1. Corporate Laws Amendment Bill Submission to Portfolio Committee on Trade and Industry
23/05/2018
29 May 2006
PwC

2. Thabani Jali: Chairman of PricewaterhouseCoopers Southern Africa
23/05/2018
Introduction
Thabani Jali: Chairman of PricewaterhouseCoopers Southern Africa
Suresh Kana: Deputy CEO of PricewaterhouseCoopers Southern Africa
Page 2
29 May 2006

3. 23/05/2018
Main areas of concern
Accounting Standards applicable to Public Interest Companies and Limited Interest Companies
Section 285A
Section 440S
Section 287
Section 287A
Drafting issues relating to the provision of non-audit services by the auditor
Section 275A
Page 3
PricewaterhouseCoopers
29 May 2006

4. Accounting Standards applicable to Companies
Financial Reporting Standards for Public Interest Companies
Accounting Standards for Limited Interest Companies
Compliance with Accounting Standards, Fair Presentation and False or Misleading Financial Reports
Page 4
29 May 2006

5. Financial Reporting Standards for Public Interest Companies
Accounting Standards Applicable to Companies
Financial Reporting Standards for Public Interest Companies
International Financial Reporting Standards (IFRS)
What are they?
Standards developed by the International Accounting Standards Board (IASB)
Clearly defined due process followed
Globally recognisable
94 Countries apply IFRS
JSE Limited requires listed companies to comply with IFRS
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29 May 2006

6. Financial Reporting Standards for Public Interest Companies
Accounting Standards Applicable to Companies
Financial Reporting Standards for Public Interest Companies
Bill requires compliance with Financial Reporting Standards
(FRS) – (Section 285A(1))
Established by the Financial Reporting Standards Council
Locally established standards
FRS must be “in accordance with” IFRS
FRS is not IFRS
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29 May 2006

7. Financial Reporting Standards for Public Interest Companies
Accounting Standards Applicable to Companies
Financial Reporting Standards for Public Interest Companies
SUGGESTION
Bill should require public interest companies to comply with IFRS
Therefore
S440S should require the Council to adopt IFRS as issued by the IASB
S285A(1) should be amended
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29 May 2006

8. Accounting Standards for Limited Interest Companies
Accounting Standards Applicable to Companies
Accounting Standards for Limited Interest Companies
IFRS complex and onerous
There is a need for simplified requirements for limited interest companies
Bill requires compliance with
accounting Framework for Financial Reporting Standards; and
Schedule 4 disclosure requirements
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29 May 2006

9. Accounting Standards for Limited Interest Companies
Accounting Standards Applicable to Companies
Accounting Standards for Limited Interest Companies
Accounting Framework:
Used by the IASB when they develop individual IFRSs
Conceptual guidance that underlie the preparation and presentation of financial statements
Does not contain specific guidance on the accounting treatment of specific items
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29 May 2006

10. Accounting Standards for Limited Interest Companies
Accounting Standards Applicable to Companies
Accounting Standards for Limited Interest Companies
The bar is higher for limited interest companies than for public interest companies:
The framework contains no guidance on the accounting treatment of specific transactions
The directors of limited interest companies will have to develop their own accounting policies for all their transactions
Each limited interest company will in effect be their own accounting “standard-setter”
Limited interest companies require simplified guidance,
not no guidance
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29 May 2006

11. Accounting Standards for Limited Interest Companies
Accounting Standards Applicable to Companies
Accounting Standards for Limited Interest Companies
SUGGESTION
The Council should develop accounting standards for limited interest companies
Limited interest companies should be required to comply with these standards
The Department of Trade and Industry should impose a time limit for the development of these standards
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29 May 2006

12. Compliance with Accounting Standards and Fair Presentation
Accounting Standards Applicable to Companies
Compliance with Accounting Standards and Fair Presentation
Bill requires fair presentation of financial statements and compliance with accounting standards (S285A)
Non-compliance with the standards is an offence (S287)
S287A creates an offence for false or misleading financial reports, with no reference to accounting standards
S287A in effect allows departure from the standards if the relevant persons believe that compliance with the standards will result in the financial report being false or misleading
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29 May 2006

