1 companies act amendment bill presentation to parliament 1 december 2010 bernard peter agulhas...
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COMPANIES ACT AMENDMENT BILLCOMPANIES ACT AMENDMENT BILLPRESENTATION TO PARLIAMENTPRESENTATION TO PARLIAMENT
1 DECEMBER 20101 DECEMBER 2010
Bernard Peter Agulhas Bernard Peter AgulhasChief Executive OfficerChief Executive Officer
COMPANIES ACT AMENDMENT BILLCOMPANIES ACT AMENDMENT BILLPRESENTATION TO PARLIAMENTPRESENTATION TO PARLIAMENT
1 DECEMBER 20101 DECEMBER 2010
Bernard Peter Agulhas Bernard Peter AgulhasChief Executive OfficerChief Executive Officer
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ENGAGEMENT WITH DTIENGAGEMENT WITH DTIENGAGEMENT WITH DTIENGAGEMENT WITH DTI
• IRBA has engaged extensively with the DTI regarding the corporate legislation and proposed regulations
• IRBA presented a proposal to the DTI to assist with specific areas in the legislation to:– Avoid duplication of processes and structures– Avoid further government expenditure in the light
of initiatives to save costs– Capitalise on wealth of experience and
competences that already exist at IRBA
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
WHO IS IRBA AND WHAT WE WHO IS IRBA AND WHAT WE STAND FORSTAND FOR
WHO IS IRBA AND WHAT WE WHO IS IRBA AND WHAT WE STAND FORSTAND FOR
• IRBA is the statutory regulator of the auditing profession in SA• Established by an Act of Parliament, namely, the Auditing Profession Act (Act
26 of 2005)• Therefore part of government and accountable to the Minister of Finance as a
Schedule 3 public entity• Mandate is to protect the financial interests of the public• Main statutory functions:
– Registration of registered auditors (RA)– Setting competency requirements for RAs– Monitoring CPD compliance of RAs– Accreditation of professional bodies– Setting audit and ethics standards based on international best practice– Performing inspections on RAs– Performing investigations and disciplining of RAs– Reporting Reportable Irregularities to relevant authorities– Supervisory Body in respect of Anti Money Laundering compliance
• SA rated no 1 for auditing standards in 2010 WEF Survey
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
WHY REGULATION OF ASSURANCE SERVICES IS
IMPORTANT
WHY REGULATION OF ASSURANCE SERVICES IS
IMPORTANT • Ensures the performance of high quality assurance services in the public interest
• High quality assurance services and reports instil confidence in SA financial markets
• Confidence means that investors (local and foreign) can place reliance on financial information on which the assurance provider reports
• Investment stimulates the economy and creates employment
• Reportable Irregularities are brought to light, consistent with government’s initiative to reduce white collar crime
In the absence of a well regulated assurance market, standards and qualityare compromised, and confidence in the financial markets drops, which in turn
influences investment and employment creation in SA
GENERAL INTERPRETATIONS OF GENERAL INTERPRETATIONS OF THE ACTTHE ACT
GENERAL INTERPRETATIONS OF GENERAL INTERPRETATIONS OF THE ACTTHE ACT
Amendment in Section 5:
“If there is an inconsistency between any provision of this Act and a provision of any other national legislation … the Auditing Profession Act prevail … except to the extent provided in section 30(8)”.
Newly inserted Section 30(8):
“Despite section 1 of the Auditing Profession Act, an independent review of a company’s annual financial statements does not constitute an audit within the meaning of that Act.”
We do not believe that the Companies Act can override the principle legislation for the auditing profession – rather, we recommend that it defines ‘independent review’ for the purposes of the Companies Act.
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
DEFINITION OF AUDITDEFINITION OF AUDITDEFINITION OF AUDITDEFINITION OF AUDIT
Section 1 of the Act has been amended:
“by the substitution for the definition of ‘audit’ of the following definition: ‘audit has the meaning set out in the Auditing Profession Act, but does not include an ‘independent review’ of annual financial statements, as contemplated in section 30(2)(b)(ii)(bb)’.
The Companies Act cannot define ‘audit’ or amend the definition in the Auditing Profession Act.
We recommend that the definition is removed from the Companies Act, redrafted to be consistent with the Auditing Profession Act or a definition of ‘independent review’ inserted for the purposes of the Companies Act.
