BLOG SERIES: Amended JSE Listing Requirements and the CEO and CFO
In line with paragraph [3.84 (k)] of the JSE Listing Requirements, the Chief Executive Officer and Chief Financial Officer are to prepare a responsibility statement after due and proper consideration of the following:
The directors, whose names are stated below, hereby confirm that:
- the annual financial statements set out on pages […] to […], fairly present in all material respects the financial position, financial performance and cash flows of the issuer in terms of IFRS;
- no facts have been omitted, or untrue statements made that would make the annual financial statements false or misleading;
- internal financial controls have been put in place to ensure that material information relating to the issuer and its consolidated subsidiaries have been provided to effectively prepare the financial statements of the issuer; and
- the internal financial controls are adequate and effective and can be relied upon in compiling the annual financial statements, having fulfilled our role and function within the combined assurance model pursuant to principle 15 of the King Code. Where we are not satisfied, we have disclosed to the audit committee and the auditors, the deficiencies in design and operational effectiveness of the internal financial controls and any fraud that involves directors and have taken the necessary remedial action”.
This statement is to be signed by both the Chief Executive Officer and Chief Financial Officer.
The critical points that need to be considered to comply with the above requirement are:
- the fair, accurate and complete representation of annual financial statements;
- adequate internal financial controls have been implemented to ensure that all material information has been provided to prepare the financial statements adequately;
- and internal financial controls are both sufficient and adequate and can be relied upon when preparing the annual financial statements.
The primary responsibility for internal controls over the financial reporting process and the accuracy of financial reporting rest with the board and management (specifically the CEO and CFO) of the issuer.
To efficiently identify, implement and manage the above requirements, Board Members could consider the following:
- Identify and define the critical internal financial controls and understand what the impact on control failure will have on the organisation.
- Define a framework to establish an approach of how the identified controls will be evaluated.
- Determine which existing evaluations are performed and who provides the assurance over the adequacy and effectiveness of these controls.
- Identify areas where efficiencies can be enhanced whereby a combined assurance approach can be followed to ensure that critical internal financial controls are being reviewed and that duplication of effort is minimised.
- Develop a standard consolidated report of the critical controls identified and evaluated to monitor the level of adequacy and effectiveness frequently.
Risk management will remain a critical element for the Chief Executive Officer and Chief Financial Officer to provide the necessary representation that the essential internal financial controls are adequate and operating as intended. The following baseline activities can further assist the Board and the Executive Management team:
- As a first point, perform gap analysis reviews (control adequacy reviews) to identify shortcoming in current processes.
- Identify and evaluate related governance oversight disclosure and reporting requirements against best practice guidelines.
- Identify the critical assurance providers to the organisation and evaluate the level of reporting the content being reported and the tracking of performance against working plans to ensure that all critical areas of internal financial control are being managed.
Head: Risk Consulting,