Johannesburg, 15 December 2017 – South Africa has adopted International Financial Reporting Standards (IFRS). These are global financial reporting standards developed and approved by the International Accounting Standards Board (IASB), an international, independent private sector body. The IASB has a robust and transparent due process, detailed on its website, of how these standards are developed and approved.
In recent SAICA roadshows I reminded our chartered accountant CAs(SA) members that “the accountancy profession exists to support and sustain financial markets, economies and for the majority of the active members of society, their very livelihood”.
In a subsequent communication to SAICA members on 3 November 2017 I asserted that “the financial reporting standards, on which the profession gives valuable input, ensure credibility and sustainability of corporates. In turn, shareholders receive value for their investment. Furthermore, this creates an investor-attractive environment for the country. Our quality of work and reporting sustains our financial markets. For citizens, this means job creation and an improvement in people’s living conditions. Our corporate reporting is of a global standard, meaning that CAs(SA) contribute to a country’s sustainability”.
With recent developments once again affecting our profession, one may ask whether I still believe in the statements made above. The answer is a resounding “yes”. Why?
South Africa has adopted International Financial Reporting Standards (IFRS). These are global financial reporting standards developed and approved by the International Accounting Standards Board (IASB), an international, independent private sector body. The IASB has a robust and transparent due process, detailed on its website, of how these standards are developed and approved.
Significantly, prior to a standard being issued, input is obtained from a number of jurisdictions’ standard setters, professional member bodies and business. Therefore, IFRS standards adhered to, applied appropriately and correctly and backed by good intentions, will generate credible financial reporting. Importantly, the majority of accountants, finance functions and finance heads endeavour to adhere to these credible statements. Why? If this was not the case, then our financial markets, our economy and the livelihoods of the majority of active members of the economy would be in total chaos. We know, through past and recent events, the scale of chaos an accounting scandal can cause even if committed by a few entities or individuals.
South Africa’s King IV governance code recommends a governance practice for the combined assurance model, which incorporates and optimises all assurance services (internal control, internal audit, external audit, risk management) and functions. If these services are functioning appropriately, an effective control environment is enabled. The integrity of information used for decision-making by management, the governing body and its committees, and the integrity of the organisation’s external reports, would thereby be supported by effective processes.
The Johannesburg Stock Exchange (JSE) listing requirements mandate all listed entities to apply King IV corporate governance codes. Hence, the combined assurance model, applied appropriately, effectively and with good intentions, result in credible financial reporting. It is a model that should also result in a process whereby the governance structures of any organisation are all aware of the significant issues impacting the financial reports.
Ultimately, the SAICA Code of Professional Conduct (the Code) is a credible point of reference for our members. That’s because SAICA is a member of the International Federation of Accountants (IFAC) and the Code conforms to the code adopted by the International Ethics Standards Board for Accountants (IESBA). The SAICA Code embodies integrity, professional competence, due care and professional behaviour, among other principles that a SAICA member is expected to embrace.
The Code was recently updated to include Sections 225 and 360, which address chartered accountants’ responsibilities when they become aware of non-compliance or suspected non-compliance with the Laws and Regulations (NOCLAR) committed by a client or employer. The Code is and should be the “doctrine” of every CA(SA). A CA(SA) who adheres closely to the Code, who pays careful attention to its principles and responsibilities and has good intentions should, with the combination of IFRS and the combined assurance model, be able to ensure credible financial reporting.
The details emanating from the Steinhoff saga are not yet sufficient to make final objective judgement calls as to what transpired. It is therefore prudent for us as a profession to wait and obtain factual details and ask critical questions in order to obtain an understanding of where things could have gone wrong and how any misdemeanours could be prevented in the future.
In the meantime, this, as well as past events, should be a time of reflection for CAs(SA) who are members in business. We need to ask critical questions and keenly reflect on the kind of organisations and individuals with which we associate our corporate and personal brands. We need to examine the kinds of behaviours we are incentivising, and celebrating.
Are these in line with the principles, per our Code, associated with our profession? We should interrogate the importance of the role of the profession as custodians of trust, financial governance and good corporate governance. We need, as members in business, to analyse past events like Enron, the financial crisis of 2008, the recent developments around State Owned Entities and Steinhoff with a view to understanding the magnitude of chaos that occurs when even a whiff of an accounting scandal emerges – chaos for financial markets, for economies, and also for our profession.
The story of why the chartered accountancy profession exists and why it should exist in the future is a story we live and tell. As individual CAs(SA) we are custodians of the value we are actively creating now and the value we will be actively creating in future. As CAs(SA) we cannot delegate this responsibility to any other person, governance structure or organisation. As individuals we need to ensure that we do what is right for our profession; to make sure that we are vigilant and are attuned to acts that could bring our profession into disrepute – and actively take action.
Instructively, the processes detailed above, no matter how credible they are, will not yield the desired outcomes if the intentions of the individuals involved are suspect. At the same time, the intentions of a few individuals within the profession do not determine the intention of the entire profession. The formula for corporate reporting that we have embraced is robust and should lead to credible financial reporting. That is why I firmly believe that the work we do as a profession, while not always perfect, should yield results sufficiently credible to sustain our financial markets and economies.
This in turn will cement the reputation of our profession, as well as its members, as trust leaders.
Senior Executive: Corporate Reporting