South Africa

4 Chapter Accounting

    • Overview

       

      The Accounting profession in South Africa is mainly regulated by the Companies Act of 2008 and IFRS that apply to all domestic and foreign companies. A Foreign Company is required to use IFRS Standards, the first listing is on the Johannesburg Stock Exchange (JSE), in case the primary listing is outside South Africa the company can have home country GAAP or IFRS standards and be listed in the JSE the second place.  The SMEs can choose between IFRS Standards for SMEs or full IFRS. In South Africa companies have scores, determined by the total number of point it receives based on the number of employees, third parties’ liabilities, turnover, and shareholders. The Companies Law indicates that the application of IFRS has to be done by the IASB and approved by the Financial Reporting Standards Council by listed companies and prescribes full IFRS or IFRS for SMEs for different companies based on the public interest scoring system.

       

    • Accounting Standards

       

      The Companies Law. 

      The Financial Year.

      The financial year of a company ends on a date set out in the company's notice of incorporation, the first year starts on the date of incorporation and ends on the date set out in the notice of incorporation, that cannot be more than 15 months. The subsequent year will start at the end of the last.

       

      Accounting Records.

      All companies must keep their accounts in English and must be kept accessible for the registered office. Besides records a company must preset annual financial statements, both have to include the following:

       

      Financial Statements.

      Any type of financial statements (Including annual financial statements) must satisfy the financial reporting standards as to form and content, present in fairly manner the state of the company, explain each transaction and financial position, show the company´s assets, liabilities and equity, income and expenses and any other important information, the statements have to include the date of publication and the accounting period.  


      International Financial Reporting Standards.

      The current Companies Act of 2008, for 2011, applied IFRS according to the IASB specifications and was approved by the Financial Reporting Standards Council by listed companies, and established the scoring system for regular IFRS and IFRS for small and medium sized entities known as SMEs. The public interest score is determined by the total number of points it receives based on the number of employees, third party liabilities, turnover, and shareholders. Stated owned companies and certain non-profit companies are required by law to use IFRS, but Public and private companies  (and certain non-profit companies)  that are not listed on an exchange that have a public interest score of at least 100 points may choose to apply full IFRS or IFRS for SMEs. For SMEs there is also application guidance specifically designed to assist micro entities to apply IFRS for SMEs, if a SMEs has a public interest score under 100 points and has internal financial statements then this company can use their own accounting policies if they are not required to comply with any other financial reporting standards. 


      Accountancy Profession regulations. 

      The accountancy profession in South Africa is largely regulated at the professional level, there are 12 professional accountancy organizations (PAOs) in South Africa. Each professional accountancy organization in South Africa offers its own qualification and establishes its own initial professional development (IPD) and continuing professional development (CPD) requirements. In turn, these bodies must be recognized by the Companies Intellectual and Property Commission for members to serve as accounting officers for close corporations and their respective qualifications must be recognized by the South African Qualifications Authority (SAQA).



      Accounting Education Standards. 

      In order to become an accountant, the individual has to accomplish different qualifications, each accountancy organization has its own qualification and has to be recognized by the Companies Intellectual and Property Commission and the South African Qualifications Authority (SAQA),  first they have an initial professional development and then continuing professional development requirements. 

      To be able to gain the Chartered Accountant designation, candidates must fulfill academic tests by the SAICA and have practical experience, ad complete mandatory CPD (continuing professional development).


      In other organization named SAIPA( the South African Institute of Professional Accountants (SAIPA), candidates for the qualification of Professional Accountant,  must complete SAIPA’s academic, practical experience, and examinations and also complete CPD. SAIPA states that its IPD and CPD requirements are aligned with the IES and the principles established by SAQA.  The requirements for the Association of Chartered Certified Accountants—South Africa’s (ACCA-South Africa) for members to meet high-level membership requirements, which are adopted at the global level (By the UK-based headquarters). The ACCA’s IPD and CPD requirements are in line with the IES and its qualification is accredited under the South African National Qualification Framework. For the eight remaining organizations there is limited information of IPD (initial professional development) and CPD (continuing professional development) requirements and their incorporation of the IES requirements.


      Quality Assurance.

      Quality assurance is reviewed by the Independent Regulatory Board for Auditors (IRBA), regulated under the Auditing Profession Act of 2005, the IRBA reviews the system of auditing for auditors and firms for all statutory audits. It is indicated that there are QA reviews in line with the SMO 1 (ISQC 1 and International Standards on Review Engagements have been adopted.)and since 2011 with the Companies Act release, independent companies can have reviews instead of statutory audits if the company has a low public interest score. This Independent review can be done only by Chartered Accountants and Registered Auditors.


      Code of Ethics for Professional Accountants.

      In accordance to the South African Institute of Chartered Accountants (SAICA) since 2010, the Independent Regulatory Board for Auditors (IRBA) adopted the International Ethics Standards Board for Accountants (IESBA) Code of Ethics as the IRBA Code of Professional Conduct for Auditors with additional requirements for auditors in South Africa.  The IRBA is the one that sets the ethical requirements for registered auditors, in accordance with the Auditing Profession Act of 2005. Other professional accountants may be subject to ethical requirements established by their professional accountancy organizations, mentioned before.


       

    • Internal and external audit

       

      Overview.

      The auditors are regulated by the Independent Regulatory Board for Auditors (IRBA) in accordance with the Auditing Profession Act of 2005 and by the South African Institute of Chartered Accountants SAICA. To be able to perform duties as an auditor the individual must be recognized as a Chartered Accountant member of SAICA.

       

      Companies Law.

      Appointment of the Auditor.

      According to law, a public or state-owned company upon its incorporation and every year at its annual general meeting must appoint an auditor. The auditor must be registered, and cannot be a director, employee or consultant of the company. the auditor must be independent of the company, the audit committee must find the auditor acceptable. If a firm is appointed it has to be done under the Auditing Profession Act terms.

      If at the annual general meeting an auditor is not appointed or reappointed the directors must fill the vacancy within 40 business days after the date of the meeting.

       

      Resignation.

      The resignation is effective when the notice is filed, after the vacancy is available the board must appoint a new auditor within 40 business days, if there was only one incumbent and may appoint a new auditor at any time, if there was more than one incumbent, the surviving one may act as an auditor. There must be a rotation of auditors, since one individual cannot be an auditor for more than 5 consecutive financial years.

       

      Rights and responsibilities.

      The auditor has access, at all times, to the accounting records and all books and documents of the company, the auditor can require form the directors or officers any information and explanations needed. The Auditor has to attend any general shareholders meeting, receive all notices of and other communications relating to any general shareholders meeting and be heard at any general shareholders meeting.

       

      Audit Committees.

      At every annual general meeting, a public company, state-owned company or other company, is required by its Memorandum of Incorporation to have an audit committee and must elect at least three members for the committee. Each member must be a director who satisfies the requirements indicated by law, such as not being involved on the day to day management of the company's business or have been so involved at any time during the previous financial year, other example, is that the member must not be a prescribed officer, or full-time employee to the company or related to the company.

       

    • Reference

       

      Companies Act 71 of 2008, Amendment Act 3 of 2011.

      http://www.justice.gov.za/legislation/acts/2008-071amended.pdf

       

      South Africa, International Federation of Accountants, 2019.

      https://www.ifac.org/about-ifac/membership/country/south-africa

       

      South Africa: Business Environment, Nordea, 2019

      https://www.nordeatrade.com/no/explore-new-market/south-africa/accounting

       

      South Africa, IFRS, 2019.

      https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/south-africa/