The Minister of Trade, Industry and Competition, Mr Ebrahim Patel, recently published the Companies Amendment Bill, 2021, for public comment.
Faith Ngwenya, Technical and Standards Executive at the South African Institute of Professional Accountants (SAIPA), says the body has been a major contributor to the Bill since it was first introduced in 2018. The latest version proposes sweeping changes to the Companies Act of 2008.
“As a voting member of the International Federation of Accountants, or IFAC, and the representative of over 15,000 Professional Accountants (SA), SAIPA is ideally positioned to offer meaningful input in the public interest,” says Ngwenya.
She notes the Institute is also committed to ensuring careful consideration is given to unintended consequences the amendments might have on business and economic growth.
The ultimate objectives of the Bill are threefold.
First, it intends to make it easier to do business in South Africa. This is accomplished by various technical enhancements that clarify or reduce requirements. For example, the prohibition on a company offering its subsidiary financial assistance will be eliminated, and some company types with a sufficiently low public interest score will no longer need to provide certain financial information.
Second, it targets the containment of unjustified, excessive executive remuneration, a major public concern around the world as well as locally. A central theme is the disclosure of executive rewards in relation to the income of the lowest-paid workers in an organisation, although the exact method of doing so remains undecided. Also, shareholders may be granted a binding vote on executive pay policy at an organisation’s AGM, thereby throttling runaway remuneration.
Third, the Bill seeks greater transparency on beneficial ownership as a means to combat money laundering and the funding of terrorism. The amendments will compel companies and intermediate shareholders to identify the ultimate controller and beneficiary of shares.
Says Ngwenya, “While the goals of the amendments are both commendable and desirable, adequate care must be taken to ensure they are neither debilitating to business nor self-defeating in their implementation. They should also be conducive to promoting internationally accepted accountancy standards and practices.”
She highlights the proposed reduction of the cooling off period for auditors from five to two years. In 2017, the IRBA created a rule that, from 2023, auditors may service clients for a maximum of ten years, followed by a five year period before they can be engaged again by the same organisation.
However, the memorandum to the Bill explains that the economy suffers from a shortage of suitably resourced auditing firms. The reduction will mean that, when mandatory audit firm rotation commences, organisations will be assured of a wider pool of firms to choose from.
“From an auditing perspective, not much happens in two years so the shorter cooling off period could yield no practical benefits,” says Ngwenya.
Ngwenya says that her team at SAIPA will continue to review the amended Bill and submit suggestions to the Department of Trade, Industry and Competition (DTIC) to help increase its efficacy.
“We also encourage businesses and the public to review the text and offer their feedback promptly to ensure their concerns are heard, such comments can be sent directly to the DTIC or can be sent to email@example.com for collation and comprehensive submission” she concludes.
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