Auditors have become orators at annual general meetings where companies report on their performance to shareholders, but the Institute of Chartered Accountants Jamaica, ICAJ, wants the laws modified to put an end to the reading of the full audit reports as required by law.
The independent auditor’s report is published with a company’s annual audited financial report and can be up to a dozen pages long.
“We realise that you don’t necessarily want to hear us talking, and we also don’t want to bore persons and thereby lose the essence of what we are trying to convey,” ICAJ President Allison Peart said in an interview with the Financial Gleaner.
The ICAJ has met with and submitted its proposal to the Minister of Industry Investment & Commerce Senator Aubyn Hill. Peart said that the proposal was well received. The timeline for a possible amendment was unanswered by the ministry.
Currently, the Companies Act states under Section 157(2) that audit reports should be read in full. The ICAJ wants it changed to avoid the reading of audit reports that were made available for inspection, that are unmodified, that is, free from material misstatements and error. Those with modified opinions, which deal with adverse or qualified issues, would still be read.
Jamaica is one of the few countries in which auditors are required to read these reports in full. Shareholders generally receive the audited reports in advance of the AGMs. The reports are read as is, with no new information.
“The proposal is that only an audit report that has a modified opinion, namely a qualified opinion, an adverse opinion, or a disclaimer of opinion, any emphasis of matter or material uncertainty related to going concern or any adverse findings would be read,” Peart said.
That said, the report would still be open to inspection. Also, the chairman at an annual meeting, would still be able to request the reading in full.
“The audit opinion is not being hidden. It is still available to you,” Peart added.
The reading of audit reports was largely a non-issue prior to 2016 when the minimum requirements for audits of companies were updated under International Standard on Auditing 700. This increased the average audit report for public companies from a page to several pages as auditors were required to include key audit matters plus other material information.
In fact, it takes auditors approximately 20 to 30 minutes to read the audit reports of publicly traded banks.
Other countries were also affected by the changes, but many responded by adjusting or reinterpreting their laws to avoid the lengthy readings.
“To have the auditor read the entire audit report when it’s not modified takes up time at the AGM that could be spent on other matters,” said Peart.
In the past, one of the more vocal minority shareholders on the circuit, Orrette Staple, insisted that auditors read the report in full at annual meetings. However, when told of the ICAJ proposal to elicit his comment, Staple expressed measured agreement with the professional group.
“I do not have a problem with them not reading the report if the law is changed. But I would want to be able to question them on the modified reports in a question-and-answer session,” Staple told the Financial Gleaner.
Over the years, business leaders, including Paul Scott, the chairman of Productive Business Solutions, and the late Sushil Jain, an analyst who held board seats on multiple listed companies, have complained that these readings cost time and money. Scott most recently addressed the issue at PBS’s annual general meeting in September.
“Hopefully, this will be the last year to read these reports,” he said.