Table of Contents
FOREWORD ...................................................................................................................... 2
REPORT OF CHIEF EXECUTIVE OFFICER .................................................................. 6
1.0
CORPORATE GOVERNANCE REPORT ............................................................ 8
2.0
LICENSING OF AUDITORS AND APPROVAL OF FIRMS’ NAMES ........... 19
3.0
REVIEW OF ANNUAL REPORTS OF PUBLIC INTEREST ENTITIES ......... 20
4.0
AUDIT PRACTICE REVIEW ............................................................................. 25
5.0
OTHER ACTIVITIES OF FRC............................................................................ 31
6.0
BUDGET .............................................................................................................. 33
7.0
FUTURE PLAN OF THE FINANCIAL REPORTING COUNCIL .................... 34
8.0
CONCLUSION ..................................................................................................... 38
Appendix I
Appendix II
Financial Statements
Organisational Structure
FOREWORD
Following the Proclamation of the Financial Reporting Act in 2005 four
statutory bodies have been set up –
and
(1)
The Financial Reporting Council,
(2)
The Mauritius Institute of Professional Accountants,
(3)
The National Committee on Corporate Governance,
(4)
The Mauritius Institute of Directors.
The primary objects of the Financial Reporting Council are (a) to licence
auditors and to promote the highest standards in the accountancy profession
by encouraging accountants to improve the quality of accountancy and audit
services, (b) to promote the provision of high quality reporting of financial
and non-financial information by public interest entities and enhance the
credibility of financial reporting in Mauritius and (c) to approve the names
of firms of auditors.
The Financial Reporting Council ensures that public interest entities abide
by the Code of Corporate Governance where they have voluntarily agreed to
comply with it on the “comply or explain” principle.
The Finance Act which was enacted in July 2008 amended the definition of
public interest entities to include any public company or private company
which has an annual revenue of 200 million rupees.
2
The Finance Act of 2008 gave a new list of fifteen state-owned enterprises to
be included in the list of public interest entities on the grounds that these
enterprises operate on a commercial basis. The Central Electricity Board,
the Central Water Authority, the Mauritius Broadcasting Corporation, the
Mauritius Ports Authority, the National Transport Corporation and the State
Trading Corporation feature in this list of state-owned enterprises.
In 2009, when enacting the Additional Stimulus Package Act, Parliament
amended the Statutory Bodies (Accounts and Audit Act) to make it
compulsory for state-owned enterprises to comply with International
Financial Reporting Standards and the Code of Corporate Governance. A
statutory body can however be exempted from such compliance by the
Minister who has responsibility for that statutory body.
As from July 2009, public interest entities are required to adopt corporate
governance in accordance with the Code. Any such entity that does not
adopt corporate governance must explain its reasons for non-compliance in
its annual report and financial statements.
Two panels have been set up by the Financial Reporting Council under the
Act. They are (i)
the Audit Practice Review Panel which reviews the work of auditors
and
(ii)
the Financial Reporting Monitoring Panel which examines the
annual reports and financial statements of public interest entities to
3
ensure that they have been prepared in accordance with International
Financial Reporting Standards (IFRS).
Since Mauritius has adopted international standards for accounting and
auditing, it has not been necessary so far to have a national Standards Setting
Panel.
On the other hand, the Council has prepared an Accounting
Framework for the guidance of those state-owned enterprises which are
being exempted from compliance with IFRS. The Council also envisages to
set accounting standards for small and medium entities.
Many issues have to be confronted when a regulatory body is set up. It is
not always easy to win acceptance from those it wishes to regulate.
However, the FRC must acknowledge the whole-hearted cooperation it has
received from auditors, from partners in audit firms and from those
responsible for public interest entities.
Some of the obstacles which a regulatory body faces in a small island state
are an inadequate budget and problems of staffing. The costs of regulation
must not outweigh the benefits that may accrue from such regulation. The
ultimate size of the regulatory body and its range of operation have to be
rationally planned. The FRC has therefore been pragmatic in planning and
implementation during its “set-up” phase.
The FRC wishes to evolve a model that is adapted to the Mauritian context
and to the local requirements of the economy. The business environment in
Mauritius is healthy and reporting standards are widely respected. Together
with other regulatory bodies in the financial sector, the Bank of Mauritius,
4
the Financial Services Commission, the Registrar of Companies, the
Mauritius Institute of Professional Accountants and with the assistance of
the National Committee on Corporate Governance and the Mauritius
Institute of Directors, the Financial Reporting Council expects to contribute
to the credible positioning of Mauritius in the global economic environment.
The contribution of all the stakeholders, the Ministry of Finance, the
members of Council, the Panels, the Chief Executive Officer and staff has
been forthcoming and has proved to be most valuable in helping the Council
