COMPANIES ACT: No More CCs But New Tasks Await
Recent Western Cape Business News
Among the many changes which will come with the promulgation of the new Companies Act is the phase-out of close corporations (CCs). With that, members of the SA Institute of Professional Accountants (SAIPA) have raised concerns that this will have a negative impact on their earnings since CCs traditionally form the bulk of their customer base. However, Jade Jansen, a Chartered Accountant and a senior lecturer at the University of the Western Cape allayed these fears at a recent presentation at the SAIPA Forum.
Upon promulgation of the Companies Act 71 of 2008, no new CCs can be formed, although existing CCs can remain in operation. It is likely that persons wishing to register new CCs would instead opt to register a private company as provided for in the Act.
In a presentation designed to help members better understand the implications of the new Act, Jansen said it is likely be beneficial, rather than detrimental, to their businesses even though the change in financial reporting requirements within the new Act means that fewer businesses will be required to undergo audits. However, all private companies must undergo an independent review, something which SAIPA members are permitted to conduct.
“Traditionally SAIPA practitioners have tackled the compilation of financial statements, tax, bookkeeping needs and the role of accounting officer of CCs, while all companies needed to be audited. The new Act now states that a practitioner is required to perform an independent review; said practitioners are effectively defined as anyone who belongs to a body affiliated to the International Federation of Accountants (IFAC).”
In other words, says Jansen, people who would previously incorporate CCs will now simply form private companies. They will still look to SAIPA members to service their accounting and related needs. At the same time, larger private companies that previously may have required an audit may no longer need to do so and might also come to these members to perform the independent review.
“After all, an independent review is inexpensive, less complex and has a much lower workload than a full audit. Therefore, it is likely to appeal to many organisations which have the option of utilising this process. Besides, even if 80% of the organisations that have this option still choose to be audited, it means that there will be an additional 20% seeking help from SAIPA members,” Jansen says.
It is therefore his contention that the new Act will only improve business prospects for members.
He does caution, however, that the Act indicates that compliance with International Financial Reporting Standards (IFRS) will now be law. To this end, he says that it will be the responsibility of practitioners to ensure they stay up to date with IFRS and any changes that may occur.
“Failure to comply with IFRS will now be an offence. Therefore, it is crucial for practitioners to remain in touch with any changes that are made to the standards. Remember, as the economic and business world changes, so improvements will be made and new rules added. Remaining on top of this is vital if you are to succeed.”
It is also necessary to be aware of the fact that there are effectively two different sets of IFRS. There is ‘full’ IFRS, which is designed for typically larger organisations as well as those with public accountability, and also IFRS for small and medium enterprises (SMEs). “Since most practitioners have both large and small clients, they will have to know both sets of IFRS, and understand the differences between them.”
In closing, Jansen says there is no need to fear the new Companies Act. “It is designed to make life easier in many ways for all concerned. In particular, the new law caters for removing the administrative burden relating to smaller businesses, as these entities will not automatically be subject to strict auditing requirements. This, in turn, should mean additional business for SAIPA members - and that is hardly something to worry about.”
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