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Insurance for small businesses: What should be covered?

Insurance for small businesses: What should be covered?

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Forward-thinking solutions to financial compliance woes

Forward-thinking solutions to financial compliance woes

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Before you claim - know your facts

Before you claim - know your facts

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Tuesday, 11 February 2014 10:00

SA accountants must take full advantage of business windfall, says SAIBA

SA accountants must take full advantage of business windfall, says SAIBA

The South African Institute of Business Accountants has urged accountants to market themselves in accordance with legislation that requires their services more than ever before.


Accountants must familiarise themselves with Section 90(2)(b) of the Companies Act 2008 which presents significant opportunities for accountants to acquire business, says SAIBA CEO, Nicolaas van Wyk.  He explained that the Act prohibits auditors engaged to perform a statutory audit of a company or a close corporation from preparing financial statements for that same company, leaving the door open to accountants to do that work.


“Many accountants are unaware of or unclear on the advantages that this presents to them in the form of non-audit services that were handled by auditors previously.“ said van Wyk.  “Because auditors may no longer conduct both services for the same client, accountants should be actively looking to enter into agreements with auditors to prepare financial statements for that auditor's clients.”


In line with the Act, it would make sense for auditors to outsource accountants to produce annual financial statements.  In other cases, businesses themselves will have seen the need to restructure the way they work by outsourcing their preparation work to accountants or changing their audit function to independent review.


“Either way, the legislation is good news to accountants because companies are forced to accept that professionals who prepared their financial statements in the past, may no longer perform their audit as well. This brings accountants neatly into the loop.”


South Africa will reap the benefits already experienced in the United States as well as Europe where audit reforms announced last month strictly prohibit audit firms from providing non-audit services to their audit clients, including stringent limits on tax advice and services linked to the financial and investment strategy of their clients.


The European Parliament has also agreed that audit firms in EU member states will be required to rotate every 10 years. Public interest entities will only be able to extend the audit tenure once, upon tender, and auditors will not be allowed to perform tax work for public interest companies. Under this measure, joint audit will also be encouraged. Despite the extension of the rotation period, this principle will have a major impact in reducing excessive familiarity between the auditors and their clients and in enhancing professional skepticism.


Van Wyk believes consideration should be given to extending the South African legislation to other non-audit services in the interests of transparency and objectiveness around financial record keeping. “As in the case of European law, this would limit the risk of conflicts of interest which exists due to the fact that auditors are involved in decisions impacting the management of a company,” he pointed out.  “It would also substantially reduce the “self review’ risks for auditors”.


Besides the obvious advantage to accountants, there is the added societal benefit of increasing audit quality and investor confidence in financial information, an essential ingredient for economic growth.


“It is essential for accountants to understand their new role within the Companies Act. Accountants must use the opportunities presented to them by the Act.  We should run our practices like any other business, actively marketing our services and forming long lasting relationships, not only with auditors and financial advisors. We should also strive to work alongside one another for support and advice and even for referrals, as the market for Accountants in Practice is still unsaturated.” said SAIBA member, Karen De Villiers of Bizzacc Accountants.


In the meantime, SAIBA encourages accountants to make their services available to auditors and companies. Networking and actively seeking business should be a top priority for accountants seeking to establish themselves,” said van Wyk.  “It works in favour of clients too, who can shop around for lower fees in a more competitive environment.”

Published in Accounting & Payroll
Thursday, 14 November 2013 12:25

Drastic changes proposed to auditor reporting will have a huge impact on auditors, investors, analysts and other users of financial statements

Drastic changes proposed to auditor reporting will have a huge impact on auditors, investors, analysts and other users of financial statements

The auditing profession is expected to be hit by a tidal wave of changes that are to be introduced in the area of auditor reporting, as well as with other changes relating to the International Standards of Auditing (ISA). These proposed changes are aimed at achieving enhanced communication value; increased attention to specific disclosures; renewed auditor focus and improved audit quality.