to achieve its objectives.
D. B. Seetulsingh
Chairperson
5
Report of Chief Executive Officer
I joined the FRC in July 2007 as officer in charge, the Council has started licensing the
auditors, whereas the remaining main operational activities of FRC such as reviewing
annual reports of public interest entities (PIEs) and audit practice reviews were not yet
attended to. The Council established the two panels in November 2007 and some
technical staff were recruited. Meanwhile the methodologies to be adopted to undertake
audit practice reviews and annual report reviews were completed.
Consequently, FRC
started its operational activities in the year 2008 and I was appointed Chief Executive
Officer in May 2008.
It is also good to note that working and maintaining relationship with similar Regulatory
Bodies of other jurisdictions
enables FRC to adopt the best practices and share
worldwide experiences. FRC had therefore been registered as member of IFIAR in April
2008. Being a member of IFIAR helps in achieving one of our main objective, that is,
promoting quality in auditing and corporate reporting.
Outcomes for the year 2008/2009
In the year 2008-2009, we endeavoured in doing some important work resulting in the
following outcomes:
 90 Annual Reports of PIE have been reviewed, to verify compliance with
International Financial Reporting Standards (IFRS) and Code of Corporate
Governance
 10 Audit Practice Reviews were done, to ensure compliance with International
Auditing Standards (ISAs) , IFAC code of ethics and any rules and guidelines
issued by FRC
 Workshops have been organised on IFRS and ISA to educate and train the
auditors and accountants which is one of FRC’s functions.
6
 Several internal training were provided to FRC’s staff to improve their skills,
knowledge and develop their competence. The employees were also trained to
work effectively and efficiently.
 Amendments to the Financial Reporting Act were proposed and accepted by the
Council to bring more clarity in the Act.
Way forward
The future plan of FRC will be greatly influenced by the increased requirement to
improve corporate confidence which could only be achieved by promoting quality in both
reporting and auditing.
FRC will continue in its endeavour to promote the regulatory regime in which high
quality of financial and non-financial reporting, and compliance with corporate
governance will boost the trust of all stakeholders toward the stewardship of the public
interest entities. We therefore committed to becoming more proactive by
 establishing guidelines of what constitute quality corporate reporting;
 establishing guidelines of good practices of governance;
 being more consultative in our approach, involving both preparers of account and
auditors;
 being of continuing assistance to the public interest entities to providing guidance
on the application of IFRS;
 being transparent and efficient in the delivery of our services.
Finally, I would like to thank members of the Council, members of the Panels and the
staff of FRC for their support for the whole year and gratefully expect their continuous
support.
Selvida Naiken
7
1.0 Corporate Governance Report
1.1
The Financial Reporting Council (FRC) was established in January 2005, under
the Financial Reporting Act (FR Act 2004). The objectives of the Council as set out in
Section 4 of the Act are :
(a)
to promote the provision of high quality reporting of financial and non-financial
information by public interest entities;
(b)
to promote the highest standards among licensed auditors;
(c)
to enhance the credibility of financial reporting; and
(d)
to improve the quality of accountancy and audit services.
1.2
In order to meet its objectives, FRC is entrusted with the following functions as
set out in Section 5 of the FR Act 2004:
(a)
to monitor and review the truth and fairness of financial reporting by public
interest entities;
(b)
to monitor the practice of auditors with a view to maintaining high standards of
professional conduct;
(c)
to monitor and enforce compliance with International Financial Reporting
Standards issued by the International Accounting Standards Board and
International Standards for Auditing;
(d)
to provide advisory, consultancy and informational services on any matter related
to its functions;
(e)
to license auditors and maintain a register of licensed auditors;
(f)
to monitor compliance with the reporting requirements specified in the Code of
Corporate Governance and with any other guidelines issued by the National
Committee on Corporate Governance;
(g)
to conduct practice reviews of licensed auditors; and
(h)
to advise the Minister generally on any matter relating to financial and nonfinancial reporting, accounting and auditing.
8
1.3
Under Section 7 of the Financial Reporting Act, the Council is constituted as
follows:-
Name
Appointed on
Chairperson –
Mr Dheeruj B. Seetulsingh S.C
20 January 2005
Members Mr Yandraduth Googoolye, First Deputy Governor, Bank
01 August 2006
of Mauritius
Dr J.N. Meetarbhan, Chief Executive, Financial Services
03 January 2006
Commission
Mrs Divanandum P. Chinien, Registrar of Companies
20 January 2005
Mr Matthew John Lamport, Lecturer, Faculty of Law and
20 January 2005
Management, University of Mauritius
Mr Thierry Leung, Senior Manager of Ernst & Young
20 January 2008
Mr Pierre Dinan, Chairman of Mauritius Institute of
18 March 2008
Directors
Mr Osman Badat, Chairperson of Mauritius Institute of
September 2008
Professional Accountants
Mr Bhimal Gooroochurn (representative of the Mauritius
20 January 2008
Institute of Professional Accountants)
1.4
The Council is responsible for the proper functioning of the organisation, and in
that respect, at Council meetings, monitors its activities, approves its budget, future
