FAITH NGWENYA TECHNICAL & STANDARDS EXECUTIVE SOUTH AFRICAN INSTITUTE OF PROFESSIONAL ACCOUNTANTS 1

Acknowledgement The South African Institute of Professional Accountants (SAIPA) commends the Department of Trade and Industry in particular the Co-operatives unit for the progressive amendments to the Co-operatives Act of

SAIPA 3 SAIPA represents in excess of 7000 professional accountants in practice, business and academia It is on this premise that our comments will concentrate more on the financial aspects and financial reporting aspects of the Amendment Act

Positive elements of the bill We commend the broader financial reporting requirements which are an improvement from the “audit” only as per the existing Act This will improve compliance and reduce the costs of operating a Co-op 4

Section 1(b) Definitions Annual Accounting Report Annual accounting report means a document containing financial statements, a social report and the management decision report. Problem A social report and management decision report are not accounting reports Recommendation Section should refer to: ANNUAL REPORT means a document containing financial statements, a social report and a MANAGEMENT REPORT 5

Section 1(b) The Act nor the amendments have not defined A management decision report There needs to be clarity on the definition of the management decision report. 6

Existing regulations: Form CR7 This is the lodgment of financial statements to CIPC, What would these comprise; should these be the entire Annual report or Financial statements only Recommendation Depending on the contents the title of Form CR7 may need to be reviewed 7

Definition of “Audit” Audit means objectively examining and evaluating the annual accounting report, in accordance with the prescribed or applicable auditing standards with an objective of expressing an opinion as to the fairness or compliance with an identified reporting framework and applicable statutory standards; Problem Annual accounting report includes a social report and a management decision report. Cannot express an opinion on a social report as there is no framework that derives such a report 8

Recommendation The definition of audit should be as defined in the Audit Professions Act No. 26 of 2005 Cannot refer to an “audit” if it is not performed by an auditor The regulations should clearly distinguish between an (i) audit (ii) an independent review (iii) non audited financial statements 9

Section 1(c) Definition of auditor This definition is correct as it refers to the APA however when seen in context of the other sections of the Act and regulations it poses a conflict. Hence the recommendations made above. 10

Section 1(d) Definition Auditor’s annual accounting report Problem This is confusing, in the light of the definition of audit Recommendation This should refer to the audited financial statements or audit report 11

Section 1(j) Definition of independent review Recommend Independent review means an assessment of the financial statements with an objective to conclude, through performing primarily inquiry, and analytical procedures, and evaluating the sufficiency and appropriateness of evidence obtained, whether anything has come to the attention of the practitioner that causes the practitioner to believe the financial statements are not prepared in all material respects, in accordance with an applicable financial reporting framework. 12

Section 1(j) definition of independent reviewer Problem: Section refers to a person registered with an accredited professional body contemplated in Chapter III of the Auditing Profession Act Recommendation The section should refer to the Independent reviewer as per the Companies Act 71 of 2008 Regulation 29(1)(a) and should define the levels in Section 26 of the Bill (Section 29 of the principal act) 13

Additions to Section 1(j) Problem This Act in Section 26(b)(aA) refers to the “appointment of an independent accounting officer” but there is no definition of this anywhere in the act Recommendation It is recommended that the Act uses the term consistent with the Companies Act 71 of 2008 which uses “Independent Accounting Professional” 14

Definition of Independent accounting professional “independent accounting professional” when used with respect to any particular cooperative, means a person who–– i) is–– (aa) a registered auditor in terms of the Auditing Profession Act; or (bb) a member in good standing of a professional body that has been accredited in terms of section 33 of the Auditing Profession Act; or 15

Definition continued (cc) qualified to be appointed as an accounting officer of a close corporation in terms of section 60 (1), (2) and (4) of the Close Corporations Act, 1984 (Act No. 69 of 1984); and (ii) does not have a personal financial interest in the cooperative or a related or inter-related entity; and (iii) is not–– (aa) involved in the day to day management of the cooperative’s business, nor has been so involved at any time during the previous three financial years; or 16

Definition continued (cc) qualified to be appointed as an accounting officer of a close corporation in terms of section 60 (1), (2) and (4) of the Close Corporations Act, 1984 (Act No. 69 of 1984); and (ii) does not have a personal financial interest in the cooperative or a related or inter-related entity; and (iii) is not–– (aa) involved in the day to day management of the cooperative’s business, nor has been so involved at any time during the previous three financial years; or 17

Section 3 (a)(e) The removal of the specified 5% reserve fund guideline is commended; as this allows for the Co-op to stipulate the non distributable percentage in its own constitution 18

Section 3 (b) The removal of one vote per member is commendable and the subsections (a)-(c) is also welcome as it controls the controlling interests of members by putting a cap on maximum number of percentage holding 19

(35) Section 47 of the principal Act Reference to the Auditor’s annual accounting report should refer to the “Audit report” as per our recommendation The section introduces different Categories of co- operatives which have not been defined in the Act. Will the Regulations define Categories A; B and C? 20

(35) Section 47 of the principal Act (3) Category A primary co-operatives must produce an annual accounting report to the Registrar in respect of each financial year Problems 1. The Act does not state who should prepare this annual accounting report 2. Registrar of co-operatives or CIPC form CR7 is lodged with CIPC, is there a difference? 21

37 Amendment to section49 of the principal act Problem “A person is disqualified from being an auditor or independent review of a co-operative if that person- (ii) is not registered with the South African Institute of Chartered Accountants or does not satisfy the requirements for registration as an auditor as contemplated in Chapter III of the APA” Recommendation The Companies Act 71 of 2008 includes Accounting officers as approved in the Close Corporations Act as independent reviewers 22

CONCLUSION We thank the Portfolio committee for providing the platform to raise our concerns and suggest our recommendations Thank you 23