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UP-TO-DATE: Keeping you informed of business today

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Is the government failing SMEs?

The World Bank conducted a survey of 47 745 businesses across 99 countries and discovered that SMEs created 67% of total permanent employment and still create the majority of new jobs. Former Finance Minister Pravin Gordhan pointed out that labour force data show that 70% of private employment is in firms with fewer than 50 workers and that smaller firms account for a disproportionate share of job creation, with almost 80% of all new jobs being created in these firms. This is because small businesses tend to be more labour intensive, as they do not have the capital resources to streamline or automate processes. This in turn means SMEs offer more opportunities for employment.  In a country like South Africa with dangerously high unemployment rates, increasing the number of SMEs is a key element for growth.

SMEs offer more than just employment opportunities: they make an important contribution to the GPD as well. The Association of Chartered Certified Accountants (ACCA) estimates that SMEs account for 52% of total GDP.

In view of the importance of SMEs in the economy, its high failure rates, with some statistics estimating it to be as high as 63%, are even more disheartening. Since 1995, the South African government has created a series of initiatives to help aspiring entrepreneurs. Although this is laudable, further effective action that the government could take would be to lessen the administrative and legislative burden of doing business in South Africa, particularly for SMEs, by creating efficient and cost effective systems and rethinking factors like the labour laws and the bureaucratic processes involved in starting and running a business.

Source: Succeed, May 2014

 

China to overtake United States as world’s largest economy

China is expected to edge out the US for the title of the world’s largest economy as early as this year, according to the purchasing power parity standard.

The US has been the largest economic power since 1872, when it overtook the United Kingdom. Most economists did not expect China to take the top spot earlier than 2019.

However, in an update the International Comparison Programme, hosted by the World Bank, concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies in a survey released on 30 April 2014.

The numbers drawn from 2011 data revolutionise the picture of the world’s economic landscape, the Financial Times noted. India becomes the third largest economy, having previously been in tenth place, while Russia, Brazil, Indonesia and Mexico make the top 12 in the global table.

In contrast, high costs and lower growth push the UK and Japan further behind the US than in the 2005 tables, while Germany improved its relative position a little and Italy’s position remained the same.

Source: Driving Business Success, May 2014

Accountants gone strong

Cape Town accounting firms stepped away from their desks and took to the TAGG CrossFit gym floor recently to take part in a fun and social CrossFit “throw-down” (as the CrossFit community terms it).

Members of the Trainee Accountants Society of the Western Cape (TAS), Ernst & Young, Nolands, Grant Thornton, KPMG and Mazars teamed up to participate in this event, the first of what is planned to be an annual inter-firm event, says Stacy Saggers, coach and co-owner of the gym.

TAGG CrossFit, a local CrossFit gym in Green Point, Cape Town, planned two qualifying workouts and a third “winner-takes-all” final in which the teams battled it out for the honour of being Cape Town’s fittest firm.

Running, carrying water-filled canisters, burpees, jumping over boxes, weighted lunges, rowing, partner sit-ups and wall balls were part of the challenge – leaving the teams in no doubt that they had done some  serious exercise.

The top spot was taken by Ernst & Young’s Bernard van Zyl, Justin Groenewald and Kaitlin Carson, who won the final WOD (Workout of the Day) and the golden trophy.

Apps for Africa

Running menial errands could become a thing of the past for people with busy lives. Swedish entrepreneur Robin Szekely plans to launch the TaskRunner mobile application in South Africa within about six months.

TaskRunner will help users to outsource chores like collecting medication from the pharmacy. The app will link them to “task runners” – people who would otherwise be unemployed – located near them.

Szekely says the TaskRunner concept is ideal for a market like South Africa. He developed the idea when he lived in South Africa and says it has a “very interesting market” in which people already outsource large parts of their everyday lives and chores.

Szekely is working with potential South African partners to assist him with the launch. Task runners will be provided with training and the app will be available free on Android and Apple app stores, but it could also be accessed via its website for people who do not have smart phones.

Source: Financial Mail, 6–11 June 2014

South Africa is Facebook’s best friend in Africa

South Africa is Facebook’s most important African market. Research shows that 40% of South African’s do not get out of bed, and almost as many do not switch off the lights at night, before checking Facebook. Armed with this information, the social networking giant plans to open an office in South Africa in order to better match traffic to advertisers, according to Facebook’s director for Central and Eastern Europe, Middle East and Africa, Diego Oliva. Facebook is also in discussions with cellphone network operators across Africa to offer its site free of charge.