strategies and work plans.
Regular council meetings are held to take main policy decisions. Attendance of members
for the eight meetings held during the year ended 30 June 2009 is shown in the table
below:
9
Council Members
Mr Dheeruj B. Seetulsingh
Mr Yandraduth Googoolye
Dr J.N. Meetarbhan
Mrs Divanandum P. Chinien
Mr Matthew John Lamport
Mr Thierry Leung
Mr Pierre Dinan
Mr Patrick Mahony (Alternate to
Mr Dinan)
Mr Osman Badat
Mr Bhimal Gooroochurn
1.5
No. of meetings attended
8/8
2/8
3/8
6/8
6/8
2/8
6/7
1/1
4/8
7/8
Staff Committee
The Council is responsible for the recruitment of staff, as per Section 14 of the FR Act
2004. It has set up a Staff Committee comprising four members of the Council. Staff
matters such as recruitment, remuneration, promotion and any other human resource
issues are considered by the Staff Committee before being submitted to Council for
approval. From July 2008 to June 2009, the Committee met seven times. The Council
approved an organisational structure for the FRC (see Appendix). Current vacant posts
are being filled in order to enable FRC to attain its objectives.
Attendance at Staff Committee Meetings
Members
No. of
Meetings
Mr D.B.Seetulsingh
7/7
(Chairperson)
Mr Y. Googoolye
2/7
Mr J.Lamport
7/7
Mrs D.P.Chinien
7/7
10
1.6
Panel of Experts
In the year 2007/2008, FRC set up two panels of experts, namely the Audit Practice
Review Panel (APRP) and the Financial Reporting Monitoring Panel (FRMP). Members
of both panels worked in close collaboration with the staff of FRC in providing expert
advice on accounting and auditing issues whenever required. With the assistance of the
members of the panels, relevant guidelines on pertinent issues which assist in promoting
audit quality and financial reporting are prepared by FRC.
1.7
Internal Control
FRC obtained a grant from the Ministry of Finance and Economic Empowerment to meet
its operating expenses. Quarterly reports were submitted to the Ministry of Finance to
ensure that funds disbursed were used effectively and efficiently.
The organisation is small and has a limited budget of around Rs 12 million annually.
Financial procedures have been evolved accordingly and a strong internal control element
built-in.
1.8
Audit Committee and Risk Management
A separate Audit Committee has not been set up in view of the nature of FRC’s
regulatory mandate. The Finance Section keeps proper records of all transactions, the
Chief Executive Officer oversees all the day to day activities and regular reports are
submitted by designated officers. All relevant laws and regulations are adhered to in
respect of the activities of the Council.
The auditor for the Council is the Director of
Audit, National Audit Office. All external audit matters are taken up at Council level.
1.9
Code of Ethics
The FRC has established a Code of Ethics to be followed by the members of the Council,
its staff and members of the panels. Principles stressed, amongst others, are objectivity,
11
competence, fairness, professionalism and confidentiality. Moreover, all parties
concerned are required to sign an oath of confidentiality.
1.10
International Forum for Independent Audit Regulators (IFIAR)
FRC is a member of the International Forum for Independent Audit Regulators (IFIAR).
IFIAR consists of thirty one member countries.
Its aim is to share knowledge,
collaborate and provide a focus for contact with other international organisations. The
interaction with other members enables FRC to share experience on audit inspections and
also helps in building capacity at FRC. Valuable international networking promotes audit
quality in Mauritius.
An annual membership fee of € 10,000 is payable.
1.11
Activities of FRC
The core activities of FRC are:
 Licensing of auditors
 Approval of Firms’ names
 Performing Annual Reports Reviews of Public Interest Entities (PIEs)
 Performing audit practice reviews
An important activity relates to training of stakeholders on International Financial
Reporting Standards (IFRS) and International Standards for Auditing (ISAs) through
workshops and training programmes.
1.12
Remuneration of Members and Key Management Personnel
For the year 2008/09, key management remuneration was as follows:
Members of Council and Panels : Rs 1,320,000
Key Management Personnel: Rs 1,880,000
12
1.13
Profile of Members of Council, Panels and Key Management
Mr Dheeruj B. Seetulsingh S.C, Chairperson
Mr Seetulsingh holds a degree in Philosophy, Politics and Economics from the University
of Oxford and is a barrister at law of the Middle Temple. He is a former Solicitor
General of Mauritius and a former Judge of the Supreme Court. He has chaired several
regulatory bodies and institutions with quasi-jurisdictional functions in the past, such as
the Tax Appeal Tribunal, the Stock Exchange Commission, the Cane Millers’ and
Planters’ Control and Arbitration Board, the Termination of Contracts of Service Board.
He has been a member of the Board of Directors of Air Mauritius and a member of Bank
of Mauritius Committee overseeing Offshore Banks. He heads the National Human
Rights Commission at present.
Mr Yandraduth Googoolye
Mr Yandraduth Googoolye has been First Deputy Governor of the Bank of Mauritius
since July 2006. He started his career as Accountant at the Bank of Mauritius in 1985.
He became Assistant Inspector of Banks (later restyled as Assistant Director - Banking
Supervision) in 1987, took charge of Banking Supervision in 1991 before becoming
Director of the Operations Department in 1997. As Director-Accounting, Budgeting and
Payments System since 2002, he has been the project coordinator for the establishment of
a Real Time Gross Settlement System for the banking system in Mauritius and also
responsible for the automation of the Clearing House. Mr Googoolye is currently a
