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Technical

ACCOUNTING

• Statement of GAAP for SMEs
  
  The APB approved for issue a Statement of Generally Accepted Accounting Practice (GAAP) for Small and Medium Sized Entities (SMEs) in South Africa.
  
  The Statement of GAAP is based on the International Accounting Standards Board (IASB) exposure draft on International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) without any change to the original text
  
  SAICA issued ED 225 – Financial Reporting for Small and Medium-sized Entities (SMEs) – Proposed Process in May 2007. ED 225 requested respondents to comment on the proposal to adopt IFRS for SMEs in South Africa in its exposure draft form as a transitional standard  for ‘limited interest' companies until the Financial Reporting Standards Council, required by Corporate Laws Amendment Act, 2006, is established and develops accounting standards for such companies. Almost all respondents supported the proposed process.

• Revised IAS 23 (AC 114) – Borrowing Costs
  
  The main change from the previous version of this statement is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale.
  
  An entity shall apply this statement for annual financial periods beginning on or after 1 January 2009. Earlier application is permitted.

• IFRIC 13 (AC 446) – Customer Loyalty Programmes
  
  The interpretation requires entities to allocate some of the proceeds of the initial sale to the award credits and recognise these award credit proceeds as revenue only when obligations have been fulfilled. The company may fulfil its obligations by supplying awards itself or engaging (and paying) a third party to do so.
  
  The effect of the interpretation will be to ensure that obligations to supply customer loyalty awards are measured the same way, whether the award credits are sold separately or granted to customers as part of a larger sale.
  
  IFRIC 13 (AC 446) may require many entities to change their basis of accounting, as they generally have measured their customer loyalty liability on the basis of expected costs, while this interpretation requires selling prices or fair value to be used.
  
  The interpretation addresses accounting by entities that grant loyalty award credits (such as ‘points' or travel miles) to customers that buy other goods or services. Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services (awards) to customers that redeem award credits.
  
  An entity shall apply this interpretation for annual periods beginning on or after 1 July 2008. Earlier application is permitted.  

• IFRIC 14 (AC 447) – IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
  
  IFRIC 14 (AC 447) provides general guidance on how to assess the limit, in IAS 19(AC 116) – Employee Benefits, on the amount of the surplus that can be recognised as an asset. It also explains how the pensions asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The interpretation will standardise practice and ensure that entities recognise an asset on a consistent basis in relation to a surplus.
  
  No additional liability need be recognised by the employer under IFRIC 14 (AC447), unless the contributions that are payable under the minimum funding requirement cannot be returned to the company. IFRIC 14 (AC 447) is likely to have the most impact in countries that have a minimum funding requirement and where there are restrictions on a company's ability to get refunds or reduce contributions.
  
  Whether and how IFRIC 14 (AC 447) applies to a particular entity will depend on the exact terms of the pension plan and the regulatory requirements in the relevant jurisdiction, and should be determined by reference to IFRIC 14 (AC 447) itself.
  
  The interpretation does not change the rules on funding
  
  The interpretation clarifies how entities should account for the effect of any statutory or contractual funding requirements. It cannot change those requirements, as they are set by regulators and pension fund trustees, and it is for management to decide how it satisfies those requirements.
  
  The interpretation does not affect an entity's ability to get a refund
  
  The interpretation provides guidance on how to account for any restrictions that may be in place. It does not affect an entity's ability to get a refund. An employer's ability to get a refund is determined by the statutory requirements in the jurisdiction in question and the scheme rules.
  
  An additional liability is recognised only if two conditions exist at the same time
  
  An additional liability is recognised only if both of the following conditions exist:
  
      - If the entity has a statutory or contractual obligation
        to pay additional amounts to the plan.
  
      - If the entity's ability to recover those amounts in
        the future by refund or otherwise is restricted.
  
  In that case, the recognition of an additional liability reflects the economic reality.
  
