Big changes for SA businesses
2010-01-14
THE next step towards the new Companies Act becoming effective was taken recently, when the Department of Trade and Industry (DTI) released the long awaited draft regulations. Although South African companies will have to prepare themselves for extensive changes, the experts say this is mostly good news. The regulations will form part of the new Companies Act, which was promulgated on 9 April 2009 and aims to replace the old act and amend certain sections of the Close Corporations Act. The new act is expected to come into effect on 1 July this year and the public can submit comments to the DTI until 28 February. Nicolaas van Wyk, chief director of the Research Centre for Independent Review (RCIR), has studied the new regulations and the proclaimed act in detail and has found that the new legislation is something to be excited about, with benefits for most businesses. “Corporations will have to reassess and possibly amend their founding statements and shareholder agreements,” says van Wyk. “But the good thing about this new act is that companies will be offered new flexibility. The act contains 53 provisions that may be amended according to the needs of a particular company.” It also aligns the financial reporting requirements of companies and close corporations. This will increase the usefulness of the financial statements for users such as lenders, SARS and shareholders. He also highlights the fact that 90% of all companies that were previously required to obtain an audit report, will now be exempt. “The remaining 10% will be subject to either an independent review report or audit, depending on the type of activities performed or the size of its turnover or assets. The audit is reserved for companies that are regarded as having a public interest.” Another benefit resulting from the new act is the manner in which financial reporting will be categorised. According to UCT’s Prof Tshepo Mongalo, a senior RCIR researcher, all companies will be required to prepare annual financial statements, but regulations will determine the financial reporting standard to be followed. “The financial statements of companies that are required to be audited, such as public, state-owned and private companies, will have to be consistent with the highest reporting standards.” All other private companies may select a standard to follow in preparing their annual financial statements. “This means that owner-managed private companies are empowered to choose a reporting framework that best suits their needs. More than 90% of all companies fall within this category and prepare financial statements only for lending, tax or management purposes,” says Mongalo. “A cash, tax or cost basis of accounting is all that is needed and can be provided at a fraction of the cost of traditional reporting standards.” The draft regulations make provision for members of professional bodies that are members of the International Federation of Accountants (IFAC) to perform independent reviews. Van Wyk believes this will address the shortcomings of the accounting officer regime. “Currently accounting officers do not follow a recognised standard before issuing a report for a close corporation. There is no way of monitoring the competence level of accounting officers,” says van Wyk.
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