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B-BBEE’s changing landscape and the role of the CA(SA)

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“Although the new codes will only become compulsory on 11 October 2014 – one year from date of issue – they may be voluntarily applied with immediate effect.”

B-BBEE verification is a new business opportunity that CAs(SA) are best positioned to leverage

0n 11 October 2013 the Department of Trade and Industry (dti) released the Revised Codes of Good Practice on Broad-Based Black Economic Empowerment (B-BBEE) in Government Gazette No 36928. The implementation of the codes will have a significant impact on how government resources in South Africa will be allocated in future. The codes could also impact on how the private sector will view preferential suppliers.

It has now become a business imperative for South African companies to pay serious attention to transformation, or lose market share. The President of the Republic and the Minister of Trade and Industry made it very clear at the recent National Summit on B-BBEE that government is not satisfied with the pace of economic transformation and that the purpose of the revised codes is to speed up this process.

Although the new codes will only become compulsory on 11 October 2014 – one year from date of issue – they may be voluntarily applied with immediate effect. Black-owned entities have an especially strong incentive to do so. All entities with an annual turnover below R10 million and not falling under existing sector charters will want to apply the amended codes with immediate effect.

They now automatically qualify as exempted micro enterprises (EMEs) and Level 4 contributors. If they are 51% or higher black-owned, they automatically qualify as Level 2 contributors. Enterprises that are 100% black-owned qualify as Level 1. Entities with an annual turnover between R10 million and R50 million are now qualifying small enterprises (QSEs) under the revised codes.

The codes, however, make a somewhat controversial distinction in this category between entities that are majority black-owned and those that are not. Majority black-owned QSEs are completely exempt from formal verification and automatically qualify as either Level 1 or Level 2 contributors. All other QSEs (and all large enterprises with an annual turnover above R50 million) have to be measured in terms of the single scorecard contained in the revised codes.

When compared with existing codes, the revised scorecard is a completely new ball game. While being vastly simpler for black-owned businesses, for white-owned businesses its recognition levels, targets, weighting points and several other requirements make the new codes significantly more stringent.

Ownership, skills development and enterprise and supplier development are now known as priority elements. Each element has a 40% sub-minimum target which, if not met, will result in the measured entity’s contributor level being discounted by one level. To avoid this discounting, a large enterprise must comply with all three priority elements, while a QSE must meet the criteria for ownership and one other priority element.

These requirements will make it extremely difficult for white-owned entities to stay B-BBEE compliant without some level of intervention. This is where CAs(SA) can play a vital role.

The role of the CA(SA) in public practice

Determining a client’s B-BBEE score is a pure accounting matter. Yet most accountants and auditors in public practice have, until now, been more than willing to shift this responsibility to third party consultants or verification agents.

Many of these providers have had little, if any, formal training in analysing financial statements, reviewing shareholder agreements, working with payroll packages, extracting information from supplier and general ledger accounts, or performing complicated mathematical calculations – routine tasks in evaluating an entity’s B-BBEE status. CAs(SA) have obtained these skills through years of intensive academic and practical training.

They regularly perform these and similar functions, often on a much higher level. Why entrust your client’s BEE status (and confidential information) to a third party when you are best suited to perform this function? Even if you are not yet approved by the Independent Regulatory Board for Auditors (IRBA) to perform B-BBEE verifications, effective tools exist for you to conduct a meticulous scorecard calculation prior to verification, and to be closely involved in the verification process. One such example is the BEE Navigator system, which we currently employ in our own practice.

The role of the CA(SA) in commerce and industry

All CAs(SA) have undergone practical training and have obtained similar skill sets. Yes, some now operate as financial accountants, financial managers, financial directors or chief financial officers, but the relatively basic functions required to determine a company’s B-BBEE status are still within their area of expertise. Furthermore, the CA(SA) in commerce and industry is the ideal person to perform these functions, as he or she has direct access to the company’s source documentation.

This access places the CA(SA) in the perfect position to provide such documentation for verification once a year and also to update, monitor and advise the company on its B-BBEE status. Why outsource functions that can be easily performed under the supervision of a CA(SA)? Even more importantly, why unnecessarily share with third parties highly sensitive information, such as the company’s annual financial statements, board remuneration packages and payroll reports?

The implementation challenge

While CAs(SA) are ideally suited to perform B-BBEE functions, implementation will remain a challenge without reliable B-BBEE software and hands-on B-BBEE training. These are, however, no longer serious barriers to implementation of responsible B-BBEE practices, since a number of credible suppliers (such as BEE Navigator and the BEE Training Academy) offer comprehensive systems and support. BEE Navigator is a complete online BEE audit package, with online working papers in accordance with the IRBA’s standard on verifications (SASAE 3502). The system also provides industry with a comprehensive BEE management and tracking tool.

The bottom line

In October 2011 the DTI appointed the IRBA as the Regulatory Body of the B-BBEE verification industry. CAs(SA), in their capacity as registered auditors, were entrusted with the responsibility of performing B-BBEE verifications and issuing B-BBEE certificates. And wisely so. But, up to now, relatively few CAs(SA) and audit practices have taken up the challenge of offering verification services, or cooperating with an approved B-BBEE auditor to service their clients.

The question is, why? The profession is ideally positioned to play this vital role and with B-BBEE clearly here to stay, it is an opportunity to be grabbed with both hands – in the interest of transformation, and the bottom line.

Author: Anton de Wet CA(SA) is a B-BBEE approved RA and B-BBEE Partner at Middel & Partners.