  The interpretation clarifies when a surplus in a pension plan can be recognised
  
  IFRIC 14 (AC 447) provides a clearer interpretation of the availability of a surplus than the original standard, IAS 19 (AC 116). Under IAS 19 (AC 116), some have argued that a surplus is not available to a plan sponsor unless it is immediately realisable at the balance sheet date. IFRIC 14 (AC 447) states that the employer only needs to have an unconditional right to use the surplus at some point during the life of the plan or on its wind up in order for a surplus to be recognised.
  
  The interpretation ensures that the accounting for surpluses is consistent and transparent
  
  The interpretation will ensure that any economic consequences of making contributions required by legislation or the terms of the plan will be treated in a transparent and consistent manner by all entities.
  
  An entity shall apply this Interpretation for annual periods beginning on or after 1 January 2008. Earlier application is permitted. 

• Revised Preface to Interpretations of Statements of Generally Accepted Accounting Practice
  
  The main reason for revising the Preface to Interpretations of Generally Accepted Accounting Practice was the issue of the International Financial Reporting Interpretation Committee (IFRIC) Due Process Handbook to replace the IFRIC Preface. The previous version of the Preface to Interpretations of Generally Accepted Accounting Practice had the IFRIC Preface as an attachment in an appendix, and it was necessary to replace it with the IFRIC Due Process Handbook.
  
  All the above documents can be viewed on the SAICA website in the on line handbook.

REMOVAL OF EXPOSURE DRAFTS

The following exposure drafts had been removed due to the issue of IAS 23 (AC 114), IFRIC 13 (AC 446) and IFRIC 14 (AC 447):

• ED 214 – Proposed Amendments to IAS 23 (AC 114) – Borrowing Costs. 

• ED 217 – IFRIC Draft Interpretation D19: IAS 19 – The Asset Ceiling: Availability of Economic Benefits and Minimum Funding Requirements. 

• ED 218 – IFRIC Draft Interpretation D20: Customer Loyalty Programmes.

SOUTH AFRICAN APPOINTED TO THE IFRIC

Darrel Scott, Head of Group Finance at FirstRand Banking Group, was appointed to the IFRIC from 1 July 2007.

AUDITING

IAASB MAKES FURTHER PROGRESS ON CLARIFICATION OF ITS AUDITING STANDARDS

The auditing standards have been redrafted in accordance with the International Auditing and Assurance Standards Board's (IAASB) new drafting conventions designed to enhance the clarity of its pronouncements. In July 2007, the IAASB approved for public comment the following exposure drafts of proposed International Standards on Auditing (ISA):

• ISA 510 (Redrafted) – Initial Audit Engagements: Opening Balances

• ISA 530 (Redrafted) – Audit Sampling and Other Means of Testing

The due date for comment on ISA 510 and ISA 530 is 15 October 2007.

• ISA 700 (Redrafted) – The Independent Auditor's Report on General Purpose Financial Statements.

• ISA 705 (Revised and Redrafted) – Modifications to the Opinion in the Independent Auditor's Report.

• ISA 706 (Revised and Redrafted) – Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the Independent Auditor's Report.

• ISA 800 (Revised and Redrafted) – Special Considerations - Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement.

• ISA 805 (Revised and Redrafted) – Engagements to Report on Summary Financial Statements.

The due date for comment for ISA 700, ISA 705, ISA 706, ISA 800 and ISA 805 is 15 November 2007.

• ISA 220 (Redrafted) – Quality Control for Audits of Historical Financial Information.

• International Standards on Quality Control (ISQC) 1 – Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements.

The due date for comment for ISA 220 and ISQC 1 is 14 December 2007.

The Independent Regulatory Board for Auditors (IRBA) invites comment on the above by the deadline dates. The exposure drafts may be viewed on the IRBA website (www.irba.co.za).

AUDITOR'S REPORT ON ATTORNEYS' TRUST ACCOUNTS

In terms of the Attorneys' Act, No. 53 of 1979 and the Rules of the Provincial Law Societies, auditors are required to report on their audit of attorneys' trust accounts by 31 August each year.

The IRBA commenced with the process of updating the current guidance contained in the SAICA Guide, Guidance for Auditors: The Audit of Attorneys' trust accounts in terms of the Attorneys' Act, No 53 of 1979 and the Applicable Rules of the Provincial Law Societies, which guidance will be applicable for audits for the year ended 31 August 2008.

