WEF Global Competitiveness Report - A time for reflection
Johannesburg, Monday, 2 October 2017 - The World Economic Forum's Competitiveness Report 2017-2018 that was released last week, shows that South Africa's overall ranking has declined from 47 to 61 (out of 137 countries included in the recent report). The global competitiveness index (GCI) comprises 114 indicators, which are grouped into 12 pillars. One of these indicators, of particular interest to SAICA, is the strength of the country’s auditing and reporting standards. South Africa has not retained its number one position in this regard, and is now ranked 30th.
An important question to reflect on, is what has changed? The strength of auditing and reporting standards is primarily reflected in the perceived processes for developing and issuing standards in a country. This has not changed in South Africa. From a financial reporting perspective, companies in South Africa are required to use International Financial Reporting Standards (IFRS) or the International Financial Reporting Standard for Small and Medium Sized Entities (IFRS for SMEs), depending on the category of company. From an auditing perspective, the auditing standard-setter and regulator, the Independent Regulatory Board for Auditors (IRBA), has adopted and prescribed for use by registered auditors in South Africa, the Standards of the International Auditing and Assurance Standards Board (IAASB). SAICA and the IRBA continue to be pro-actively involved in international standard-setting.
In addition, the processes relating to the inspection and monitoring of auditing standards have been maintained. Many measures or indicators of audit quality exist and are being used more and more to provide those charged with governance, including audit committees, with more relevant, more firm-specific and more transparent information to better enable them to discharge their oversight responsibilities with respect to the external auditor and audit.
Recent events relating to some SAICA members finding themselves in potentially compromised positions regarding their conduct have had serious negative consequences for the reputation of the profession; a situation that demands serious reflection about what action must be taken to correct any trust deficit. SAICA has in recent times made various statements in this regard and are pursuing these matters with the urgency that they deserve. However, it is important to note that these revelations, especially the more recent ones regarding KPMG, would not have directly influenced the current WEF results owing to their timing and the timing of the research that was undertaken by the WEF as the survey was conducted between February and June 2017.
The decline in South Africa's ratings however runs much deeper. The WEF report is communicating a message that investor confidence in South Africa is declining. Therefore, it is about the environment in which business is conducted, including the environment in which financial reporting takes place and audits are performed. If we reflect more broadly on the past 12 to 18 months, South Africa is feeling the effect of mounting allegations around corruption, investment downgrades, and economic and political uncertainty.
Widespread uncertainty is bound to affect perceptions around business confidence as can be seen in the indicators reported in the WEF report. Although South Africa is still relatively good in the African context, specific areas noted as weaker than the previous year are its institutional environment, financial markets and goods market efficiency. The WEF report continues to highlight the 16 “most problematic factors for doing business” in South Africa; the top three being corruption, crime and theft, and government instability.
SAICA is committed to work together with its members and associates, government, other professional bodies and industry representative bodies, the IRBA and other regulators to correct the situation and to regain confidence in South Africa and its markets, which is essential for the level of prosperity that the economy can achieve. This includes reflecting on the profession and the role of all our members and associates, both in public practice and in business, and interrogating the issues that are needed to self-correct, with the help of affected stakeholders.
Notably, one of the important measures that SAICA has taken is to incorporate into the SAICA Code of Professional Conduct new ethics requirements and guidance relating to responding to non-compliance with laws and regulations (NOCLAR), in line with changes in this regard to the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants (IESBA Code). The new NOCLAR provisions are effective as from 15 July 2017 and apply to all SAICA members and associates, whether in public practice providing professional services to clients, or whether in business carrying out professional activities for an employing organisation. The NOCLAR provisions establish a comprehensive response framework that guides members and associates in terms of the factors to consider and the steps to be taken when they become aware of NOCLAR or suspected NOCLAR. SAICA believes that these changes are a significant development in positioning the chartered accountancy profession to play a positive role in the fight against non-compliance and the adverse activities that often stem from it, such as financial fraud, corruption, money laundering, etc. This is expected to drive positive behaviour by SAICA members and associates, which in turn will impact on the behaviour of their clients and employing organisations, as applicable.
Safeguarding the integrity of the Chartered Accountant designation is essential to ensure ongoing investor confidence. The maintenance of strong and internationally recognised ethics and engagement standards, backed up by a credible and fair disciplinary process is non-negotiable for SAICA. It will take the commitment of business and broader society, not least of which SAICA members and associates, demonstrating that they live the values and standards that the profession holds dear.
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