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1. The global body for professional accountants

2. Presentation to Parliament: Companies Amendment Bill 2010 Presented by: Nicolaas van Wyk Technical Executive, ACCA (South Africa) www.acca.co.za

3. Introduction • Appreciation to the DTI for their engagement with business community since 2004 • Commitment to clear and concise legislation • Our submission in two parts • General comment • Comment on specific sections

4. Summary - 1 • An act for big and small companies • This means minimum requirements for all companies and • Selective application for others based on public interest and company activities • Financial crises = Banks • Audit = public interest • Guard against overburdening the SME sector

5. Summary - 2 • Move away from audit as sole means of protecting public • Act provides much more sophisticated approach to public protection • New emphasis on preparers of financial statements • Improving accounting officer regime by introducing independent review

6. Summary - 3 • Use Accounting Officer regime to model regulation for Independent Review • Use IFAC education standards and quality control standards to determine the qualification of independent review providers.

7. General comments • Fundamentals of Companies Act 2008 • Entrepreneurship • Enterprise development • Simplification • Reducing costs • Flexibility in design • Transparency and standards of governance • International harmonious

8. General comments • Drafting framework • Align with Constitution and Bill of rights • Unitary statute incorporating Companies Act and Close Corporations Act • Single legislation for all types of companies • Accountability to minority shareholders and stakeholders • Emulate international best practice • Amendments should adhere to these principles

9. General comments • Examples: • Section 7: require compliance with Bill of Rights • Section 11: allowing registration number as name of company • Section 30: simplify management of companies via audit exemption and new alternative to audit • Section 30 and regulations: align independent review with international best practice

10. General comments • Examples: • Section 72: social and ethics committee for types of companies • Section 164: Dissenting shareholder appraisal rights • Section 165: Derivative actions for shareholders and registered trade unions

11. General comments • Differential governance: • Public companies, Listed companies, Non-owner managed private companies, Owner-managed private companies • The late Deputy Minister of Agriculture and corporate law expert, Dirk du Toit: “Thus the legal system looks beyond the class interest of the business elite, doing justice to all classes, applying the moral imperative”

12. Differential reporting Close Corporations Act • Owner = Manager • No agency • US/Canadian • Gaap as appropriate • Accounting officer Companies Act 1973 • Public owners • Agency • UK perspective • IFRS or IFRS for SME • Auditor Companies Act 2008 Draft companies regulations 2010

13. Differential reporting IFRS Audit Independent review ISRE2400 / FEE survey Accounting officers Qualification IFRS for SME ED275/OCBA MOI/Bank

14. Tax collection - Estimate IFRS Audit Public interest and Public Companies 85% IFRS for SME Independent review Non-public interest and non-owner managed 10% Non-public interest non-owner managed 5% MOI/Bank ED275/OCBA

15. General comments • Enhanced enforcement powers • Reckless trading prohibited by (Section 22 and draft Regulation 21) • Administrative penalties for not keeping and safeguarding accounting records (S. 28 and R. 24) • Administrative penalties if financial statements are not prepared in accordance with a prescribed standard (S. 29-30, R. 28-29) • Administrative penalties if a person is party to the preparation of misleading financial statements (S. 214) • Retention of the audit for public companies, state owned companies and private companies classified as public interest. (S. 30(2)(b)(i) and draft R. 28 - 29) • Additional accountability requirements for certain companies (S. 34)

16. General comments • Enhanced enforcement powers • Codifying standards of directors conduct and providing for director and prescribed officer liability (S. 76 and S. 77), • Establishing a new Companies Commission with extensive enforcement powers • Appoint investigators • Actively monitor compliance • Compliance notices • Issue summons • Search and seizure • Companies Tribunal • “Enlightened shareholder value” approach with regard to the governance of companies • Judge Davis, D et al, Companies and other Business Structures in South Africa, 2009

17. Specific comments

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23. Specific replies • SARS – Verification is inherent in the Act via Sections 28 – 29 • Extensive requirements on form and content of accounting records and how they should be kept • SARS – Reportable irregularities additional burden to SMEs • Tax collection from SME’s are limited • IR do not provide a check on internal controls, this limits potential to become aware of fraud • Act provides abundant alternative monitoring in the new Companies Commission • IRBA • IRBA regulates auditors who act in public interest, IR not designed to protect public interest indeed IR not applicable to public interest companies • IR standard = International standard = ISRE 2400 = Subject to IFAC quality control and qualification requirements = FEE survey • Monitoring has many forms – Regulator or Professional Body – International precedent

24. Specific replies • IRBA • Qualification for IR provider is important – IFAC Education and other standards should apply to all IR providers