“The issue of auditor reporting is extremely important as it is the single biggest change proposed by the International Auditing and Assurance Standards Board (IAASB) since the clarified ISAs were introduced in 2009.This is expected to have a huge impact not only on auditors, but investors, analysts and other users of financial statements”, says Ashley Vandiar, project director of Assurance at the South African Institute of Chartered Accountants (SAICA), stating that the proposed changes will be mandatory for listed companies and public interest entities whilst other entities can apply them on a voluntary basis.


He advises that this is a very important reminder to all auditors as their level of awareness to the forthcoming changes will determine their ability to sink or swim if the proposed changes in their current state were to become effective.


“There is going to be a new standard named the ISA 701 which requires the auditor to report on key audit matters. The existing ISA 700 will also be changed to require the auditor to report on the ethical requirements and the source of those ethical requirements. ISA 260 which deals with reporting to those charged with governance will also be revised to align with the requirements of ISA 701. Other conforming changes will also be made to other ISAs.


The proposed new standard will require the auditor to include a selection of issues from the report that was sent to those charged with governance. Accordingly, not all issues reported to those charged with governance will be considered key audit matters. Although the auditor must apply professional judgement in deciding what would constitute key audit matters, the guidance provided in the standard indicates that the following would be considered key audit matters:

  • Issues that required significant judgement or posed significant risks
  • Issues that posed difficulty in obtaining sufficient appropriate audit evidence
  • Circumstances that required significant modification to the planned audit approach


The auditor will also need to conclude on the appropriateness of management’s use of the Going Concern assumption. This does not mean that management is providing assurance on the Going Concern ability of the entity but rather, management use thereof and the preparation of the financial statements, for which the auditor does express an opinion that the financial statement is prepared on the correct basis.In terms of the proposed revision of ISA 570, the auditor will also be required to explicitly make astatement that “neither management nor the auditor can guarantee the entity’s ability to continue as a going concern.”


Vandiar explains that while reporting on Going Concern in the audit report has been regularly done when the circumstances required it, SAICA is concerned with the fact that an explicit statement to this effect may be misconstrued by those users who are less knowledgeable about what that actually means. The auditor has never in the past guaranteed the Going Concern of the entity for the next 12 months, however, by making a disclaimer in the audit report, users might interpret this to be some form of qualification.


Apart from the changes proposed, the entire structure of the report will be changed. “Whereas the current auditor report is standardised and consistent among all auditors, the proposed report does not prescribe the structure of the report. Therefore, while there will be prescribed minimum information that must appear in the report, the placement of these is left up to the discretion of the auditor concerned. As such, the report will differ from one audit firm to another.”


While SAICA supports the increased discretion and professional judgement permitted to auditors, Vandiar expresses some concern regarding the potential confusion that may arise by less knowledgeable users of financial statements. “The current standardised report, while fairly straight forward in its form and content, was clearly not fully understood by all users. There are already drastic changes proposed in the audit report and by compounding this with a non-conforming structural format, may cause more confusion.This might actually increase the expectation gap and knowledge gap of what an auditor does and what the market expects from the audit process.”


He highlights a further proposed change to move the audit opinion to the top of the report, just above the addressee section. Vandiar explains; “SAICA is in support of this structural proposal as this increases the prominence of the audit opinion which may get lost among other information now required to be included in the report.”


The deadline for commenting on the proposed changes is 22 November and Vandiar urges all affected parties to participate by sending their comments through to their professional bodies, which will ensure they submit their input to the IAASB. SAICA will be engaging with its stakeholders and will be submitting comments on their behalf.

Published in Financial Reporting
Mandatory rotation of audit firms could affect the auditing profession

SAICA recommends that careful considerations should be made regarding mandatory rotation of audit firms

The objective of the EU Green Paper is to enhance the regulation of the audit function in order to contribute to increased financial stability. It proposes measures to stabilise the international financial system as a direct aftermath of the international financial crisis. 


