Changes in the Financial Reporting Act, That Fall Under the Purview of the Financial Reporting

Changes in the Financial Reporting Act, that fall under the purview of the Financial Reporting Council

Objective of Change: To boost investors’ and corporate confidence;

1.0Change in the definition of Public Interest Entities (PIEs)

Previously, only companies with annual revenue of Rs200M were categorised as PIEs. This definition considers only the quantitative parameters of an entity. FRC has proposed that the qualitative nature of an entity should also be taken on board. Moreover, in order to determine the real nature of an entity which has public interest, one should pay attention to whose interests are at stake with the operation of such entity. The main stakeholders are the investors, the employees, the community and the public at large. Hence the new definition of a PIE as stipulated in the Economic and Financial Measures (Miscellaneous Provisions) Act 2012 issued by the Ministry of Finance, is as per First schedule of the Financial Reporting Act, meets both the qualitative and quantitative parameters;

FIRST SCHEDULE

[Section 2]

ENTITIES

1. Entities listed on the Stock Exchange of Mauritius

2. Financial institutions, other than cash dealers, regulated by the Bank of Mauritius

3. Financial institutions regulated by the Financial Services Commission, from the

following categories –

(a) insurance companies, other than companies conducting external insurance

business, licensed under the Insurance Act;

(b) collective investment schemes and closed-end funds, registered as reporting

issuers under the Securities Act;

(c) CIS managers and custodians licensed under the Securities Act;

(d) persons licensed under section 14 of the Financial Services Act to carry out

leasing, credit finance, factoring and distributions of financial products to the

extent that the services supplied are by retail.

4. Any company or group of companies having, during 2 consecutive preceding years,

at least 2 of the following –

(a) an annual revenue exceeding 200 million rupees;

(b) total assets value exceeding 500 million rupees;

(c) a number of employees exceeding 50.

2.0Obligation of the PIEs to submit their annual report and Corporate Governance Report to the FRC

S 76(iii) (1A) of the FRAct, stipulates that, every PIE shall not later than 6 months after the closing of its accounting year, submit to the FRC, its annual report and report of Corporate Governance.

FRC would as per the annual review plan, request the annual reports and the Corporate Governance Report. As usual, FRCrelies on the cooperation and understanding of the PIEs to submit same.

3.0Compliance with the Code of Corporate Governance

Changes were brought in the FRAct in 2008, whereby, PIES were obliged to comply with the Code of Corporate Governance issued by the National Committee on Corporate Governance in 2003. Since then, FRC has noted a positive change in the quality of reporting. Most of the PIEs issued a Corporate Governance Report.

The only problem was when the auditors had to report on the extent of compliance by the PIE, they met some difficulties. In order to facilitate the work of both parties, that is, the PIEs and the auditors, a new change has been effected. The PIEs shall now issue a separate Corporate Governance report and a Statement of Compliance that would determine the extent of compliance with the requirements of the Code of Corporate Governance.

To further assist the PIEs, FRC would issue Guidance Notes on the “Statement of Compliance” and highlightthe purpose, the fundamental principles of Good Governance to be complied with, and any other optional requirements. Moreover,FRC would enlist the inputs from the MIOD before finalising the Guidance Notes.

4.0Only one category of Auditors, that is, auditors who are licensed by FRC.

As per the Companies Act, small and private companies need not submit audited accounts to the Registrar of Companies. However, prior to the change in 2012, whenever such types of companies require their accounts to be audited, these might be done by non-licensed auditors. FRC was of view that a professional accountant cannot state in the audit report that an audit has been carried out in accordance with the International Auditing Standards (ISA) if he/she has not really done so.

The change in the Economic and Financial Measures (Miscellaneous Provisions) Act 2012, stipulates that all auditors shall be licensed by the FRC. Meaning, that, whenever a small and private company wishing to have its accounts audited, it should be done by a licensed auditor.

Moreover, whenever, an auditor signs an audit report, he/she shall include his/her name and state the words “licensed by FRC.”

5.0Sanctions on PIEs

Previously, the FRAct did not provide for any sanctions on PIEs when they did not comply with the requirements of the Code of Corporate Governance. The enactment of the Economic and Financial Measures (Miscellaneous Provisions) Act, now stipulated that sanctions would be applied to PIEs if they failed to comply with the requirements of the Code of Corporate Governance.

Prepared by

Chief Executive Officer

4 February 2013