Source: Business Day, 6 June 2014

Google acquires maker of solar-powered drone aircraft

Google last month bought Titian Aerospace, a start-up based in the United States that specialises in solar-powered drone aircraft. Google said it bought Titian to work closely with its Project Loon, which is building high-altitude balloons to send Internet signals to earth.

The technology giant followed the path set by Facebook, which bought a British drone company, Ascenta, earlier this month. The Financial Times described the Google and Facebook deals as part of a race between the two companies to acquire the next crucial technology platform. Both Ascenta and Titan are in the business of high-altitude drones, which cruise near the edge of the earth’s atmosphere.

The US technology website TechCrunch noted that Facebook took an initial interest in Titian before settling on a $20 million deal to buy drone maker Ascenta, based in Somerset in the southwestern UK. The terms of Google’s deal with Titan were not disclosed, but the Los Angeles Times reported that Facebook had offered the company $60 million.

Source: Driving Business Success,

May 2014

Unemployment levels of youth rise

The unemployment rate for youth – persons aged between 15 and 34 – rose to 36,1% this year, from 32,7% six years earlier. The measure does not include students and youth undergoing training. Particularly since the global financial crisis of 2008, youth unemployment has become a global phenomenon, with rates of 57,7% and 36,8% in Spain and Portugal respectively. The fact that the economy is mired in long-term, structural unemployment has worsened South Africa’s youth problem.

Youth unemployment is more than double the rate of adult unemployment, which is 15,6%.

Source: Business Day, 6 June 2014

TECHNICAL UPDATES

ACCOUNTING

Consolidation exemption for investment entities to be clarified

The International Accounting Standards Board (IASB) has issued proposed amendments to IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures that:

•         Confirm that the exemption from presenting consolidated financial statements continues to apply to subsidiaries of an investment entity that are themselves parent entities

•         Clarify when an investment entity parent should consolidate a subsidiary that provides investment-related services instead of measuring that subsidiary at fair value, and

•         Simplify the application of the equity method for an entity that is not itself an investment entity but that has an interest in an associate that is an investment entity

Comments on ED 343 Investment entities: applying the consolidation exception:  Proposed amendments to IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures should be submitted to the IASB by 15 September 2014.

ED 343 and the related IASB press release can be downloaded from the SAICA website.

Project on Equity method: share of other net asset changes abandoned

 

Following the publication of the exposure draft ED 321 Equity method: share of other net asset changes: Proposed amendments to IAS 28 Investments in associates and joint ventures in November 2012, the IASB has abandoned the project on Equity Method: share of other net asset changes due to a lack of support from board members. More information about the project can be found on the IASB website.

IASB Emerging Economies Group to re-open discussion on accounting for extractive activities

The Emerging Economies Group (EEG) discussed the equity method accounting and the definitions and recognition in the Conceptual Framework at its May 2014 meeting and will re-open the discussion on accounting for extractive activities at its next meeting in December 2014. A detailed summary of the EEG meeting can be found on the IASB website.

 

PUBLIC SECTOR

Accounting

Standards Board issued ED 124 for comments

The Accounting Standards Board (ASB) issued an exposure draft on the Proposed directive on the application of standards of GRAP by government business enterprises (GBEs) (ED 124) for comment by 29 August 2014.

The objective of the proposed directive is to outline the application of the standards of GRAP by GBEs as listed in Schedules 3B and 3D of the Public Finance Management Act 1 of 1999, as amended.

Comments to be considered for inclusion in the SAICA submission can be submitted to Ida Nchoe, Project Manager, Assurance and Public Sector, by 15 August 2014.

To access ED 124, visit the ASB website.

TAX

Can SARS raise an additional assessment if they don’t understand your answer?

The Supreme Court of Appeal was recently (June 2014) called on to consider the way in which SARS issued additional assessments on the conclusion of an audit (SARS v Pretoria East Motors (Pty) Ltd (291/12) [2014] ZASCA 91). The remarks made by Judge

V M Ponnan in doing so may be of assistance to other taxpayers who find them in the same predicament. We quote from the case report:

The approach adopted by the SARS official was to examine the accounts and, where she found a discrepancy that she did not understand and for which in her view no adequate explanation was furnished, she raised an assessment to additional tax …

It was clear to Judge Ponnan that the SARS official did not seek to familiarise herself with the workings of the accounting system utilised by the taxpayer, even though the information was available to her. He then remarked that “Her approach was fallacious.”

