Northern Region December 2009 Ewald Müller Senior Executive: Standards SAICA 1

Agenda Standards Division Focus areas Companies Act Regulations Financial Reporting Standards Audit & Review The role of auditors King III 2

Yusuf Dukander PD: Financial Services STANDARDS DIVISION Sharon Ryan Personal Assistant Ewald Müller Senior Executive Leigh Roberts PD: Sustainability Muneer Hassan PD: Tax Bongeka Nodada PM: Accounting Pertunia Sibanyoni Shared Personal Assistant Sue Ludolph PD: Accounting Ashley Vandiar PD: Auditing & Members’Advice Obakeng Mathibe PM: Tax Faith Meyer Shared Personal Assistant Juanita Steenekamp PD: Governance & Non-IFRS Reporting Eugene Modiha PM: Financial Services & Auditing Vacant PM: Public Sector & Reporting Lynette Khan Shared Personal Assistant Mohammed Lorgat PD: Public Sector Vacant PD: IT Jan Dijkman PD: Ethics Vacant PM: Governance & Sustainability Vacant PA: Sustainability & Ethics Vacant PD: Risk Vacant PD: Man./Cost Vacant PM: Risk & Man/Cost Key: Blue: Current SExec & PDs Yellow: Short-term staffing Purple: Long-term staffing Vacant PA: Risk & Man. Acc. Vacant PM: Tax

Focus areas The focus for Standards in 2009 will be on better understanding and serving our members’ individual professional and technical needs The overall priorities for Standards Division for 2009 are as follows: Build lobbying capacity (by cooperation with other business bodies, as appropriate) Deliver effective query system Optimising customised and targeted communication Website management – relevance, correctness, “freshness” 4

Companies Act Regulations Timetable 21 August 2009Completion of initial consultations 30 September 2009Distribution of preliminary draft to stakeholders 15 October 2009Final date for stakeholder responses November 2009Further consultation with stakeholders 1 November 2009Completion of Draft for Public Comment 15 November 2009Publication in Gazette 15/28 February 2010Final Date for Public Comment 31 March 2010Submission of Final Regulations for Promulgation 1 July/August 2010Effective date still on the cards 5

Scope ONE book Not mechanism to correct problems in Act Interpretation Notes MAY emanate Separate process in place for amendment act 6 Companies Act Regulations

The Minister must make the following regulations: establish a council to be known as the Financial Reporting Standards Council (FRSC) select and appoint candidates for membership of the FRSC establish the Takeover Regulations provide for the transitional status and conversion of nominal or par value shares, treasury shares and capital accounts to no par value shares The Minister may make regulations prescribing the following: financial reporting standards requirements for different companies prescribing the private companies that have to have there AFS audited 7 Companies Act Regulations

The Minister may make regulations prescribing the following: manner, form procedures for the conduct of an independent review the professional qualifications of the people who can conduct the independent review categories of companies that has to have a social and ethics committee minimum qualification requirements for members of audit committees designating one person or association to regulate the practice of persons as Business Rescue Practitioners Business Rescue Practitioner qualifications, remuneration and procedures to be followed 8 Companies Act Regulations

The Minister may make regulations prescribing the following: designate any organ of state or other entity to deal with conciliation, mediation and arbitration require the FRSC to be a member of a relevant international accounting standards setting organisation 9 Companies Act Regulations

SAICA submission on Regulations Section 28 – Company to keep accurate and complete accounting records Section 29 – Financial Reporting Standards Section 30 – Qualitative and quantitative thresholds for audit requirement Section 30 – Manner, form and procedures for the conduct of independent reviews Section 30 – Professional standards for persons to conduct such independent reviews Section 72 – A company or a category of companies required to establish a social and ethics committee Section 94 – Minimum qualifications to be prescribed for audit committee members 10

Financial Reporting Standards For any particular company, any financial statements contemplated in section 28 or 29 must comply with the applicable standards for that category of company as follows: State owned companies IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, or other applicable national legislation, the latter prevails Public companies listed on an exchange IFRS, but in the case of any conflict with the applicable listing requirements of the relevant exchange, the latter prevails 11