Auditors have an important role to play and are entrusted by law to conduct statutory audits. This entrustment responds to the fulfilment of a societal role in offering an opinion on the truth and fairness of the financial statements of audited entities. One of the main aims of the EU Green Paper is to probe the true fulfilment of this societal mandate.

Published in Accounting & Payroll
Registered Auditors to continue to verify and issue B-BBEE certificates

The Independent Regulatory Board for Auditors (IRBA) today confirmed that registered auditors may conduct Broad-Based Black Economic Empowerment (B-BBEE) verification and issue certificates.


This follows confusion around the release of reports to the portfolio committee on trade and industry recently that implied that registered auditors are not yet approved to conduct B-BBEE verification.


IRBA confirmed that, according to the Department of Trade and Industry (dti) Statement 005, the IRBA is empowered to approve registered auditors who meet certain requirements, to provide B-BBEE assurance services and to issue valid B-BBEE certificates with effect from 1 October 2011.


“And this provision in the statement still applies.  We have approved over 160 registered auditors to provide the much needed verification assurance services to the public as they meet the required criteria. Obviously, given auditors’ training and education in areas such as verification and assurance, they are ideally placed to provide the required comfort in the B-BBEE verification industry,” says Bernard Agulhas, CEO of IRBA.


Registered auditors have to comply with the IRBA code of professional conduct, the B-BBEE Continuing Professional Development (CPD) requirements established by the IRBA, auditing pronouncements prescribed by the IRBA, evidence of superior contributor status and confirmation that the registered auditor has completed the post graduate B-BBEE Management Development Programme satisfactorily.


“B-BBEE is a national imperative to achieve government’s goals to transform the country’s population. It is important that auditors and the IRBA contribute to these goals by providing the necessary comfort and assurance on which business can rely, particularly because the B-BBEE industry has been fraught with conduct which is less than desirable,” says Agulhas.  


Processes to give the IRBA the mandate to regulate all B-BBEE verification agencies, in addition to auditors who are already registered with the IRBA, is under discussion. In the meantime, all approved registered auditors can continue to offer verification services.

Published in BEE
Tuesday, 20 November 2012 10:58

SA’s ranking for auditing and reporting standards not impacted by public sector irregularities, municipality downgrades

SA’s ranking for auditing and reporting standards not impacted by public sector irregularities, municipality downgrades

South Africa’s third consecutive top ranking for its auditing and reporting standards by the World Economic Forum’s (WEF) Global Competitiveness Report broadly coincides with the downgrading by rating agency Moody’s of a number of municipalities and ongoing  concerns over financial irregularities, non-compliance and poor governance in the public sector.


“This apparent contradiction could lead to a number of misconceptions, including the view that the ranking is at odds with local government financial management,” says Bernard Agulhas, chief executive officer of the Independent Regulatory Board for Auditors (IRBA).


“We must first understand how the ranking is achieved,” he says.


“South Africa’s decision to adopt globally recognised International Standards on Auditing (ISA) as well as the International Financial Reporting Standards (IFRS) as far back as 2005 has had a major impact on our ranking. Without adhering to high quality auditing standards, auditors and the auditor general would arguably not have been able to produce the ‘qualified’ audits which have played a major role in uncovering flawed financial statements, fraud and irregularities in the public sector,” says Agulhas.


The ISAs do not include a specific responsibility on the auditor to discover fraud and irregularities. However, the auditor is required to develop procedures to discover possible fraud and irregularities.


“When a proper audit is conducted, any matter which may impact on the fair presentation of the financial statements, including fraud and irregularities, should be discovered and reported. Poor audits based on inferior standards would likely not reveal such conduct,” explains Agulhas.


In the public sector, the auditor general conducts an independent audit which serves as a vital component in the overall framework of good governance, reporting of corruption and providing the necessary assurance that financial statements in the public sector are free from material misstatements.


“In the private sector, where reliance can be placed on the opinion that the auditor expresses on these financial statements, investors will invest their money with confidence, and their investment will stimulate growth and the economy. This is one of the reasons why the World Economic Forum could, for three successive years, rate our auditing standards number one in the world,” says Agulhas.