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
INDEPENDENT REVIEW OF INDEPENDENT REVIEW OF FINANCIAL STATEMENTSFINANCIAL STATEMENTS
INDEPENDENT REVIEW OF INDEPENDENT REVIEW OF FINANCIAL STATEMENTSFINANCIAL STATEMENTS
• Regulations
– The nature of the independent review engagement to be defined• To ensure that an appropriate level of assurance is expressed which is clearly understood by
the public– The competences of independent reviewers to be defined
• To ensure that only suitably qualified accountants are permitted to perform the review and that the public understands the quality of service they can expect
– An appropriate standard to be drafted• To ensure consistent performance of independent reviews against which performance can be
measured – Independent reviewers to be subject to regulation
• To ensure that the public has the necessary confidence to place reliance on the services delivered
– Reportable Irregularities• The benefit of this provision in the Auditing Profession Act should not be lost
It is imperative that the DTI engages with IRBA as the statutory regulator for assurance services
when drafting the Regulations pertaining to audits and independent reviews
THE NATURE OF THE THE NATURE OF THE INDEPENDENT REVIEW INDEPENDENT REVIEW
THE NATURE OF THE THE NATURE OF THE INDEPENDENT REVIEW INDEPENDENT REVIEW
• Must be understood by the public
• Level of assurance expressed should not create an expectation gap
• Must create confidence in the service
• Otherwise impact on operation of financial markets
THE COMPETENCES OF THE COMPETENCES OF INDEPENDENT REVIEWERSINDEPENDENT REVIEWERS
THE COMPETENCES OF THE COMPETENCES OF INDEPENDENT REVIEWERSINDEPENDENT REVIEWERS
• Properly defined to ensure properly qualified individuals perform reviews
• Section 30(7) of Companies Act: Minister to make regulations prescribing professional qualifications of persons who may conduct reviews
• Specific IFAC Education standard for providers of assurance services
THE STANDARD FOR INDEPENDENT THE STANDARD FOR INDEPENDENT REVIEWSREVIEWS
THE STANDARD FOR INDEPENDENT THE STANDARD FOR INDEPENDENT REVIEWSREVIEWS
• Standard required for consistency and measurement of assurance service
• ‘Lower’ standard than for audit envisaged
• Basic understanding of assurance required (vs. services provided by an Accounting Officer in terms of Close Corporations Act)
• Revision of Review Standard (ISRE 2400) on IAASB Agenda next week
REGULATION OF INDEPENDENT REGULATION OF INDEPENDENT REVIEWERSREVIEWERS
REGULATION OF INDEPENDENT REGULATION OF INDEPENDENT REVIEWERSREVIEWERS
• No provision in Companies Act for regulation of reviewers/protection of reviewers
• Latest Regulations may provide the required solution
• Oversight over assurance services increases confidence from investors and public
• Regulation/monitoring at a different level than for auditors
• Globally, self regulation no longer acceptable
• Recommendations in European Union Green Paper on Audit
REPORTABLE IRREGULARITIESREPORTABLE IRREGULARITIESREPORTABLE IRREGULARITIESREPORTABLE IRREGULARITIES
• Arose from government’s initiatives to curtail white collar crime
• Section 45 of the Auditing Profession Act
• RI must be reported by registered auditor
• Early warning signal of possible unlawful activity to bodies such as SARS, CIPRO, FIC, FSB and SAPS
• Most reports in respect of private companies
• Onerous penalties for non compliance by auditors
RECOMMENDATIONSRECOMMENDATIONSRECOMMENDATIONSRECOMMENDATIONS
• Robust engagement with relevant parties when drafting Regulations
• Proposal has been made to DTI to assist with
– Drafting of independent review standard– Defining competences for independent reviewers– Accreditation of professional institutes which members can perform
reviews– Regulation of independent reviewers and the level of regulation
• Proposal includes a proposed timeline and approach
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
PROPOSAL – PROPOSAL – UNDERPINNING PHILOSOPHYUNDERPINNING PHILOSOPHY
PROPOSAL – PROPOSAL – UNDERPINNING PHILOSOPHYUNDERPINNING PHILOSOPHY
– IRBA embraces government’s initiatives to build and enhance skills for the wider community, consistent with the Growth, Employment and Redistribution (GEAR) Strategy of government
– Need a competitive, fast growing economy which creates sufficient jobs for job seekers
– Globally, G20 supports growth across the globe– Approach based on a partnership with DTI– Approach based on consultation with other role players
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010
CONTACT DETAILSCONTACT DETAILSCONTACT DETAILSCONTACT DETAILS
Bernard Peter Agulhas
087 940 8797
083 601 7216
Sandy van Esch
087 940 8871
082 322 6324
THANK YOU
Companies Amendment Bill Presentation to Parliament – Nov/Dec 2010