member of the Monetary Policy Committee.
Dr J.N. Meetarbhan
Dr Milan Meetarbhan, Chief Executive of the Financial Services Commission since
December 2005, was formerly Associate Professor of Law and Head of the Law School
of the University of Mauritius. Dr Meetarbhan was Senior Policy Adviser to the Prime
13
Minister and Head of the Government’s Policy Unit from 1995 to 1998. He acted as
legal adviser to the Ministry of Finance from 1986 to 1990 and was involved in the
setting up of the Stock Exchange of Mauritius. Prior to his appointment at the Financial
Services Commission, his legal practice focused mainly on corporate law.
Mrs Divanandum Chinien
Mrs Divanandum Chinien holds a B.A. (Hons) in Law from U.K. She is a barrister -at law from the Middle Temple, London, UK. She was appointed Registrar of Companies in
1989. Since the proclamation of the Business Registration Act in 2006 she is also the
Registrar of Businesses and as from the 1 June 2009, the Director of Insolvency Service
under the Insolvency Act 2009. She has been involved in the drafting of various laws.
Mrs. Chinien has been a part-time lecturer in Company Law at the University of
Mauritius for several years and is currently the Chairperson of the Corporate Registrars
Forum, an organisation which regroups Registrars in a number of jurisdictions in the
world.
Mr Matthew John Lamport
Mr Matthew Lamport holds a Masters in Finance from the University of Mauritius. He
has been a full time academic of the Department of Finance and Accounting at the
University of Mauritius for the past six years. He is a member of the Association of
Chartered Certified Accountants (ACCA). Mr Lamport specialises in teaching financial
reporting and financial management to undergraduate and postgraduate students. His
research interests include quality of financial reporting, usefulness of annual reports to
users, relevance of accounting metrics in explaining movements in stock prices, dividend
policy, corporate social responsibility and capital structure.
Mr Thierry Leung
Mr Thierry Leung, Fellow of the Institute of Chartered Accountants, Senior Manager at
Ernst & Young, is currently in charge of the Professional Practice Group. His main areas
of responsibility are audit quality, learning and development, technology based audit
tools, and knowledge and application of International Financial Reporting Standards, the
14
Companies Act 2001, the Listing Rules and International Standards on Auditing. Mr
Leung has a broad range of experience in auditing the industries sector both in Mauritius
and abroad.
Mr Pierre Dinan
Mr Pierre Dinan holds a BSc Economics degree from the London School of Economics
and Political Science and is a Fellow of the Institute of Chartered Accountants in England
and Wales. He has had a long professional career in Mauritius until his retirement in
2004 as Senior Partner of De Chazal Du Mee, an accounting firm, and as Director of
Multiconsult, an offshore management company. He is now an independent consultant
and sits on the Boards of manufacturing and financial services companies. He is a
member of the Monetary Policy Committee of the Bank of Mauritius.
Mr Osman Badat
Mr Osman Badat is a Fellow of the Institute of Chartered Accountants in England and
Wales (ICAEW). He started his career in the UK and joined Pricewaterhouse Coopers
Mauritius in 1998. He moved to British American Investment Group in 2001 where he is
presently the Chief Financial Officer. He was elected to the Board of the Mauritius
Institute of Professional Accountants in September 2006 and is presently its Chairperson.
Mr Bhimal Gooroochurn
Mr Bhimal Gooroochurn is a Fellow of the Association of Chartered Certified
Accountants (ACCA) and is currently the Financial Controller of Gamma-Civic
Construction Ltd. He gained considerable professional accounting, auditing, taxation and
business consultancy experience with KPMG Mauritius, Haines Watts (London) and
Harris & Trotter (London) in senior positions. He moved out of practice in 2001 and
joined Gamma in 2002. He is a past Executive Member of ACCA Mauritius. He was
elected to the Board of the Mauritius Institute of Professional Accountants in September
2007 and is presently the Vice Chairperson.
15
Mrs Selvida Naiken
Mrs Selvida Naiken is a Fellow of the Association of Chartered Certified Accountants of
England. She holds an MBA, with specialisation in marketing. She also has a diploma in
Social Work, a Certificate in Quality Assurance from the Institute of Quality Assurance,
England and a Certificate in Fundamentals of Corporate Governance from the United
Nations Institute of Training and Research (UNITAR).
She was appointed Chief
Executive Officer of the Financial Reporting Council in May 2008 after having been
Officer-in-Charge from July 2007 to April 2008. Mrs Naiken reckons about 23 years in
the public service and has worked in various fields before joining the Management Audit
Bureau, Ministry of Finance. She has been a director on the Boards of various Statutory
Bodies and Chairperson of the Port-Louis Fund.
Members of the Financial Reporting Monitoring Panel
Mr Yuvraj Thacoor - Chairperson
Mr Yuvraj Thacoor is a Fellow of the Institute of Chartered Accountants in England and
Wales and is a member of the British Institute of Management.
Mr Vijay Bhuguth
Mr Vijay Bhuguth is a Fellow of the Association of Chartered Certified Accountants. He
holds a post graduate diploma in International Tax Planning examined by the Royal
Society of Fellows in Miami – USA.
Mr Twaleb Butonkee
Mr Twaleb Butonkee is an Associate Member of the Institute of Chartered Accountants
in England and Wales and a Fellow of the Chartered Association of Certified
Accountants.
16
Mr Georges Leung Shing
Mr Georges Leung Shing holds a BSc in Economics, is a Fellow of the Institute of