A consultation process is being followed, which involves meeting with representatives of the Law Society of South Africa, the Attorneys' Fidelity Fund and the respective Provincial Law Societies and Registered Auditors in order to identify amendments required to the guidance and the Rules of the Provincial Law Societies.

The need for updating the existing guidance has arisen due to the adoption of the ISAs in South Africa, new legislation affecting auditors, and other developments in reporting standards. The current rules of the law societies still refer to South African Auditing Standards, which were withdrawn on adoption of the International Standards on Auditing.

The changes to the audit report are an interim measure until such time as the guidance has been updated and does not affect either the nature of the engagement to audit attorneys' trust accounts or the level of assurance expressed in an audit report.

This auditor's report may be viewed on the IRBA website. Queries on this report should be sent to the IRBA.

REGULATED INDUSTRIES

FAIS NEWSLETTER FROM THE FSB

The Financial Advisory and Intermediary Services (FAIS) supervision department of the Financial Services Board (FSB) has initiated a process of active communication with authorised financial services providers (FSPs) through a regular newsletter.

The theme of the latest FAIS newsletter is compliance officers, compliance function, compliance reports and the relationships between compliance officers and FSPs, as well as the FSB. Articles are as follows:

• Theme visits - compliance framework in small FSPs

• Changes to the determination of ‘Fit and Proper' requirements

• Requirements for appointment of Compliance Officers

• Compliance Officer approval process

• Functions of Compliance Officers

• Procedures for appointing or terminating the services of Compliance Officers

• Purpose of compliance reports and methods of submission thereof

• Frequently asked questions relating to the compliance report

The FSB invites comment on the newsletter and suggestions for future topics. For comment or suggestions, or to receive the FAIS newsletter, send an e-mail request to faiscomment@fsb.co.za.

To access the newsletter, refer to the FSB website (www.fsb.co.za).

TAX

WHAT'S NEW AT SARS?

The latest updates can be viewed on the SARS website (www.sars.gov.za).

PROVISIONAL TAXPAYERS AND eFILING

Section 89quat of the Income Tax Act provides that interest is to be charged at the prescribed rate, if the sum of employees' tax and provisional tax is less than the normal tax for the year finally assessed.

For an individual it means that, if there is an underpayment of total tax on 30 September 2007 (seven months after year end), interest would be imposed.
SARS has clarified the misunderstanding regarding when the additional tax on assessment needs to be paid for individual, non-provisional taxpayers, making use of eFiling. The deadline is 29 February 2008 – interest free.

To avoid interest being imposed for individuals registered as provisional taxpayers, the third or top-up provisional tax payment was, however, still due on 30 September 2007.

ERRATA

TRADING WHILST FACTUALLY INSOLVENT GUIDE

If you refer to the guides section of the SAICA Website, specifically the ‘Contents – Volume 4,' Trading Whilst Factually Insolvent, is listed as one of the Guides issued in July 1999. We draw your attention to the fact that an errata can be found on the front cover of the guide stating:

“Since this Guide was issued in July 1999, the Public Accountants' and Auditors' Act has been superseded by the Auditing Profession Act which contains significant changes relating to irregularities and has rendered certain sections of the Guide outdated. Once the Companies Bill, 2007 is finalised, which may also materially affect the issues addressed in this Guide, this Guide will be revised and consequently this version will be superseded. In the meantime, care should be taken in applying the Guide to ensure that there is compliance with the provisions of the Auditing Profession Act and current auditing standards.

Paragraph .54 of the Guide – A subordination agreement has never had the effect of restoring factual solvency and/or converting debt to equity. The classification as a financial liability/equity instrument should be determined by referring to IAS 32 (AC 125) – Financial Instruments: Disclosure and Presentation.”

Technical queries: standards@saica.co.za

Ethics and Discipline queries:

karenl@saica.co.za

Information Centre: pelmag@saica.co.za

Telephone: 011 621 6641

Telefax: 011 621 6819

Website: http://www.saica.co.za

 

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