JSE change adds to audit committee responsibility
The responsibilities of the audit committees of listed companies are being expanded as the JSE moves to scale back its world-class requirements for auditor accreditation.
The two-tier accreditation system, covering the firm and responsible partner, was introduced in 2008 but needs to be scaled back because of “challenges and congestion” at the Independent Regulatory Board for Auditors (Irba).
In future, the process will no longer require the individual auditor to be accredited by Irba, but the audit committee will have to assess the “suitability” of the audit partner recommended by the audit firm.
Charl Kocks of Ratings Afrika says the move is not a diminution of quality control but a devolution as the audit committee steps in to play a critical role in the accreditation process. The JSE’s regulatory framework is ahead of those of most developed countries, Kocks says.
The JSE says the audit committee will have to ensure it considers all relevant aspects before appointing a specific individual partner. The JSE used to do this.
Although this is not the traditional role of the audit committee, Kocks says there should be adequate skills to ensure it is done effectively. The move is likely to ensure that there is at least one auditor on the audit committee. There are no specific skills requirements for membership of the committee but there are recommendations that people with business, legal and accounting skills be appointed.
Audit firms will still have to be accredited by Irba to the JSE’s satisfaction.
The JSE introduced the accreditation system to ensure only audit firms with appropriate infrastructure would be allowed to audit listed companies. The JSE did not have the authority to regulate auditors and so the process had to involve Irba, says professional director Linda de Beer.
Irba undertook ISQC (international standard on quality control) inspections of the audit firm as well as inspections of the individual auditor. However, by early 2014, it had become evident that the volume of requests from auditors keen to get work on JSE-listed firms was more than Irba could accommodate.
De Beer says the bottleneck was worsened by a number of changes to the Companies Act and the JSE’s decision in 2015 to extend the accreditation process to debt issuers.
In 2016, Irba said it had become aware that certain auditing firms were experiencing challenges in attaining or maintaining their JSE accreditation. Due to capacity constraints, it would no longer be able to accommodate requests by auditors for specific accreditation inspects, “as it needs to focus its capacity on its mandate to inspect auditing firms”.