Chartered Accountants in England and Wales and is also an Associate of the Chartered
Institute of Taxation.
Mrs P. Chinien, member of Council
Mr M. Lamport, member of Council
Members of Audit Practice Review Panel
Mr Moussa Taujoo - Chairperson
Mr Moussa Taujoo is a Fellow of the Association of Chartered Certified Accountants and
a member of the Audit Committee of the University of Mauritius. He is a former
Director of the National Audit Office.
Mr John Chung Chung Wai
Mr John Chung Chung Wai holds a BSc Management Sciences degree from the London
School of Economics. He is also a Fellow of the Institute of Chartered Accountants in
England and Wales.
Mr Bhimal Gooroochurn, member of Council
Mr Priyaved Jhugroo
Mr Priyaved Jhugroo is a Fellow of the Institute of Chartered Accountants in England
and Wales.
Mrs Sumita Devi Mooroogen
17
Mrs Sumita Devi Mooroogen is a Fellow of the Association of Chartered Certified
Accountants. She also holds an MBA of the Institute for the Financial Management from
the University of Manchester and University of Wales.
Mr Abdul Aleem Ramankhan
Mr Abdul Aleem Ramankhan is a Fellow of the Association of Chartered Certified
Accountants. He also holds a Master of Science degree in Financial Management from
Middlesex University.
Mrs Marie-Louise Teng Hin Voon
Mrs Marie Louise Teng Hin Voon is a Member of the Institute of Chartered Accountants
in England and Wales (ICAEW). She is a Member of ICAEW Audit Faculty since 2000.
18
2.0
2.1
Licensing of Auditors and Approval of Firms’
names
Licensing of auditors and renewal of licences
Section 33(1) of FR Act 2004, stipulates that “no person shall hold any appointment, or
offer any services for remuneration, as an auditor, unless he holds a licence…” issued by
the FRC.
As at 30 June 2009, FRC has licensed one hundred and sixty six auditors.
The term of the licence is for a calendar year and is subject to renewal upon payment of
appropriate fees and to the satisfaction of the Council which checks compliance with any
rules and guidelines issued by FRC and International Auditing Standards issued by
IAASB.
As from July 2009 foreign auditors who act as auditors of a company holding a Category
1 Global Business licence under the Financial Services Act will need to obtain the
approval of Council.
2.2
Approval of firms’ names
Section 35 (1) of the FR Act 2004 states that “no licensed auditor shall practice as an
auditor, in the name of a firm unless the name of the firm has been approved by the
Council.”
FRC had approved eighty six audit firms’ names at 30 June 2009.
19
3.0 Review of Annual Reports of Public Interest Entities
As required by Section 76(1) of the Financial Reporting Act 2004, the FRC is required to
perform reviews of annual reports of Public Interest Entities (PIEs) including the 15 State
Owned Enterprises which are listed in the First Schedule to the Act.
As at 30 June 2009, there were 364 companies that met the definition of a PIE, that is,
having an annual revenue exceeding Rs 200 m. 102 companies were listed on the Stock
exchange but only 75 of the 102 meet the PIE criteria.
Of the 15 SOEs which were required to submit their annual report for review, only 5
submitted their audited reports. These were reviewed by the FRC. The annual reports
for the remaining 10 were still awaited.
3.1
Review Plan
FRC monitors compliance with International Financial Reporting Standards (IFRS) and
the Code of Corporate Governance for Mauritius and any other rules issued by the
Council.
Corporate reports should normally contain information that meet the fundamental
principles. Reports are expected to be relevant, reliable, understandable, comparable and
useful for decision making including stewardship decisions. FRC selected reports for
review based on the following criteria:
 the risks of presenting reports which do not meet the fundamental principles and
where the impact of non-adherence would be mostly felt by various stakeholders,
especially investors and
 the number of users of the annual report (the higher the number of users, the
higher the importance of presenting a quality corporate report).
20
For the year ended June 2009, ninety Annual Reports were reviewed, in the various
categories as follows:
No of PIEs
Listed PIEs
63
PIEs not listed
22
SOEs
5
3.2
Sector Review
The entities that were reviewed were operational in the various sectors shown in table
below:
SECTOR
No. of entities
Banking and Insurance
17
Commerce
8
Textile and
14
Manufacturing Industry
Investments
13
Leisure & Hotels
10
Sugar Industry
10
Transport
3
Services
15
Total
3.3
90
Outcome of annual report reviews
FRC noted a fairly good level of understanding of IFRS by some entities. However, there
was still a lot of improvement to be made with regards to compliance with the National
Code of Corporate Governance and various important IAS/IFRS policies, as highlighted
hereunder:
21
3.3.1(a)
Compliance with the National Code of Corporate Governance
The FR Act, Section 39(3) stipulates that “where the directors of the company disclose
the extent of compliance with the Code of Corporate Governance, the auditor shall report
whether the disclosure is consistent with the requirements of the code.” Compliance with
the National Code of Corporate Governance was examined during the annual report
review. It was noted that most of the companies reviewed did not fully comply with the
Code as shown in the table below.
No of PIEs
(i)
Compliant
Partly Compliant
Not Compliant
Total
23
50
17
90
26%
56%
18%
100%
Those which have not complied with the Code of Corporate Governance
promised that in their next annual report this would be done.
(ii)
Among those which have complied partly with the Code of Corporate
Governance the following issues were omitted:

