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TECHNICAL: ACCOUNTING

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FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF EQUITY

A discussion paper on the distinction between equity financial instruments and other financial instruments (non-equity instruments) has been published for public comment by the International Accounting Standards Board (IASB). This has been issued in South Africa as ED236 – Financial Instruments with Characteristics of Equity and can be downloaded from the SAICA website.

This is the first stage of the IASB’s project to improve and simplify the requirements in IAS 32(AC 125) – Financial Instruments: Presentation. Stakeholders around the world have raised the following broad classes of criticisms of the current requirements:

  • The principles in IAS 32 are difficult to apply.
  • The application of those principles can result in an inappropriate distinction between equity instruments and non-equity instruments.

The deadline for comment to SAICA is
5 August 2008.

SAICA SUBMISSIONS

SAICA with the input from the Accounting Practices Committee has made the following submissions to the IASB/International Financial Reporting Interpretations Committee (IFRIC):

  • ED 228 – Amendments to IAS 39 – Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting.
  • ED 229 – Joint Arrangements.
  • ED 230 – Proposed Improvements to International Reporting Standards – First Annual Improvements Project.
  • ED 231 – Proposed Amendments to IFRS 1 – First-time Adoption of International Financial Reporting Standards and IAS 27 – Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate.
  • ED 232 – Proposed Amendments to IFRS 2 – Share-based Payment and IFRIC 11 IFRS 2 – Group and Treasury Share Transactions: Group Cash-settled Share-based Payment Transactions.

SAICA also made a submission pertaining to IAS 8 – Accounting policies, changes in accounting estimates and errors, requesting clarification on whether its applicability includes revised, improved and amended Standards where there is a significant change to the requirements.

Visit the SAICA website to view these submissions.

RE-ISSUED PRONOUNCEMENT FOR EDITORIAL CHANGES

IAS 14(AC 115) – Segment Reporting

An updated version of IAS 14 – Segment Reporting (includes amendments resulting from new and amended IFRSs issued up to 17 January 2008) was issued by the IASB, which includes a front page history matter.

IAS 14 is being superseded by IFRS 8 – Operating Segments. IFRS 8 is required to be applied from 1 January 2009, but earlier adoption is permitted.

DISCUSSION PAPERS PUBLISHED BY THE IASB FOR COMMENT

Reducing complexity in reporting financial instruments

Discussion paper on Reducing complexity in reporting financial instruments, has been issued in South Africa as ED 237 and can be downloaded from the SAICA website.

The existing requirements for reporting financial instruments are widely regarded as difficult to understand, interpret and apply, and constituents have urged the IASB to develop standards that are principle-based and less complex. The document is the first stage in a project that aims to replace IAS 39(AC 133) – Financial Instruments: Recognition and Measurement. The discussion paper analyses the main causes of complexity in reporting financial instruments, and proposes possible intermediate approaches to address some of them, as well as a possible long-term approach.

The deadline for comment to SAICA is 22 August 2008.

Proposals to increase transparency in the accounting for post-employment benefits

Discussion paper on IAS 19(AC 116) – Employee Benefits, had been issued in South Africa as ED 238. This paper sets out the IASB’s preliminary views on how the accounting for some post-employment benefits, including pensions, could be improved.

The discussion paper, developed in consultation with the IASB’s Employee Benefits Working Group, addresses the main concerns expressed by a wide range of interested parties that the accounting model set out in IAS 19 is inadequate and should be reviewed.

The deadline for comment to SAICA is 29 August 2008, and can be downloaded from the SAICA Website.

 

How many tax auditors does it take to find a R1.00 mistake in an expense report? Three – One to find the mistake and two to discuss its significance.

 

AUDITING

 

The International Federation of Accountants (IFAC) has released a free implementation guide to assist small and medium practices and other practitioners, in applying International Standards on Auditing (ISAs) to the audit of small and medium entities (SMEs).  The guide, which can be downloaded from the IFAC website, provides a detailed analysis of all ISAs applicable to the audit of SMEs issued as at 31 December 2006 and their requirements in the context of an SME audit.

