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COMPANY BILL, 2008

SAIPA PRESENTATION, 13 AUGUST 2008

PARLIAMENT PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY

PRESENTED BY: Lerato Sebata – SAIPA Chairperson subcommittee: Corporate LawNicolaas van Wyk – SAIPA Technical and Standards Executive Prof. Farouk Cassim - Corporate law expert

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INTRODUCTION

About SAIPA

Contributors: Committee members

Mias Strauss – Chairperson SAIPA Technical Committee

Lerato Sebata – Sub committee chairperson: Corporate Law

Nicolaas van Wyk – Technical Executive SAIPA

Consulted experts Prof. Farouk Cassim - Corporate law expert

Prof. Piet Delport – Corporate law expert

Flip Dwinger – Corporate law expert

Pieter Stassen – Corporate law expert

Corrie Cloete – SAIPA practicing member

Prof. David Venter – Management expert

Josef Tshiwilowilo – SAIPA chairperson and member of ABASA

Saleem Kharwa – International Accounting Education Standards Board of the International Federation of Accountants

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INTRODUCTION

Our submission: specific discussion on relevant sections of the Bill

and

general conceptual discussion of relevant issues in the Bill.

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SPECIFIC PROPOSALS

FINANCIAL STATEMENTS (Page 12 – 14) Mandatory financial statements

Establish differential financial reporting

Business Rescue provisions

Define and determine scope of accounting records

Fair presentation and financial reporting standards

REPORTS ON FINANCIAL STATEMENTS (Page 14 – 22) Mandatory appointment of report provider

Registered auditors – IRBA

Professional accountants - IFAC

Audit, Independent review, factual findings

Offences associated with preparation

Reliance on accountant

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SPECIFIC PROPOSALS

FINANCIAL REPORTING STANDARDS COUNCIL (Page 22 – 25) Effective and efficient issuing process

Independent regulator or agency

Voluntary association

CLOSE CORPORATIONS (Page 26 – 28) Different philosophical approach between small private company and close

corporations

Flexibility and simplicity – Different but equally valid approaches

Variety of choice

Unfettered future existence of the close corporations act

No consequential amendments

Only a change of policy is required

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SPECIFIC PROPOSALS

PENALTIES (Page 28 – 30) Strong deterrent against fraudulent activity

Make preparers liable for misrepresenting financial statements

Concepts of materiality, bona fide, gross negligence should apply

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SPECIFIC PROPOSALS - MODEL

Type of company FinancialReporting Standards

Financial Statements

Financial Statement Report Providers

Report on financial statements

Public IFRS/GAAP Mandatory Registered auditor registered with the IRBA

Audit report

Non-owner managed private companies

IFRS/GAAP for SME

Mandatory Registered Auditor registered with the IRBA Or

Audit report or

Professionalaccountant regulatedby IFAC

Independent review (non assurance report; defined by the profession)

Owner managed private companies

Micro-entity Financial Reporting

Mandatory Professional accountant regulated by IFAC

Report of factual findings (non assurance as defined by IFAC)

Close Corporations

Gaap as appropriate

Mandatory Accounting officer Accounting officer report

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GENERAL PROPOSALS

Harmonisation with other legislation (Clause 1)

Related and inter-related persons and control (Clause 1)

Purpose of the bill (Clause 7)

Names of companies (Clause 11)

Legal status of companies (Clause 19(5)) - Constructive notice

Pre-incorporation contracts (Clause 21)

Reckless trading (Clause 22 and 218)

Board and directors (Clause 66(8))

Standards of directors conduct (Clause 76(3))

Business rescue (Chapter 6)

Protection of whistle blowers (Clause 159)

Application to declare director delinquent or under probation (Clause 162)

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GENERAL PROPOSALS

Derivative actions (Clause 165)

Commission objectives (Clause 186)

Functions of panel (Clause 201) – Securities Regulation Panel

Finances (Clause 210)

Civil actions (Clause 218)

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CONCLUSION

APPENDIX 1: Proposed amendments to clause 1: interpretation

APPENDIX 2: Proposed amendment to clause 28: accounting records

APPENDIX 3: Proposed amendment to clause 28: financial statements

APPENDIX 4: Proposed amendment to clause 28: financial reporting standards

APPENDIX 5: Proposed amendment to clause 28: annual financial statements

APPENDIX 6: Proposed amendment to clause 28: annual financial statement

report providers

APPENDIX 7: Proposed amendment to clause 28: regulatory agencies

APPENDIX 8: Proposed amendment to clause 28: financial reporting standards

council

APPENDIX 9: Proposed amendment to schedule 5: close corporations

APPENDIX 10: Article on the history of the close corporation act

APPENDIX 11: Article on differential reporting