Integrated Sustainability Reporting, that is policies and practices as
regards to ethics, environmental reporting, compliance with Health and
Safety Act and any other social impact.

Directors’ responsibilities for Internal Control and description of the
methods by which this responsibility is discharged and information
relating to the internal audit function.

Detailed description of non-audit services rendered by the external auditor

Cascade holding structure

Corporate code of conduct that specifically addresses conflicts of interest,
particularly relating to directors and management

Statement of remuneration philosophy

List of shareholders holding more than 5% of shares of the company
22

Dividend policy

Detailed timetable regarding important events, including reporting dates,
dividend declaration and payment dates, and meetings of shareholders
3.3.1 (b)
Observations of FRC
Listed companies, especially, were advised to report on Corporate Governance as a good
practice to assist users of their accounts to better understand the functioning of their
organisation.
The FR Act (2004) has been amended in July 2009 to make compliance with the National
Code of Corporate Governance compulsory, on a “comply or explain” principle.
3.3.2 (a)
Non-compliance with IFRS
All instances of non-compliance with IFRS requirements were communicated to the
companies concerned and positive responses were received.
When there is non-
compliance the financial reports would not give a true and fair view of the situation. All
stakeholders should be provided with adequate information to better understand the
financial statements. Non-compliance was more evident in respect of the following
standards:
o
Presentation of the Financial Statements (IAS 1)
o
Employee Benefits (IAS 19)
o
Inventories recognised as expense ( IAS 2)
o
Goodwill allocated to Cash Generating Units (CGUs) for purpose of
impairment (IAS 36)
o
Fair Value measurement and disclosures (IAS 32,39 and IFRS 7)
The Financial Reporting Council will follow up to ensure compliance with the standards.
23
3.3.2(b)
Action Taken
The findings of the reviews have revealed that certain companies had difficulties in
understanding the main IFRS. FRC has therefore taken the following measures:

FRC in collaboration with ACCA organised two workshops on the “Back
to Basics” on mostly all the IAS/IFRS;

IFRS 7 disclosures requirements were published on FRC website as
updates

Companies were requested in writing to comply with the
disclosure
requirements of IFRS 7.
3.3.3 Concentration of Clients to Audit Firms
For the ninety entities reviewed, it was found that there is high concentration of audit
work among the big audit firms. Eighty eight per cent of them were clients of five big
audit firms.
24
4.0 Audit Practice Review
4.1
As at 30 June 2009, one hundred and nine audit firms were categorised with
respect to the number of partners as follows:
 sole practitioner or one partner firm, that is, auditors operating in their own name,
or having registered their practice on a firm’s name
 medium-sized firms, that is firms with two partners
 large firms, that is, firms with more than two partners
As at 31 May 2009
No of firms
No. of Licensed
Auditors
Less: Auditors
practising both as sole
practitioner and in firm
name
Total of Licensed
Auditors
4.2
Sole
Practitioner
86
88
Mediumsize firm
12
24
Large firm
Total
9
56
109
168
(2)
(2)
86
24
56
166
Rules on audit practice reviews
Rules with respect to Audit Practice Reviews have been issued in accordance with
Section 20 of the FR Act. As per the rules, an audit practice review shall consist of a twopronged approach, that is, an overall firm review and an individual file review.
4.3
Overall firm review
An overall firm review is an assessment of the quality system of the firm and is done as
follows:
 an off-site inspection whereby the auditors of the firm may be required to fill in
quality control self-assessment questionnaires;
25
 an on-site inspection to assess the quality culture of the firm and also to perform
individual firm file review to make sure that the audit work has been done in
compliance with all ISAs, any other rules and regulations pertaining to the audit
4.4
Off-Site review
FRC issues a self-assessment questionnaire on quality control based on the requirements
of International Standard on Quality Control 1 (ISQC1) to all audit firms. This
questionnaire enables FRC to have a preliminary assessment on the level of compliance
and the status of the quality system of each firm. The key elements of a quality culture in
an audit firm are:
 Risk Management
 Leadership Responsibility for Quality
 Ethical Requirements
 Independence
 Client and Engagement Acceptance and Continuance
 Human Resources
 Engagement Contract
 Engagement Performance
 Monitoring
 Working Papers
 Complaints and Allegations
 Knowledge in IFRS
The fundamental requirement of ISQC1 is that every audit firm shall have policy and
procedures on all the above-mentioned key elements. However, the level of
documentation must also take into consideration the complexity and size of the audit
firm.
The main finding of the survey was that the sole practitioners and the one-partner firm
have not yet established a system of quality control. Some medium size firms were in the
26
process of doing so. The larger firms have generally followed the system recommended
by their network firm abroad.
Action taken based on findings of the survey
 The sole practitioners/one partner firms will be given a breathing space of one
year, to enable them to establish the system of quality.
 To help them in establishing their documented manual, FRC organised workshops
relevant to that particular aspect, that is documentation of quality control system.
 The FRC will carry out a follow up exercise among the sole practitioners on the
progress made in the development of their quality system.
4.5
On-site practice review process
For the on-site review exercise, FRC has adopted a risk-based formula. Audit firms
which have PIEs as audit clients have been selected.
For the year ended June 2009 it
has performed ten audit practice reviews.
4.6
Off-site review
In September 2008, the FRC started off-site inspection of audit practices and to date nine
reviews have been completed covering three big firms, two medium firms and four small
firms. Reports on all reviews were communicated to the audit practices for corrective and
preventive actions.
4.7
Main findings
4.7.1
Quality culture in audit practice
Promoting quality culture and appointing someone at the top to undertake that task are
essential principles to enhance audit quality in a firm. The international standard on
quality requires all firms to have policies and procedures on each of the elements
mentioned in paragraph 4.4 above. This should be communicated to all employees of the
firm. It has been noted during reviews that there was a lack of communication of the
quality manual.
27
The communication problem is prevalent even in big firms. Audit firms were requested
to follow-up and improve communication.
4.7.2
Documentation of findings
ISA 230 (8) stipulates as follows : The auditor shall prepare audit documentation that is
sufficient to enable an experienced auditor, or any other reviewer having no previous
connection with the audit, to understand :