13. Compliance with Accounting Standards and Fair Presentation
23/05/2018
Accounting Standards Applicable to Companies
Compliance with Accounting Standards and Fair Presentation
SUGGESTION
S287A should be redrafted to state that nothing in this section permits non-compliance with accounting standards
Page 13
29 May 2006

14. Proposed section 275A (paragraph 29 of Bill)
23/05/2018
Non-audit Service Provided by the Auditor
Proposed section 275A (paragraph 29 of Bill)
“Certain non-audit services not open to current designated auditor of public interest company
275A. (1) An auditor appointed to a public interest company may not for the duration of the appointment perform any bookkeeping or accounting (as distinct from auditing) services and, to the extent that these would be subject to its own auditing, internal audit or tax advisory services for that company.
29 May 2006

15. Issues Previous draft of the Bill
23/05/2018
Non-audit Service Provided by the Auditor
Issues
Previous draft of the Bill
Prohibition only applied to the individual who was the “nominated auditor”
s275A(1) of current Bill applies to “auditor”
Did not include any reference to “tax advisory services”
Wider scope than previous draft
Due to current section now applying to:
the “auditor”, and not only to the individual who was the “nominated auditor” as previously (NB. “designated auditor” in current Bill),
“Tax advisory services subject to own auditing”
29 May 2006

16. Interpretation of Section 275A
23/05/2018
Non-audit Service Provided by the Auditor
Interpretation of Section 275A
The wording of section 275A(1) itself (“auditor”) takes precedence over the section heading (“designated auditor”)
Original draft section referred to “nominated auditor” (now “designated auditor”).
“Auditor” in heading of previous draft Bill became “designated auditor” in current Bill
29 May 2006

17. 3rd Parties' Views on Intention of Section 275A
23/05/2018
Non-audit Service Provided by the Auditor
3rd Parties' Views on Intention of Section 275A
We understand that the South African Revenue Service (SARS) concur that intention was that section 275A(1) should only apply to the “designated auditor” and not also to services provided by other partners and staff of a “firm.
29 May 2006

18. Role of IRBA pre-empted
23/05/2018
Non-audit Service Provided by the Auditor
Role of IRBA pre-empted
Auditing Professions Act (“APA), established Independent Regulatory Board for Auditors (“IRBA”) to replace PAAB
s21 of APA requires IRBA to establish Auditor Ethics Committee, which must set Code of Conduct
Code of Conduct will deal with auditor independence
Statutory role of IRBA in regulating audits & ensuring good ethics (including auditor independence) partially pre-empted by s275A of Companies Act determining the types of non-audit services “auditor” of Public Interest Company may not provide
29 May 2006

19. CONCLUSION & RECOMMENDATIONS (1)
23/05/2018
Non-audit Service Provided by the Auditor
CONCLUSION & RECOMMENDATIONS (1)
WE RECOMMEND THAT:
1. Section 275A should be deleted in its entirety from the Bill
2. IRBA should be allowed to fulfil its statutory duty of regulating the audit profession
This would allow IRBA to consider auditor independence and seek input from all stakeholders (e.g. Government, SARS, investing public, Public Interest Companies, IRBA, Registered Auditors, SAICA, JSE etc) as part of its Code of Auditor Ethics
29 May 2006

20. CONCLUSION & RECOMMENDATIONS (2)
23/05/2018
Non-audit Service Provided by the Auditor
CONCLUSION & RECOMMENDATIONS (2)
If our recommendation that s275A should be deleted in its entirety from the Bill is not accepted, we recommend that:
Section 275A(1) should only apply to the “designated auditor” (where “auditor” is a “firm”) or to the individual Registered Auditor (where not a “firm”)
To achieve this we recommend that the words “An auditor” in section
275A(1) should be replaced with the words “The “designated auditor” or
the individual Registered Auditor referred to in section 37 of the Auditing
Profession Act, 2005 (Act No. 26 of 2005) who is ....”
The reference to “tax advisory services” should be deleted from s275A(1), as it is accepted internationally that most auditor provided tax services do not adversely affect auditor independence
29 May 2006

21. 23/05/2018
Questions?
29 May 2006