Corporate Governance Chapter 5 Reporting guidelines for corporations 794. According to the Companies Act of 2001, all public and private sector organisations have to use IAS and ISA in their financial statements and reports. Small companies with a turnover of Rs10 million or less do not have to comply with this obligation. An evaluation of corporations in Mauritius reveals that there is little concern about these international standards. There is, however, concern about the difficulties of applying them to reporting and auditing. In principle, auditors are supposed to abide by the rules, standards and ethical guidelines of the professional bodies to which they belong. Unfortunately, oversight of these rules is rather poor. When they are breached, the violations are often not reported. When they are reported, the professional body is not willing to sanction the offenders, especially when there are no formal reporting channels. 795. The CSAR observes that some highly publicised corporate financial irregularities have raised doubts about the quality of financial statements and auditor independence. These doubts have also been raised because of public financial scandals like the MCB and Air Mauritius/Rogers cases. 796. The CSAR also sees the accountability of parastatals and other SOEs as an issue. It reports that the director of audit has observed that the law needs reinforcing to ensure that parastatals are accountable and that there are sanctions for not submitting annual reports. The CSAR provides a comprehensive and relevant list of actions required to improve accountability in corporations. Chapter 5 798. The responsibilities of boards of directors are particularly important in Mauritius, because the ownership of assets is highly concentrated and most of the companies are owned by families. Their responsibilities have not been adequately addressed. High concentrations of ownership are associated with highly active majority shareholders in the management of companies, especially in the appointment of board members, so that minority shareholders seldom contest control. Minority shareholders never contest control if the largest shareholders hold more than 50 per cent of voting rights. 799. The performance of Mauritian boards of directors is uneven. The CRM pointed out that some board members are appointed because of their networks and connections with majority shareholders rather than their qualifications. This increases the likelihood that appointed directors lack the required technical competence and independence. This could negatively affect their ability to oversee the key functions and management of the companies for which they are responsible. Some of these key functions include: (i) reviewing and guiding corporate strategies, major plans of action, risk policies, annual budgets and business plans; (ii) setting performance targets; (iii) monitoring implementation and corporate performance and overseeing major capital expenditure, acquisitions and divestitures; (iv) selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning; (v) reviewing key executive and board remuneration and ensuring a formal and transparent process of nominating board members; (vi) monitoring and managing potential conflicts of interest between managers, board members and shareholders, including misusing corporate assets and abuse in related-party transactions; (vii) ensuring the integrity of the corporations’ accounting and financial reporting systems, including independent audits, and that there are appropriate systems of control, particularly systems for monitoring risk, financial controls and compliance with the law; (viii) monitoring the effectiveness of governance practices and making necessary changes; and (ix) overseeing disclosures and communications. 800. Some board members represent shareholders who are in direct control. This consequently diminishes their ability to oversee the actions of the controlling shareholders and prevents them from protecting the legitimate interests of minority shareholders. Minority shareholders and other investors may be confronted with breaches of their property rights, contract violations, transfer pricing, selfdealing and asset stripping. This contravenes the Companies Act of Disclosure and transparency 797. ii. The CSAR reports that the Companies Act of 2001, the FRA of 2004, the Code of Corporate Governance and the Listing Rules issued by the SEC determine the requirements for disclosing financial and nonfinancial information by corporations in the private sector. Specific rules and regulations from other regulatory bodies for specific sectors include the FSC and BoM guidelines for financial statements. Findings of the CRM Responsibilities of boards of directors 280 Corporate Governance 281