The nature of the audit

Evidence gathered

The conclusion of the work performed
Audit documentation:

assists the auditor in planning and performing the audit;

facilitates supervision and review of the work performed by assistants;

helps in the evaluation of the audit evidence obtained and conclusion
reached before the auditor’s report is finalized;

provides a record of matters of continuing relevance that can be simply
updated

provides a headstart to the following year’s audit;

helps to enhance the quality of the audit in terms of the quality of the
auditor’s judgments;

helps to understand the rationale of the auditor’s conclusions;

helps to enhance the logic and the clarity of thinking and

provides a record that may assist audit oversight authorities and others
when reviewing audit files.
During the review exercise, instances of lack of documentation were identified as
follows:
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 schedules were inserted in the working paper files, without providing proper
documentation as required by ISA 230.
 minutes of meetings with management level of the clients were not documented.
 no records of consultation meetings were kept.
 conclusions reached by the auditor before forming an opinion were missing.
The FRC will issue guidelines in order to clarify the important aspects of documentation
during an audit engagement. Documentation is a key activity and a quality indicator of
the audit work performed.
4.7.3 Engagement quality review
ISQC1 stipulates that there should be an engagement quality review for all audit work
performed for listed companies and any risky clients as may be determined by the audit
practice. FRC noted that audit firms fail to classify clients in the degree of riskiness and
hence do not know when to carry out partner review and when not to. The firms have
been notified that at the planning stage there is a need to determine engagement quality
review for all listed companies and for any other companies where the level of risk
pertaining to fraud and other malpractices may be high.
4.7.4 Ethics/Independence
One of the requirements of ISQC1 and ISA 220 is that auditors have to sign an
Independence Declaration Certificate before engaging in any audit. This issue requires
strict adherence from the auditors. In many cases, in the absence of independence
confirmation forms it was not possible to ensure that staff involved in audit assignments
were independent. The firms were requested to comply with this requirement of ISAs
and the IFAC Code of Ethics.
4.7.5 Monitoring of the quality system established as per ISQC1
During FRC’s review, it was noted that most firms do not attribute enough importance to
the fact that for any system to work, there is a need to have regular monitoring and
review, and to propose corrective and preventive actions in areas which require
29
improvement. This may be explained by the fact that most firms are half-way in the
process of setting up a quality system. Even those big firms which have the system fail to
pay heed to the requirements of monitoring and analysis.
4.7.6 Client base
The number of audit clients per partner, especially in big firms, is around one hundred.
This is a matter of concern when the clients have the same financial year as it may impact
on the quality of the audit if the partner is not able to give adequate attention to audit
work on an individual basis.
Firms were informed that one indicator of quality is the workload per partner and that
there should be a predetermined number of hours that should be spent on each audit
engagement.
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5.0 Other Activities of FRC
FRC also undertook various corollary activities that support the fulfillment of its
objectives, that is, promoting quality in reporting and auditing. FRC has established a
Research Unit to keep abreast of all international developments. Workshop and training
activities have been organised for the benefit of auditors and accountants.
5.1
Research and updates
The Research Unit keeps abreast of all new and redrafted accounting and auditing
standards. Changes in International Standards are becoming a regular feature. Changes
in IFRS and ISAs automatically bring changes in the financial and audit review
methodology manuals adopted by FRC to undertake reviews. The Research Unit is also
responsible for communicating with the public interest entities and auditors on
clarifications on a particular standard.
5.2
Education and Training
One of the functions of FRC as per Section 5(j) of the FR Act is to promote quality of
financial reporting through the provision of education and training on accounting and
auditing.
The training activities carried out independently by FRC or in collaboration with ACCA
for the year ended 30 June 2009 is shown in the Table below:
DATE
10-14 November
2008
TRAINING ACTIVITIES
IFRS refresher course, organized in collaboration
with ACCA.
Resource person: Mr Allan Lombard from W.
Consulting (South Africa)
16-17 February
2009
Quality Control in Auditing: the ISQC1
Resource Persons: Mr H.Heymans and Mrs L.
Badenhorst from Probeta (South Africa)
02-06 March
2009
IFRS 7, IAS 32, IAS 39
Resource Person:
Mr
31
T.
Njikizana,
from
W.Consulting (South Africa)
19-20 May 2009
Audit Planning and Risk Assessment ( Series 200
&300 of ISAs)
Resource Person: MrsL.Badenhorst, from Probeta
(South Africa)
32
6.0 Budget
6.1
The FRC’s operation is financed mainly from a grant received from the
Government. FRC obtained some revenue from licensing of auditors, renewal of
licences, approval of audit firms’ names, training activities and fees for audit
practice reviews:
Grant from the government
Rs
11,890,649
Licensing/Renewal of auditors
Rs
886,000
Approval of firms’ names
Rs
16,500
Training/workshops
Rs
789,001
Audit Practice Reviews
Rs
400,000
---------------------Total
Rs
13,982,150
----------------------
6.2
Presentation of Financial Statements
FRC’s financial reporting is in compliance with IFRS. The financial statements of FRC
are at Appendix I.
33
7.0 Future Plan of the Financial Reporting Council
7.1
Review of Annual Reports
By reviewing the annual reports of Public Interest Entities and monitoring the quality of
published accounts, FRC contributes towards establishing Mauritius as a regional
financial centre with a modern and well-regulated infrastructure.
7.1.1
Cold Reviews
FRC will perform a second review (cold review) for all companies that have already been
reviewed, especially the listed companies, where the risk is higher and where the impact
of non-compliance will be mostly felt. FRC will verify compliance with issues from the
updates of IFRS and check whether non-compliances raised in the first review have been
remedied.
7.1.2
Review of Annual Reports of SOEs
The Statutory Bodies Accounts and Audit Act (as Amended in 2008) in Section 6A(3)
stipulates that “every statutory body shall prepare financial statements in compliance with
the international financial reporting standards issued by IASB.” Section 6A(2)(d) of the
same Act states that statutory bodies have to prepare “a corporate governance report in
accordance with the National Code of Corporate Governance.” The same section of the
Act goes further to state in Section 6A(5) “The Minister may, by regulations, exempt any
statutory body specified in Part II of the Schedule from the application of subsections
(2)(d) and (3).” (Part II of the Schedule refers to statutory bodies which are not required
to abide by programme based budgeting.)
In this regard, FRC will have to review the annual reports of these SOEs as from the year
2011.
34
7.1.3
Accounting framework for exempted statutory bodies
FRC has produced a draft accounting framework taking into account all the fundamental
principles of accounting such as accrual, consistency, materiality and prudence that shall
be adhered to by statutory bodies exempted from complying with IFRS.
7.1.4
Monitoring compliance with the National Code of Corporate Governance
Good governance improves the ability of the board of a company to manage the company
effectively as well providing accountability to stakeholders.
With the amendments brought in the Financial Reporting Act, public interest entities will
be required to comply with the National Code of Corporate Governance.
7.1.5
Xtensive Business Reporting Language (XBRL)
The XBRL reporting is a standard format of financial reporting which is used in some
developed countries, such as USA and Singapore. In Mauritius, it should not be difficult
to report in XBRL as companies are already IFRS compliant.
XBRL reporting would improve the “Doing Business” indicators in Mauritius since it
would ease data access and comparability of reporting. Other regulatory bodies like the
Bank of Mauritius, the Financial Services Commission as well as the Stock Exchange of
Mauritius and the Mauritius Revenue Authority have shown interest and commitment for
XBRL reporting in Mauritius.
FRC will be working with the Ministry of Finance to further awareness of XBRL and its
acceptance.
35
7.2
Audit Practice Review
7.2.1
To review sole practitioners
Sole practitioners have been given a delay by FRC to implement quality systems in their
firms. The requirements for a big or medium-sized firm would not be the same as for
sole practitioners. However, the fundamental principles, such as leadership commitment
to quality, improving competence and skills, communications with clients and updates in
IFRS should be present. FRC will be involved in reviewing the quality systems of sole
practitioners as from January 2010.
7.2.2 Follow-up reviews
There will be follow-up for reviews that have already been done, to monitor the
implementation of FRC’s recommendations. The work of other partners which have not
been reviewed will be taken on board.
7.2.3
The review will be extended to firms that have not been covered.
7.3
Other Activities
7.3.1
Training and workshops
Further training activities will be provided for the preparation of accounts and to auditors.
FRC has already established a schedule for the year ended 2009 as per table below. A
new plan will be established in January 2010.
6-7 August 2009
13-14
2009
IFRS refresher course, organized in collaboration
with ACCA
Resource person: Mr Allan Lombard from W.
Consulting (South Africa)
October Audit Evidence and the use of work of others ( Series
500 &600 of ISAs)
Resource person: Mr H. Heymans and Ms L.
36
Badenhorst , Probeta (South Africa)
1&2
2009
7.3.2
December Presentation on Clarity Project to be effective 15
December 2009
Presentation on the Clarity Project
The International Auditing and Assurance Standard Board (IAASB) has recently
completed the Clarity Project, where all the ISAs have been reviewed and redrafted in a
new style that will make the Auditing Standards easier to understand and implement.
The Clarity Project will be effective as from 15 December 2009. The improvements in
the set of ISAs are as follows:

