Saica welcomes Companies Act

South African Institute of Chartered Accountants

The SA Institute of Chartered Accountants (Saica) on Thursday welcomed the new Companies Act as good for small business.

Small and medium-sized companies which had previously been obliged to bear the cost of an audit might now be exempted as the act introduced new criteria, said Saica.

The decision would depend on a newly-introduced public interest score.

“Under this system, a company is allocated points according to the number of its employees, its annual turnover, its stakeholders and the level of third party liabilities at the end of the financial year,” Saica spokesman Ashley Vandiar said.

Points are given for the average number of employees throughout the year, one point per million rand of debt financing, one point for each million rand of turnover, and one point for every individual with a beneficial interest, including shareholders.

Companies with 350 points or more must be audited.

Any company, regardless of point scores, with more than R5 million held for a client in a fiduciary capacity also had to be audited.

Companies scoring between 100 and 350 points must have an independent review conducted by a registered auditor or a chartered accountant.

Those scoring less than 100 are required to have an independent review conducted by anyone who qualifies as an accounting officer, unless circumstances indicate otherwise.

Close corporations are treated the same way as companies.

The cost savings for companies exempted from an audit should be ploughed back into the business or used to reduce debt, said Vandiar. – Sapa

via Saica welcomes Companies Act – Business News | IOL Business | IOL.co.za.

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AFS and Tax Return always required

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THE new Companies Act along with the International Financial Reporting Standard (IFRS) for small-and medium-sized enterprises (SMEs) can help reduce audit costs and simplify financial statements, according to Deloitte.

“To a degree an audit is no longer a grudge purchase,” Deloitte said in a statement yesterday.

Deloitte Western Cape partner Geoff Fortuin said: “Despite the fact that the IFRS for SMEs and the new Companies Act have made financial reporting simpler and more cost- effective through less stringent financial reporting requirements, many businesses still don’t understand what options are available and how the new legislation and standards interplay to their benefit.”

The IFRS for SMEs became the first set of international accounting requirements prepared specifically for SMEs in 2009. It was devised in response to demands by users of international accounting standards for a less onerous financial reporting framework for SMEs.

After the global transition to the IFRS, issued by the International Accounting Standards Board, all JSElisted companies were required to report under IFRS to ensure firms globally made the same levels of disclosures and used the same conceptual approach when reflecting their financial results. These requirements are however not mandatory for unlisted subsidiary companies of listed entities, which may elect to use the IFRS for SMEs.

This could cause some difficulties with the group consolidation process, but suitably designed year- end group reporting packs can be used to overcome this.

The South African Institute of Chartered Accountants has said the IFRS for SMEs is suitable for all entities that prepare general purpose financial statements (not tailored to the needs of any one group). The new Companies Act, which came into effect in May, has also introduced more flexibility in the audit requirements for companies.

Whereas all public companies and parastatals will be required to conduct audits as was the case under the previous Companies Act, there are more accommodating requirements for a large proportion of private companies. These depend on their level of turnover, debt and number of employees.

These factors determine the entity’s public-interest score which in turn determines whether the company’s financial statements must be reviewed or audited. In certain limited circumstances, the new Companies Act requires neither an audit nor a review to be performed.

via BusinessDay – Company Act ‘offers way to cut costs’

New Companies Act points system

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Initial complications are to be expected as companies and close corporations CCs try to work out how to calculate public interest scores PIS in the New Companies Act and interpret the regulations.That’s the view of Ian Scott, joint managing partner of the Grant Thornton Cape office.“The new Companies Act, which came into effect on 1 May 2011, includes a PIS calculation which determines what report these entities need going forward, unless they hold assets in a fiduciary capacity with an aggregate value of over R5 million, in which case an audit is needed.”“The new Act also brings increased regulation to close corporations as their PIS calculations are subject to the same criteria as companies, although the outcomes are different,” says Scott.The Regulations provide for both activity and size criteria to determine whether or not companies or close corporations require audited financial statements. The Regulations state that every entity is required to calculate its PIS at the end of each financial year and the score is calculated as the sum of the following:A number of points equal to the average number of employees as determined by the Labour Relations Act of the company during the financial year;One point for every R1 million or portion thereof in third-party liabilities at year end these exclude shareholder loans and intercompany loans with common shareholdings;One point for every R1 million or portion thereof in turnover during the financial year; andOne point for every individual who, at the end of the financial year, is known by the company to directly or indirectly have a beneficial interest in the business.If a close corporation has a PIS score below 100 it requires an accounting officer’s report just the same as it did previously.

via New Companies Act points system gives useful guidelines but determinations complicated – Grant Thornton.

New Companies Act supports honest directors

COMPANY directors who act honestly and reasonably while performing their duties under new company laws could have a valid defence if they face possible legal and criminal action, says a legal expert at Werksmans Attorneys.

Eric Levenstein, a director at Werksmans, said last week that directors who met their obligations and were able to show that they had discharged their obligations, would be able to defend themselves by showing they acted on the company’s behalf in a “reasonable” way.

“Personal liability is becoming an increasingly emotive issue for directors. They need to be aware of the circumstances in which they can be held responsible for company debts,” Mr Levenstein said.

The new Companies Act, which came into effect on May 1, penalises directors and holds them personally responsible for any losses incurred through knowingly carrying on business recklessly, or with the intent to defraud creditors and other stakeholders. It also created criminal liability for directors trading in a manner calculated to defraud creditors, Mr Levenstein said.

However, a director who meets his obligations under the new legislation would be seen as discharging his duties to the company.

George Tweedy, audit risk leader and national professional practice director at Deloitte, said the new laws also contained defence mechanisms for directors who had made bad decisions at board level.

Mr Tweedy said the new “business judgment” rule would give directors more protection from civil actions unless they were guilty of fraud or other unlawful activities.

“The Companies Act provides that a director will have satisfied his duties if he took reasonably diligent steps to become informed about the matter, does not have a personal financial interest, and has made a decision rationally in the belief that it was in the best interests of the company,” he said.

Mr Levenstein said: “Embracing honest, reasonable standards and meeting the requirements of the Companies Act would ensure that decisions made were defensible.”

via BusinessDay – New act ‘supports honest directors’.