• King IV™ Report Welcomed by Auditors

King IV™ Report Welcomed by Auditors

18 March 2016

The Institute of Directors in Southern Africa (IoDSA) recently launched the draft King IV™ report for public comment. The 16 principles of King IV™ will have wider application to non-listed entities, such as state-owned enterprises and non-profit organisations.

BDO South Africa’s CEO, Mark Stewart believes King IV™ has come at the right time.

“In the context of where South Africa (SA) finds itself currently, the report offers a good opportunity to reflect on what can be done to improve our society. While it is business focused, it can be extended to many aspects of SA life. I compare it to going to gym – we know it is good for us, we know it should happen regularly and we should stick to a plan. The reality is that some are more disciplined than others and achieve better results, while others have different priorities and achieve different results. Larger businesses that are more structured can adapt more easily while smaller businesses don’t always have the skills/resources so they may find it more difficult to comply.”

Speaking at the launch, Ansie Ramalho, King IV™ project lead said that there had been so many developments internationally and locally since King III that had to be catered for. “The philosophical underpinnings in King III are echoed in King IV,” she continued.

Stewart hopes that through these philosophical underpinnings that King IV™ will result in a focus on greater compliance. “The inclusion of SOEs, NPOs and retirement funds will contribute to achieving this objective,” continues Stewart. “In general terms, the focus on ethical behaviour should contribute to the sustainability of companies and society. An increased awareness and practice of ethical behaviour in business has a positive impact on all spheres of society which will contribute to nation building.”

He also believes King IV™ will bring opportunities for the Accounting Industry and their clients. “Any new thinking on legislation brings opportunities for professional service firms for consulting. Those clients who wish to adopt King IV™ and are already in the ‘King’ system will benefit from greater clarity of the principles. We would encourage non-participants to consider implementing as there is a correlation between compliance and value.”

Keeping within Accounting, King IV™ speaks of the importance of independence with auditors and that organisations must rotate auditors and use tendering for new auditors regularly to keep that independence. Stewart doesn’t see this as an issue. “This has been a popular topic for some time. We support auditor independence and the use of voluntary tendering on a periodic basis. In simple terms we do not support mandatory firm rotation and particularly not on short rotation cycles.”

Another focus within King IV™ is on cyber-crime and making sure that there are policies in place to manage the risk of cyber-crime. Why cyber-crime?

“Cyber-crime is a buzz word at the moment,” explains Stewart. “As a firm we are custodians of highly confidential client information and we need to ensure that our own policies and procedures make our environment as secure as possible. To stay a step ahead of those committing this type of crime requires additional skills and resources. It is also an opportunity for firms like ourselves to provide specialist technical/consulting services to those who wish to address the risks associated with this type of crime. Technology changes at a rate which makes it difficult for a business to keep up with the pace. Investing in technical resources is essential for medium term sustainability.”

Now that King IV™ has been opened up to all businesses and not just listed companies, Stewart encourages those who have the will to improve to become involved. “It will be interesting to see whether there is an increase in SME/SOE/NPO participation,” he says. “The listed companies who are already participants won’t be seriously affected, but smaller entities will be as they are often constrained by skills/resources. SOEs/NPOs/funds will need to access skills from a pool of resources that are already stretched, while the general economy will not contribute to finding funds for what is an additional discretionary spend.”

“I encourage those businesses who are trying to create value while ensuring their sustainability to adopt as many of the recommendations within King IV™ as possible. Not only as a contribution for selfish reasons but as a contribution to our society and the long terms sustainability of SA.” Stewart concludes.

BDO South Africa is a Platinum Sponsor of the King IV™ Report 2016.

Click here for more details