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Enhanced Disclosures about Financial Instruments

The International Accounting Standards Board (IASB) has issued amendments to IFRS 7(AC 144) – Financial Instruments: Disclosures, aimed at improving transparency in the disclosures about financial instruments. These amendments form part of the IASB’s response to the credit crisis and are effective for annual periods beginning on or after 1 January 2009. Earlier application is permitted.

Entities will be required to classify fair value measurements applying a three level hierarchy. In addition, these disclosures about fair value measurements will help to improve comparability between entities about the effects of such measurements.

The amendments also clarify and enhance the existing requirements for the disclosure of liquidity risk. This is aimed at ensuring that the information disclosed enables users of an entity’s financial statements to evaluate the nature and extent of liquidity risk arising from financial instruments and how the entity manages that risk.

These amendments have been issued as amendments to Statements of Generally Accepted Accounting Practice.

Improving Disclosures about Financial Instruments: Amendments to IFRS 7(AC 144) – Financial Instruments: Disclosures can be found in the on-line SAICA handbook.

Assessment of Embedded Derivatives on Reclassified Financial Assets

The International Accounting Standards Board (IASB) has issued amendments to IFRIC 9 (AC 442) – Reassessment of Embedded Derivatives and IAS 39(AC 133) – Financial Instruments: Recognition and Measurement, to clarify the accounting treatment of embedded derivatives for financial assets that have been reclassified at the fair value through profit and loss category in terms of an amendment that was issued in October 2008. The amendment issued in October 2008, Reclassification of Financial Assets (Amendments to IAS 39 (AC 144) – Financial Instruments: Recognition and Measurement and IFRS 7(144) – Financial Instruments: Disclosures), permitted entities to reclassify fair value through profit and loss financial assets to another financial asset category in specific circumstances.

The amendments to IFRIC 9(AC 442) and IAS 39(AC 133) require an entity to assess whether an embedded derivative should be separated from a host contract on reclassification of a financial asset at the fair value through profit and loss category to another financial asset category. Such an assessment is made based on circumstances that exist at the later date of:

• when the entity first became a party to the contract; and
• a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the contract.

These amendments prohibit an entity from reclassifying a financial asset at the fair value through profit and loss category when an entity is unable to measure separately the embedded derivative that would have to be separated on reclassification.

The amendments apply retrospectively for annual periods ending on or after 30 June 2009. These amendments have been issued as amendments to Statements of Generally Accepted Accounting Practice (GAAP).

Embedded Derivatives – Amendments to IFRIC 9(AC 442) and IAS 39(AC 133) can be found in the SAICA on-line handbook.

Reclassification of Financial Assets (Amendments to IAS 39(AC 144) – Financial Instruments: Recognition and Measurement and IFRS 7(144) – Financial Instruments: Disclosures), can also be found in the SAICA on-line handbook.

IASCF Announces Membership of the Newly Constituted SAC

The International Accounting Standards Committee Foundation (IASCF), the oversight body to the International Accounting Standards Board (IASB), has announced the membership of the reconstituted Standards Advisory Council (SAC). The newly appointed members of the SAC will resume their duties from February 2009 with a term ending on 31 December 2011.

SAC is a forum for the IASB to consult a wide range of interested parties affected by the IASB’s work. The SAC is constituted of individuals from representatives that have an interest in standard-setting and represent relevant constituencies. The Trustees of the IASCF have decided that nominations and appointments to the membership of the SAC will be based primarily on representation of relevant organisations. Moses Kgosana, the Chairman of the Accounting Practices Board (APB), the official accounting standard-setting body in South Africa, has been appointed as the South African standard-setter representative.

The SAC will provide advice on projects with a particular emphasis on practical application and implementation issues, including matters relating to existing standards that may warrant consideration by the International Financial Reporting Interpretations Committee (IFRIC). Meetings will take place three times a year to advise the IASB on a range of issues, including the IASB’s agenda and work programme.

The full initial list of appointments to the Standards Advisory Council can be found on the IASB website.

AUDITING

Reports Relating to Certificates Prepared by a Company for Conveyancing Purposes

The Auditing Guidance Committee of The South African Institute of Chartered Accountants (SAICA) wishes to clarify for all SAICA members in public practice their responsibilities when issuing a Circular 13/2005 certificate for a company or individual, required for conveyancing.

Requests are often being received from attorneys to confirm the solvency of the company, compliance with S228 of the Companies Act (Disposal of major portion of the Assets of the Company), knowledge of reportable irregularities or that all shareholders are resident in South Africa. Care must be taken when signing such a report to only make factual statements (e.g. according to the most recent audited financial statements of Company C Pty Ltd at 29 February 2008, the company had net assets of Rx). Where you cannot establish a factual situation, your report should be appropriately qualified.

Certain members, however, are still issuing reports to the transferring attorney in terms of Circular 2/84, which was replaced in December 2005 by Circular 13/2005. The new prescribed format should be used. A copy of the Circular 13/2005 can be viewed on or downloaded from the SAICA website.

Furthermore, where no mortgage bond is involved, the paragraphs dealing therewith should simply be deleted.

FINANCIAL SERVICES

Waiving of Penalties for the Late Submission of Signed 2006 Annual Financial Statements

Following representations from the SAICA Retirement Fund Project Group, The Registrar of Pension Funds has agreed to waive penalties for the months of March and April 2009, in respect of the signed 2006 annual financial statements that were supposed to be submitted by the 28th of February 2009.

An information circular on the above is to be issued by the Financial Services Board’s Pension Fund department.

TAXATION

SAICA’s National Tax Committee submissions

SAICA made the following submissions to SARS/National Treasury during February/March 2009.

