designed to ensure their reports meet these standards as the norm.

“In other words, using specialised software guarantees that instead of wasting expensive skills on checking reports, your skills can be put to use doing something that adds value to the company while the software ensures compliance with standards.”

The IFRS provides shareholders with the assurance that the results they receive are reliable and the markets are well regulated. This makes Enron- and WorldCom-style disasters less likely to happen. In the case of the JSE, it will support the award the organisation recently received for “the best exchange in the world through regulation” in the World Economic Forum’s Global Competiveness Report 2010-2011.

“Using software designed for reporting purposes does not negate the need for companies to hire the appropriate expertise to run their finance and auditing functions,” continues Hampton. “It simply means high-value employees are employed in high-value enterprises that assist the company in meeting its financial and business goals.”