JSE Proactive monitoring report November 2021

The JSE has issued their latest proactive monitoring report in November. The date of issuing has been amended from February to November at the request of SAICA, for the benefit of the financial services sector and entities with December to February year-ends. The 2021 report only includes review activities for a 9-month period.

The 2021 focus area is the impact of Covid-19, some of the Covid-19 disclosure related findings were:

  1. Lessor accounting for Covid-19 lease concessions
  2. Fair value of investment properties
  3. Debt covenant disclosures
  4. ‘Negative confirmations’ – supporting explanations on an why economic event did not significantly impact the issuer

Common disclosure omissions include:

  1. Presentation of financial statements – Lack of disclosure re judgements and estimates.
  2. Fair value measurement disclosures

- omissions of significant unobservable inputs,

- sensitivity analysis of changes in these inputs and

- over aggregation of disclosed inputs.

  1. Financial instrument disclosures - Weak expected credit loss disclosures.
  2. Impairment of assets – Omission of all or some of the minimum disclosure requirements.
  3. Extent of disaggregated revenue – Revenue has not been sufficiently disaggregated.
  4. Tax rate reconciliation – tax rate recon not meaningful, over aggregation, insufficient support for recognising deferred tax assets.

The material cases identified in the report include the following items.

  1. Misallocation between categories in the statement of cash flows (Lease principal payments = financing activities!)
  2. Incorrect classification of a financial asset
  3. Headline earnings per share - Circular 1/2021 is rule-based; deviations are not permitted.
  4. Misallocation of revaluations when investment property in one entity and PPE at group
  5. Structured entities – must be tested properly for control, esp where financial guarantee exist
  6. BEE transactions – be careful of double counting the share issues where options exist

Emerging issues for the 2022 review cycle were also discussed including:

  • Income statement presented by nature v function
  • Quantifying the impact of Covid-19 / the July 2021 civil unrest 

For access to the full report please click here