Agulhas says a lot of work remains to be done to address the significant lack of skills within municipalities when it comes to the preparation of financial statements ahead of the audit period as well as building the skills required to address the issues Moody’s’ rating raised: managing high debt levels, cash flow tensions and efficient collections to mitigate the high demand for welfare benefits and economic infrastructure.


“However, the inability to prepare reliable financial statements does not mean that there is an inability to conduct a high quality audit. It is, indeed, even more important in such circumstances that the auditor performs a thorough audit, which, in turn, is made possible if high quality auditing standards have been applied,” concludes Agulhas.   

Published in Financial Reporting
Clean audits – What does it mean to the people of South Africa

The Auditor-General of South Africa (AGSA) issued their General Report on the outcomes of Local Government Audits covering the 2011 financial year on the 23 July 2012. The number of clean audit opinions remained unchanged compared to the previous financial year with 6 new municipalities achieving clean audit opinions. On the other hand, the number of municipal entities with clean audit opinions had regressed from ten last year to four this year.
There has always been ongoing debate to the meaning of the term "clean audit". But what does it really mean? And do South African citizens have a full understanding of its meaning?
Many people are familiar with the terms "qualified" or "unqualified" opinions on audits, says Mohammed Lorgat, Project Director, Public Sector at the South African Institute of Chartered Accountants (SAICA). "These refer to an opinion expressed by auditors on the financial statements of entities."
Unlike private sector audits, the AGSAs audit scope in the public sector is much broader. Besides the audit of financial statements, it also covers reporting of performance against predetermined objectives as well as compliance with laws and regulations.
"Therefore, in the South African public sector audit context, an entity needs to be unqualified in all the audit areas mentioned above in order to obtain a "clean audit". If any of these three areas are deficient, then the audit will not be clean even in instances where the audit of the financial statements is unqualified, explains Lorgat
These three elements are complementary and not exclusive to each other. It may be asked how they impact South African citizens. One can assume that an entity that has a clean audit opinion has strong financial management, sound internal controls and a robust budgeting process. All of these elements bear witness to the fact that the entity spends the funds at their disposal efficiently and effectively towards meeting the targets set out in their strategic plans which ultimately will result in improved service delivery for the citizens of that area.
Hadley Francis, Chair of the SAICA Public Sector Committee says: "We must take caution when interpreting the audit opinions issued by the Auditor-General and not misinterpret these in anyway. Furthermore, obtaining an unqualified audit opinion on financial statements with certain reportable deficiencies on matters pertaining to reporting on performance against predetermined objectives and compliance with laws and regulations may suggest that an entity may not be too far off from achieving a "clean audit".
The elements required to make the full transition to clean may not be too onerous to achieve in certain circumstances. Getting this right may require some additional interventions such as improved processes and better skills competencies in public finance. "Clean audits" are therefore critical to achieve as it demonstrates a fully functional entity and this ultimately enhances public confidence and accountability significantly. All entities must therefore strive to achieve a "clean audit".
Corporate Executive at the AGSA and member of the SAICA Public Sector Committee, Imran Vanker re-emphasised the role of leadership in addressing the audit outcomes. "We have witnessed commitments made by political leaders at the national, provincial and local government spheres to put operation "clean audit" firmly on the agenda. These commitments are necessary and welcomed because they are the first step to remedying the current situation."
A common ingredient in the few entities that have produced excellent audit outcomes has been the readiness of leadership to take a direct and personal interest in a properly functioning internal control environment. These leaders make effort to understand the value to be obtained from them playing their part in monitoring of key controls, and reach out to their audit committees and internal auditors to support them in their goals. AGSA's interest is in seeing excellence in government in all spheres.
In respect of the role of professionals, Vanker highlighted that skills at the municipal level could benefit from securing professionals for posts, bringing along relevant practical experience. "Accountants, auditors, engineers, lawyers are just some of the varied professional skills that are needed to be deployed to municipalities. The efforts of SAICA to recognize the part it can play together with its formidable 33,000 strong membership, is an example of the contributions other professions could be planning as well."