The judge then set out his view of how SARS should go about it. We quote:

The raising of an additional assessment must be based on proper grounds for believing that, in the case of VAT, there has been an under declaration of supplies and hence of output tax, or an unjustified deduction of input tax. In the case of income tax it must be based on proper grounds for believing that there is undeclared income or a claim for a deduction or allowance that is unjustified.

Judge Ponnan continued by saying that “it is only in this way that SARS can engage the taxpayer in an administratively fair manner, as it is obliged to do. It is also the only basis upon which it can, as it must, provide grounds for raising the assessment to which the taxpayer must then respond by demonstrating that the assessment is wrong”.

The judge then said that this erroneous approach led to an inability on the part of SARS to explain the basis for some of the additional assessments and an inability in some instances to produce the source of some of the figures used in making the assessments.

With regard to the penalties levied at the maximum rate of 200% the judge felt that they were absent any explanation as to why the taxpayer’s conduct was said to be dishonest or directed at the evasion of tax.

You can read the case report on Tax Suite – CSARS v Pretoria East Motors.

South africA faces risk of human capital flight

South Africa risks losing more businesses and skilled young people because of rating downgrades, a potential recession and persistent labour unrest, economists and emigration economic experts warn.

South Africa’s rigid labour market is often cited as a key investment constraint for business but concern about strikes is mounting, with companies including Ford, Nissan and BMW considering leaving South Africa.

Rating agencies are worried that mining companies will need to embark on retrenchment now that higher wage deals have been struck, which could lead to further strikes.

Econometrix chief economist Azar Jammine said he expected to see more younger professionals relocating, as they had not yet built up nest eggs. “The saving grace is that we are not losing wealthier people, as many of them already have assets abroad. Even the JSE has a high foreign content.”

Statistics SA no longer provides figures on emigration, but Mr.Jammine cited it’s 2013 household survey that indicated the white population appeared to be dropping by 25,000 a year.

Moody’s senior vice-president Kristin Lindow cautioned in a recent note that South Africa’s reputation among investors was “being increasingly damaged by the strike-prone nature of its economy.”

BMW and Nissan recently decided against expanding their production in the country, citing the costs posed by the month-long strike in two subsectors of the industry, she said.

Moody’s and Fitch are expected to downgrade SA in the next few months. Standards & Poors downgraded the country last month.

Consultancy Africa Intelligence said the labour market was becoming more antagonistic and consultant Feri Gwata said businesses were becoming worried.

“Trade unions are becoming increasingly aggressive and persistent in their demand for higher wages. Some international companies are considering moving their businesses to countries with a more favourable labour market.”

Nedbank chief economist Dennis Dykes was not sure that emigration would spiral out of control, as skilled people still have opportunities in South Africa. “Australia is not fantastic after the commodity downturn and Europe is facing more difficulty,” he said.

“Employment is generally depressed around the world. Despite all its problems, I think Sout Africa is still a good place for skilled workers.”

Source: Business Day, July 21

Women in the boardroom

Percentage of board members who are women acoording to

Fortune magazine (2014)

1

Saudi Arabia

UAE

Japan

South Korea

Oman

Kuwait

India

Brazil

Singapore

Malaysia

China

Turkey

Canada

Australia

United States

United Kingdom

Germany

Finland

France

Sweden

Norway

BOOK OF THE MONTH

Pay Off!

By Norman Clive Ronne

The novel is about an internal auditor, Thulani Kepu, who grew up in impoverished conditions in the Eastern Cape during the apartheid era. Thulani fortuitously read about internal auditors in his last year at school, and decides that this was the career he wanted. With the help of his mother’s employers and through his own hard work, he obtained an internal audit degree and rose through the ranks to attain the position of internal audit manager of one of the companies in a large group.

As the story begins, Thulani is married to Sylvia and lives with their young daughter in a former exclusively white suburb. While reviewing an audit file, he is puzzled by problems that arise in an old contract, eventually leading to the discovery of fraud perpetrated by the CEO of his own company.

As the story progresses Thulani finds out this is only the tip of the iceberg …