Each standard now clearly identifies the objectives of the auditor in the audit area
to be addressed and clearly states the requirements to be followed by the auditor

Requirements are now expressed by the phrase “the auditor shall”.

One new ISA 265 : Communicating deficiencies in Internal Control to those
charged with governance

The key changes in the standards include ISA 550 on related parties and ISA 540
on auditing fair value measurements and disclosures.
37
8.0 CONCLUSION
The importance of an institution like the FRC in Mauritius lies in its independent
monitoring of financial reporting, accounting standards and auditing standards to improve
transparency in the reports of PIEs and SOEs for the benefit of shareholders and other
stakeholders. The FRC is required to work in close collaboration with other regulators
such as the Bank of Mauritius, the Financial Services Commission and the Registrar of
Companies, and MIPA to ensure compliance in respective fields.
The FRC will pursue its endeavour to educate and provide training on updates on
IFRS/ISAs to accountants and auditors.
It will also strengthen standards in PIEs,
especially the State Owned Enterprises and compliance with Corporate Governance and
contribute towards establishing the credentials of Mauritius as a reputable financial
services centre and as a safe place to do business.
38
Appendix II
Financial Reporting Council
Organisational Structure
Council
APRP
Audit Practice
Review Unit
Financial Reporting
Monitoring Unit
CEO
Research/Training
Unit
FRMP
Administrative
Secretary
Support
Staff
39