Published in Financial Reporting
Wednesday, 05 September 2012 13:22

SAICA reminds auditors that it’s their duty to report reportable irregularities

SAICA reminds auditors that it’s their duty to report reportable irregularities

As the 30 September 2012 deadline granted by the Estate Agency Affairs Board (EAAB) for Estate Agents to file their audit reports draws closer, the South African Institute of Chartered Accountants (SAICA) is reminding auditors that it's their duty to report any reportable irregularities that they might encounter when conducting the audits.

Ashley Vandiar, Project Director: Assurance at SAICA warns that failure for the Estate Agent to have both trust and business accounts audited would result in a contravention of Sec 29 of the Estate Agents Act.

"The Act simply states that both the business and trust accounts of an Estate Agent need to be audited. Yet, for an unknown reason, this is not being practiced. Estate Agents only submitted their trust accounts to be audited and not their business accounts. The EAAB is now enforcing this legislative requirement."

It is important to note that this is not new and the legislation did not change. The requirement has always been there but it has unknowingly been overlooked by both Estate Agents and their respective auditors. This wrong doing would constitute to a malpractice which could mean a reportable irregularity has taken place.

Auditors are regulated by the Auditing Professions Act (APA) who define reportable irregularities as "any unlawful act or omission committed by any person responsible for the management of an entity, which has caused or is likely to cause material financial loss to the entity or to any partner, member, shareholder, creditor or investor of the entity in respect of his, her or its dealings with that entity; or is fraudulent or amounts to theft; or represents a material breach of any fiduciary duty owed by such person to the entity or any partner, member, shareholder, creditor or investor of the entity under any law applying to the entity or the conduct or management thereof".

Vandiar confirms that the decision not to have the business account audited would mean that it is an unlawful act committed by management. The auditor must apply professional judgement and evaluate if a reportable irregularity needs to be reported.

"I would like to caution auditors who are aware that their Estate Agent clients only have their trust accounts audited and not their business accounts, to carefully consider whether or not a reportable irregularity has occurred and if so, to follow the duties placed on them in terms of the APA.

"I would like to bring their attention to Section 52 of the APA that states that any auditor who fails to report a reportable irregularity would be guilty of an offence and that under this section, he/she could face a fine, imprisonment not exceeding 10 years or both."

When conducting an audit, auditors are required to constantly consider and evaluate management's integrity as this would increase the risk involved in the audit and will affect the reliance that can be placed on management. Knowing of management's decision to not comply with Section 29 of the Estate Agents Act should be factored into the assessment of management's integrity as the management of the client is knowingly choosing to not comply with legislation.

Companies Act relating to Estate Agents Act

Vandiar observes that many Estate Agents are also getting confused with the requirements of the Companies Act because, while under the provision of the Companies Act, some of these Estate Agents may qualify for an independent review, the Estate Agents Act requires an audit. As such, Estate Agents who are defined as companies would need to comply with requirements of both the Companies Act and the Estate Agents Act.

While Section 5(4) of the Companies Act addresses clashes with the provisions of the Companies Act and any national legislation, "I would like to confirm to Estate Agents and auditors that the audit requirement in terms of the Estate Agents Act is not in conflict with the Companies Act. It just places a more onerous requirement on such companies," advises Vandiar. As such, by having trust and business accounts audited, Estate Agent companies would be able to comply with both the Companies Act and the Estate Agents Act.

"Should Estate Agencies not lodge the 2012 audited business and trust account financial statements, the EAAB will not renew estate agencies and principals Fidelity Fund Certificates for 2013, which are essential to conduct business. On the other hand, auditors who fail to report reportable irregularities could be guilty of an offence and punished accordingly." concludes Vandiar.

Published in Financial Reporting

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