PUBLIC SECTOR

 

ACCOUNTING STANDARDS BOARD

The Accounting Standards Board, during its meeting on 18 March 2008, approved the following exposure drafts for comment:

  • ED 45 – Impairment of Non-cash Generating Assets. Comment is requested by 31 July 2008.
  • ED 46 – Impairment of Cash-generating Assets. Comment is requested by 31 July 2008.
  • Guideline on Accounting for Public-private Partnerships. Comment is requested by 30 June 2008.

In addition, the Board approved the local exposure of the following documents issued by the International Public Sector Accounting Standards Board (IPSASB).

  • ED 34 – Social Benefits: Disclosure of Cash Transfers to Individuals and Households.
  • Consultation paper – Social Benefits: Issues in Recognition and Measurement.

Comment on the IPSASB documents is requested by 30 June 2008.

The standards, exposure drafts, discussion papers and updates of the Board are available on the Board’s website (www.asb.co.za).

 

REGULATED INDUSTRIES

 

DRAFT LONG-TERM INSURANCE REGULATIONS FOR COMMENT

The National Treasury has released for comment draft regulations in terms of the Long Term Insurance Act, 1998, dealing with revised commission structures and enhanced consumer protection for contractual savings products of the life insurance industry.

The regulations follow extensive consultation on the 2006 National Treasury discussion paper, Contractual Savings in the Life Insurance Industry, which outlined a range of proposals designed to give effect to the December 2005 Statement of Intent signed between the Minister of Finance and the life insurance industry, aimed at improving the value provided by contractual savings products, such as retirement annuities and endowment policies.

Regulations implemented on 1 December 2006 gave effect to the first phase of the SOI commitments, which encompassed retrospective measures to improve policyholder value for existing policies, and policies written in the past.

The regulations released on 28 February form the next phase of the SOI, designed to improve further the cost effectiveness and consumer protection provided by contractual savings products written in the future. These reforms deal specifically with changes to the structure of commission payable on these products, as well as enhanced minimum early termination values.

A media statement from National Treasury, the discussion paper and draft regulations are available on the financial services board website (www.fsb.co.za).

EXCHANGE CONTROL CIRCULARS

The Exchange Control Department of the South African Reserve Bank (EXCON) has issued the following Exchange Control Circulars:

  • 4/2008 – Statement on Exchange Control
    The circular draws attention to the exchange control reforms announced by the Minister of Finance in the 2008 Budget.
  • 5/2008 – Foreign portfolio investment by institutional investors
    The circular advises of the withdrawal of the application process whereby prior exchange control approval is required for the transfer abroad of funds and/or investments into inward listed securities.
  • 6/2008 – Foreign direct investment outside the Common Monetary Area by South Africa companies
    The circular advises that as a further administrative reform the current application process to make new outward foreign direct investments where the total cost of such new investments does not exceed R50 million per company per calendar year is withdrawn. The current transaction reporting requirements will remain in place to enable proper surveillance and supervision.
  • 7/2008 – Inward Listings by foreign entities on South African Exchanges
    The circular advises that to further enable South Africa companies, trusts, partnerships and banks to manage their foreign exposure further, they will be permitted to participate, without restriction, in the Rand futures market on the JSE limited. This dispensation is extended to investment in inward-listed instruments on the JSE limited and the Bond Exchange of South Africa.
  • 8/2008 – Single discretionary allowance for private individuals
    The circular advises that, in order to streamline the current administrative controls on individuals, a single discretionary allowance of R500 000 per individual per calendar year for purposes of travel, gifts, donations and maintenance has been introduced. This is in addition to the existing R2 million individual foreign capital allowance provided for in subsection B.2(B)(i) of the Exchange Control Rulings.