Submission name
Deadline
Date submitted

SAICA Submission to SARS on Paragraph 20 of the 4th Schedule to the Act – Removal of Basic Amount N/A 26 February 2009
SAICA Submission to SARS on Draft Interpretation Note s23 (o) Corrupt activities. 24 February 2009 24 February 2009
SAICA Submission to National Treasury on Tax Impact of Corporate actions on the expense relief ratio of long-term insurers N/A 12 February 2009
SAICA Submission to SARS on VAT Registration Difficulties N/A 10 February 2009
SAICA Submission to SARS – Discussion Paper on International Subsistence Allowances 30 January 2009 30 January 2009

Copies of these and previous submissions are available on our website at www.saica.co.za.

SARS New Administrative Penalties Take Effect

Regulations prescribing administrative penalties for non-compliance have been gazetted.

Section 75B of the Income Tax Act No. 58 of 1962 is applicable.

The purpose is to ensure the widest possible compliance with the provisions of the Act and the effective administration of the tax system by ensuring that any penalty is imposed impartially, consistently and proportionately to the seriousness of the non-compliance.

Paragraph 4 of the regulations lists the areas of non-compliance subject to a fixed amount penalty:

a. failure to register as a taxpayer as required by the Act;
b. failure to inform the Commissioner of a change in address;
c. failure by a company to appoint a public officer, appoint a place for service or delivery of notices and documents, keep the office of public officer constantly filled, maintain a place for the service or delivery of notices, or to notify the Commissioner of any change of public officer or of the place for the service or delivery of notices;
d. failure to submit a return or other related documents/information;
e. failure to furnish, produce or make available information, documents or things;
f. failure to reply to or answer a question put to a person when required;
g. failure to attend and give evidence as and when required;
h. failure by an employer to notify SARS of a change of address or the fact of having ceased to be an employer as and when required;
i. failure by an employer to submit a monthly declaration of employees’ tax as and when required;
j. failure by an employer to provide details of an employee;
k. failure to deliver an employee’s tax certificate to one or more employees or former employees;
l. delivery by an employer of an employee’s tax certificate prior to first rendering an employee’s tax return;
m. failure by a provisional taxpayer, who is liable for the payment of normal tax, to submit an estimate of taxable income as and when required; or
n. any other non-compliance with an obligation imposed under
the Act.

The penalties are based on the taxpayer’s taxable income for the year of assessment immediately prior to the year in which offence took place. The penalties are identical and are applied in terms of the following table:

Item
Assessed loss or taxable income for preceding year
Penalty

(i)
Assessed loss
R250

(ii)
R0 – R250 000
R250

(iii)
R250 001 – R500 000
R500

(iv)
R500 001 – R1000 000
R1 000

(v)
R100 000 1 – R5 000 000
R2 000

(vi)
R500 000 1 – R10 000 000
R4 000

(vii)
R10 000 001 – R50 000 000
R8 000

(viii)
Above R50 000 000
R16 000

Theses fixed amount penalties are separate from the percentage-based penalties that might also apply in certain instances. For example, a 10% penalty for late payment of provisional tax may be levied.

The penalties will increase for each month, or part thereof, where the person fails to remedy the non-compliance within 30 days of the date of non-compliance.

A listed company or a company whose gross income for the previous year exceeds R500 million, or any company in the same group as such companies, are treated as automatically falling into category (vii) unless they fall into category (viii).

Once the penalties have been imposed, SARS may only remit the penalty in limited circumstances. The regulations stipulate the procedures to be followed to request remittance. A decision by the Commissioner not to remit a penalty in whole or part is subject to objection and appeal.

These regulations became effective on 1 January 2009. A transitional arrangement is made for cases of non-compliance that existed on 1 January 2009 where the date of the non-compliance will be regarded as 90 days after 1 January 2009. In these instances, therefore, the penalty regulations will apply from 1 April 2009.

Interestingly, the regulations prescribe that the Commissioner may impose a penalty in the listed areas of non-compliance. The Commissioner therefore has discretion as to whether or not a penalty should be imposed.

SAICA had requested that the effective date of these penalties be postponed until later in the year. SAICA also objected to the magnitude of the initial penalties proposed, as a result of which the penalties have been reduced from those proposed in the first draft regulations.

Timetable for Tax Season 2009:

Phase
Period
Primary Responsibility

Preparation for submission of PAYE reconciliation declaration
1 March – 31 March
SARS; Employers; Payroll companies; Practitioners

Submission of EMP501 PAYE reconciliation declaration and employees
tax certificates
1 April – 30 May
Employers; Practitioners

Data reconciliation in preparation for pre-population of returns
1 June – 30 June
SARS

Preparation for submission of income tax returns for individuals (ITR12) including issue of ITRR return request forms to manual filers
1 June – 30 June
SARS; Taxpayers; Practitioners

Manual submission of ITR12 income tax returns for individuals
1 July – 18 September
Individual taxpayers;
Practitioners
Manual submission of IT12TR income tax returns for trusts
1 July – 18 September
Trusts; Practitioners

Electronic submission of ITR12 income tax returns for individuals
1 July – 20 November
Individual taxpayers;
Practitioners
Electronic submission of ITR12TR income tax returns for trusts
1 July – 20 November
Trusts; Practitioners

Submission of IT14 and IT12EI income tax returns for companies and exempt institutions
12 months after financial year-end
Companies; Exempt Institutions; Practitioners

All queries: https://www.saica.co.za/faqs/askquestion.asp?contentpageparentid=1172 | Telephone: 011 621 6641 | Telefax: 011 621 6819
Website: http://www.saica.co.za