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In 2001 the then Deputy Minister of Trade and Industry, Mrs. LB Hendricks, made the following insightful comment:

“The DTI is in favour of amending the Companies Act to provide for small companies to prepare their financial statements in conformity with any other comprehensive basis of accounting approved by a standard setting body

Consequently the new Companies Act 2009 and draft regulations allow owner-managed companies to prepare their financial statements in terms an alternative basis other than South African General Accepted Accounting Practice (SA GAAP). This basis is internationally referred to as “Other Comprehensive Basis of Accounting” or OCBA.

In 2009 the new South African Companies Act was promulgated and requires that all public interest companies, whether public or private, and all non-owner-managed companies prepare financial statements in terms of either SA GAAP or SA GAAP for SME’s, respectively. The act therefore provides legal backing for SA GAAP only.

However, inline with international jurisdictions such as Australia, Canada, United States, and New Zealand, the Act and draft regulations exempt owner managed companies from this onerous requirement. This innovative provision in the act approved by parliament and drafted by the Department of Trade and Industry, will enable small business to save compliance costs of at least R500 million. The Act does not force owner managed companies to follow a single reporting standard. 

Owner managed companies are therefore allowed to prepare special purpose financial statements tailored to the specific requirements stakeholders by applying OCBA. Examples of OCBA include tax basis of accounting, cash or modified cash basis of accounting as well as the SAICA Exposure Draft ED275 (commonly referred to as Micro Gaap).

The tax basis of accounting will allow an owner managed company to prepare financial statements using the income tax act as a starting point. Such financial statements will disclose the taxable income of the company as opposed to the net income. This ill save time and cost as it will combine the effort of preparing a set of financial statements and performing a tax calculation.  

Owner managed companies will in future be able to prepare their financial statements in any one of these three basis of accounting. This is a truly significant development n the South African corporate legislation as it not only provides certainty but also flexibility in the preparation of financial statements.

The ACCA (South Africa) have been part of the SAICA working group that drafted the ED275. ACCA (South Africa) would now like to take the initiative in drafting guides and disclosures requirements for companies that decide to report on the tax or cash basis of accounting.

Issued by
Nicolaas van Wyk
Director: Centre for Independent Review
www.sacir.org
and also the Technical and Support Executive of the ACCA (South Africa)
www.accasa.co.za

About the South African Centre for Independent Review

Our aim is to:

• make consumers aware of their rights, and
• assist independent accounting professionals to become aware of their obligations

The South African Centre for Independent Review (SACIR) was formed in 2009 as an independent public interest organisation committed to accountability, quality standards, and education in the performance of assurance and related reporting services so as to reduce the expectation gap between users of financial statements and those that provide assurance and related reports on financial statements.

The expectation gap is the gap between what users expect a standard of performance should be and the actual standard of performance adhered to by a report provider such as an auditor or accounting officer.

To paraphrase the Consumer Protection Act, 2008 we hope that our efforts will ensure companies and their stakeholders are provided with fair, accessible and sustainable reporting engagements. Our efforts will be focused on consumer information and collaboration with professional bodies so as to prevent unfair marketing and business practices.  

Our initial focus is on the following reporting services;

• Independent Review as detailed in section 30 of the Companies Act, 2008
• Accounting Officer reports as required by section 64 of the Close Corporations Act, 1984.

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

We support our 131,500 members and 362,000 students throughout their careers, providing services through a network of 82 offices and active centres. Our global infrastructure means that exams and support are delivered - and reputation and influence developed - at a local level, directly benefiting stakeholders wherever they are based, or plan to move to, in pursuit of new career opportunities. Our focus is on professional values, ethics, and governance, and we deliver value-added services through 57 global accountancy partnerships, working closely with multinational and small entities to promote global standards and support.

We use our expertise and experience to work with governments, donor agencies and professional bodies such as the International Federation of Accountants (IFAC) to develop the global accountancy profession and to advance the public interest.

Our reputation is grounded in over 100 years of providing world-class accounting and finance qualifications. We champion opportunity, innovation, diversity, integrity and accountability. By promoting our global standards, and supporting our members wherever they work, we aim to meet the current and future needs of international business.

ACCA understands the real issues facing small businesses as 63,000 of our members work in SMEs or small partnerships worldwide. ACCA's theme for 2009-2010 is Accountants for Business. This theme emphasises the important roles accountants play in both the private and public sectors, promoting their role as advocates of sound business practices, champions of sustainable business development and identifiers of value drivers which lead to high-performing organisations.

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