Financial Reporting Standards Public companies not listed on an exchange IFRS Profit companies, other than public companies, that are required in terms of Regulation 29 (a) to have their annual financial statements audited IFRS Profit companies that are required in terms of Regulation 30 (2)(b) to have their annual financial statements independently reviewed IFRS for SMEs 12

Financial Reporting Standards Profit companies that are - (a) required in terms of Regulation 30(2)(a) to have their annual financial statements independently compiled and reported, or (b) exempted from having their annual financial statements audited or reviewed There is no prescribed Financial Reporting Standard 13

Financial Reporting Standards Non profit companies that are required in terms of Regulation 29 (a) to have their annual financial statements audited IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, or other applicable national legislation, the latter prevails Non profit companies that are required in terms of Regulation 29 (b) to have their annual financial statements audited IFRS 14

Financial Reporting Standards Non profit companies that are required in terms of Regulation 30 (2)(b) to have their annual financial statements independently reviewed IFRS for SMEs Non profit companies that are required in terms of Regulation 30 (2)(a) to have their annual financial statements independently compiled and reported There is no prescribed Financial Reporting Standard SUBJECT TO APB DETERMINATIONS IN THE INTERIM 15

Reporting Framework of Non-public Entities Still subject to APB approval Re-exposure of ED (as amended) QUESTIONNAIRE Additional areas of relief: No consolidation required Historical cost throughout (fair value disclosure discretionary) Finance leases need not be capitalised Tax depreciation rates can be applied (NOT accelerated allowances) 16

Companies to be Audited In addition to public companies and state owned companies, a company that falls within any of the following categories with respect to any particular financial year must have its annual financial statements for that financial year audited: (a) Any profit or non-profit company if, in the ordinary course of its activities, it holds assets in a fiduciary capacity for a broad group of persons who are not related to the company, whether it does so – (i) as its primary activity; or (ii) incidental to its primary activity in any manner contemplated in terms of section 65(2) of the Consumer Protection Act,

Companies to be Audited (b) Any non-profit company, if it – (i) was incorporated - (aa) directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or (bb) primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity; or (ii) it solicits or accepts donations from the general public and – (aa) holds assets in excess of R 60 Million; or (bb) its operating budget for the relevant year exceeded R 120 Million (c) Any profit or non-profit company that is subject to a compliance notice, in accordance with Regulation 32 (5)(b)(ii), requiring it to have its annual financial statement for that particular year audited 18

Companies subject to Review 19 Base audit on 3 rd party liabilities and employees?

The role of auditors Audit provides positive assurance (8/10) Review provides negative assurance (4/10) Compilation report / agreed upon procedures (?/10) Proposals for review: Qualifications ISRE

The role of auditors Solvency and liquidity test 4. (1) For any purpose of this Act, a company satisfies the solvency and liquidity test at a particular time if, considering all reasonably foreseeable financial circumstances of the company at that time— (a) the assets of the company or, if the company is a member of a group of companies, the aggregate assets of the company, as fairly valued, equal or exceed the liabilities of the company or, if the company is a member of a group of companies, the aggregate liabilities of the company, as fairly valued; and 21

The role of auditors Solvency and liquidity test (b) it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of— (i) 12 months after the date on which the test is considered; or (ii) in the case of a distribution contemplated in paragraph (a) of the definition of ‘distribution’ in section 1, 12 months following that distribution. 22

The role of auditors Trusts & Estates AGSA Pre-issuance reviews BEE verification 31 January 2010 IRBA members (attest) SAICA members Register SAICA 23

King III Ethics/governance, strategy and sustainability inseparable Must & should Elevation of Internal Audit and IT ALL entities should apply the principles Seek to achieve the objectives in the most cost effective manner 24

King III Integrated/Sustainability reporting Principle 9.1: The board should ensure the integrity of the company’s integrated report Principle 9.2: Sustainability reporting and disclosure should be integrated with the company’s financial reporting Principle 9.3: Sustainability reporting and disclosure should be independently assured 25

26 SAICA website: Technical Information > Legal and Governance > Companies Act 71, of 2008Technical InformationLegal and GovernanceCompanies Act 71, of 2008