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South Africa: JSE Auditor accreditation – proposed amendments to Listings Requirements

9 May 2023
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The Johannesburg Stock Exchange (JSE) is proposing amendments to the JSE Listings Requirements and the JSE Debt Listings Requirements (Listings Requirements). Various documents are available as follows announcement, explanatory memorandum, JSELR amendment schedule and DLR amendment schedule. The proposed amendments remove the requirement for audit firms, individual auditors, reporting accountants, reporting accountant specialists and IFRS advisers to be accredited (Auditor Accreditation Model).

The Auditor Accreditation Model was introduced in 2009. In May 2022, a JSE Consultation Paper was issued, proposing its removal. This received overwhelming majority support from market commentators. The JSE subsequently consulted with the Independent Regulatory Board (IRBA) and formulated the proposed amendments removing reference to the Auditor Accreditation Model and introducing alternative auditor-related processes instead.

The reasons for removing this model are based on the significant changes and financial reporting improvements that have occurred within governance areas, auditing standards, regulatory oversight by audit regulators, improvements in audit quality and the Listings Requirements, which have greatly enhanced the credibility of financial reporting over the last few years. Such changes include, inter alia, the:

  • introduction and adoption by the IRBA of enhanced quality management standards in 2009, as further enhanced in 2022;
  • adoption, in 2011, of the Companies Act of 2008 and the Companies Regulations of 2011, which introduced significant improvements to financial reporting and assurance;
  • introduction of proactive monitoring of financial statements by the JSE in 2010, with various subsequent improvements to this process;
  • introduction of specific responsibilities (over and above those set out in the Companies Act of 2008) for audit committees through the amendment of the Listings Requirements in 2017; and
  • introduction and monitoring of a specific management responsibility for the internal financial control environment and related accountability for the preparation of financial statements through a CEO and Financial Director sign off effective in 2020.

Proposed amendments to the JSE Listings Requirements

The key proposed amendments to the JSE Listings Requirements include the:

  • removal of all references to IFRS advisers, reporting accountants and reporting accountant specialists (Related Players). In this regard, responsibilities currently attributable to Related Players are either to be:
    • removed completely; or
    • replaced to be made attributable to auditors going forward (such as in relation to engagements with standards issued by the IAASB and guidance issued by the SAICA and/or the IRBA, providing assurance, the contents of reports, responsibility to review prospectuses or circulars and providing consent letters and confirmation letters signing off on reports);
  • removal of the requirement for auditors and Related Players to be accredited by the JSE (in this regard, Section 22 detailing the elaborate accreditation process has been removed in its entirety);
  • removal of the JSE’s power to prescribe compliance by auditors and Related Players with specific Listings Requirements or to charge fees to auditors and their advisors;
  • amendments to requirements around notifications of changes in auditors, including that upon termination of the auditors’ audit role, the auditor should provide details of reportable irregularities reported on by such auditor to its regulator in the past 12 months;
  • removal of the requirement for annual financial statements to note an auditor’s resignation and the reasons for such resignation;
  • in terms of corporate governance requirements, removal of the requirement for the audit committee to request information from the auditor to assess suitability for every re-appointment/annually (and rather only consider certain factors with respect to such auditor’s initial appointment). The audit committee now needs to consider more prescribed information upfront instead, including:
    • latest results of all inspections performed by the auditor’s regulator;
    • new inspection results of inspections performed by an auditor’s regulator, between the date of appointment of the auditor and the date of signature of the audit report on the annual financial statements;
    • a summary by the auditor of ongoing communication related to monitoring and remediation referred to in the ISQM 1 quality standard; and
    • a summary of legal or disciplinary proceedings applicable to such auditor in the last seven years;
  • an assurance engagement letter between an applicant issuer and a new auditor must set out that the auditor should notify the applicant issuer where the auditor has been prohibited from signing the audit report or is no longer registered with its regulator;
  • in order for an auditor to be appointed by an applicant issuer:
    • it should have demonstrated that it has the necessary resources in terms of the applicable quality standard in ISQM 1;
    • it should not be prohibited by its regulator from performing the relevant assurance engagement; and
    • in certain instances, the auditor should have completed a JSE approved training and passed an examination approved by the JSE before it can sign certain types of assurance opinion (such as, inter alia, in respect of historical financial information, pro forma financials or profit forecasts); and
  • an auditor must be replaced within 90 days where it has been appointed but subsequently prohibited from signing an audit report.

Proposed amendments to the JSE Debt Listings Requirements

The key proposed amendments to the JSE Debt Listings Requirements include the:

  • removal of references to reporting accountants;
  • removal of the requirement for auditors and reporting accountants to be accredited by the JSE;
  • applicant issuers must appoint an auditor who is registered with IRBA or a similar regulatory or professional body in another jurisdiction; and
  • requirements similar to those set out above with regard to the JSE Listings Requirements around:
    • amendments to requirements around notifications of changes in auditors;
    • corporate governance requirements;
    • assurance engagement letter requirements;
    • restrictions applicable to auditor appointments (including demonstrating having the necessary resources in terms of the applicable quality standard and not being prohibited from performing its relevant assurance engagement); and
    • replacement of an auditor.

The JSE invites comments to the proposed amendments by close of business on Monday 5 June 2023.