Please direct any specific queries regarding the Exchange Control Circulars or Rulings to standards@saica.co.za.

CIRCULARS ISSUED BY THE COUNCIL FOR MEDICAL SCHEMES

The Council for Medical Schemes has issued the following circulars, which could affect auditors:

  • 3/2008 – Annual Statutory Returns for the Financial Year Ended 31 December 2007
    This circular notes that the 2007 annual statutory return online program has been finalised. The circular also outlines some of the requirements regarding the statutory return.
  • 4/2008 – Inclusion of Benefit Option Results in the Annual Financial Statements.
    This circular advises that the results of the benefit options must be included in the financial statements, and must be audited as part of the financial statement audit.

These circulars can be accessed on the medical schemes website www.medicalschemes.com.

ED ISSUED – LOCAL INTERPRETATION ON IFRIC 14

SAICA has issued for comment, ED235 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction in the South African Environment, and can be accessed on the SAICA website.

Comment received on the exposure draft will be considered in issuing a local South African Interpretation to assist South African entities in applying IFRIC 14(AC 447) – IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

AMENDMENTS TO MEDICAL SCHEMES ACCOUNTING GUIDE

The Medical Schemes Accounting Guide for the year-end 31 December 2007 has been amended as follows, and is available on SAICA’s website:

  • Page 43: The following line has been added under “Net income/(expense) on risk transfer arrangements”:
    “Claims incurred in respect of related risk transfer arrangements”
  • Page 60: The following lines have been added under “Investment advisors during the year”:
    “Financial Service Provider Number [insert]
    [Agree to the details reported in part 9B of the annual regulatory return.]”
  • Page 100 and 103: The following line has been added under the note “Insurance receivables and payables included amounts due from/(to)”:
    “Reported claims not yet paid”
  • Page 29: The wording “Proportion of dependants” has been replaced with “Dependant ratio”
    The wording “for in the medical scheme as a whole and for each benefit option, at the end of the accounting period” has been added after “pensioner ratio”
  • Page 62: The wording “Proportion of dependants” has been replaced with “Dependant ratio”
    The wording “at 31 December 2007” has been added after “Pensioner ratio”

AMENDMENTS TO CORPORATE GOVERNANCE GUIDE

The Corporate Governance Guide – Audit Committees for Medical Schemes issued in March 2004 has been updated for minor editorial amendments and has been re-issued as Audit Committees of Medical Schemes – Corporate Governance.

Budget: An orderly system for living beyond our means.

 

TAX

 

WHAT’S NEW AT SARS?

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

TAX PRACTITIONERS BILL

During recent discussions, SARS indicated that it has noted and is seriously considering the recommendations proposed in the joint SAICA/SAIPA submission. SARS has indicated that it will be issuing a draft revised Bill, and professional bodies and others will once again be given an opportunity to comment on the draft revised Bill.

BRUMMERIA JUDGMENT

SARS has indicated that it will issue, either in the form of an Interpretation Note or alternatively a Practice Note, clarity on SARS interpretation/application of the judgment.

SAICA SUBMISSIONS

SAICA submissions issued during March 2008 are listed below and can be viewed on the
SAICA website:

  • Draft 1st and 2nd Taxation Laws Amendment Bills 2008
  • Fixed Property aligning VAT, Transfer Duty and Stamp Duty Legislation
  • Various interpretation issues of the Act
  • Practicality of Currency and CGT
  • VAT Interpretation Notes 41 & 42
  • Section 12E of the Income Tax Act
  • Section 22(3) of the VAT Act
  • To SARS Re: VAT Treatment of Disposal of Residences Used Primarily for Residential Purposes

The tax advisor had just read the story of Cinderella to his four-year-old daughter for the first time. The little girl was fascinated by the story, especially the part where the pumpkin turns into a gold coach. Suddenly she piped up, “Daddy, when the pumpkin turned into a golden coach, would that be classed as income or a long-term capital gain?”