The latest World Economic Forum (WEF) Global Competitiveness report ranks South Africa first out of 142 countries for its regulation of securities exchanges.
This is the second successive year that South Africa has achieved this ranking and, together with several other elements of the report, suggests that the country’s exchange, the Johannesburg Stock Exchange (“JSE”), is a sound environment in which to invest in. South African standards of corporate governance are highly ranked – the country achieved first place for strength in accounting and auditing standards (as last year), second place for efficacy of corporate boards and third place in protection of minority rights (both from sixth in 2010). Its credibility as an investment destination is also boosted strongly by the soundness of its banks, for which the country achieved a second place ranking (also from sixth). South Africa ranks tenth for the strength of investor protection (same as in 2010).
This is one of the many reasons why the University of Johannesburg is proud of its collaboration with the JSE. This collaboration began in February 2011 when the JSE announced that it would commence a process of reviewing Annual Financial Statements (“AFS”) for compliance with International Financial Reporting Standards (“IFRS”).
The integrity of financial information is a critical element of a well-functioning market. The objective of the review process is therefore to contribute towards the production of quality financial reporting of entities listed on the JSE.
“Additional monitoring will give shareholders the benefits of a better regulated market and underline the accolade recently received for the best exchange in the world through regulation in the World Economic Forum (WEF)’s Global Competiveness Report 2010-2011. This is a tremendous place to have ended 2010, but the JSE will continue to strive for more,” said Russel Loubser, the then CEO of the JSE.
It is recognised that a crucial part of this proactive monitoring process is the partnership that the JSE entered into with UJ. Whilst the reviews are based on predetermined risk areas, a critical success factor is a comprehensive body of IFRS knowledge. It is not just a case of ensuring compliance with a specific IFRS disclosure paragraph, but rather the reviewer needs to have a full understanding of all aspects of IFRS in order to understand the potential implications and impact on the AFS of a particular matter and as well as assessing the potential non-compliance within the objective of financial reporting. Through the partnership with UJ, the JSE effectively has access to 20 additional high calibre personnel.
From March to December 2011, 56 AFS were proactively reviewed. 16 cases were closed either with no comments or with a letter of potential areas of improvement being sent to the Issuer. The JSE wrote enquiry letters to 40 of the Issuers, of which 2 resulted in a further referral to the FRIP for advice. By January 2012 11 of the 40 cases of enquiry were still pending finalisation. These findings are broadly in line with international trends.