Corporate Laws Amendment Bill: hearings

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Trade and Industry

29 May 2006
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Meeting Summary

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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
30 MAY 2006
CORPORATE LAWS AMENDMENT BILL: HEARINGS

Chairperson

: Mr B Martins (ANC)

Documents handed out
Submission by the South African Institute of Professional Accountants part

1 and 2
Submission by Ernst and Young
Submission by the Independent Regulatory Board for Auditors

SUMMARY
The Committee heard submissions of the Corporate Laws Amendment Bill. All presenters supported the Bill but had some concerns in relation to some of its provisions. They called for clear definitions of some words used in the Bill. This included the definition of a public interest company. The Bill proposed that limited interest companies would be allowed to comply with less onerous accounting standards. It was unlikely that this objective would be achieved. The proposed Section 285A(2)(a) would require limited interest companies to comply with the accounting framework of financial reporting standards instead of financial reporting standards. The accounting framework gave guidance on its application and provided that the requirements of the International Accounting Standards would prevail over those of the framework in the event of a contradiction. This meant that compliance with the framework would also require compliance with the financial reporting standards and accordingly did not provide limited interest companies with any relief from the more onerous requirements. It was also suggested that audits should not be mandatory for private companies that did not receive money from shareholders or donors.

An auditor who was questioned during the course of an annual general meeting would be expected to respond "according to his or her knowledge and ability to any question relevant to the audit of the financial statements". This might result in the auditor breaching the confidentiality requirements. There was a suggestion that if a question was to be addressed to the auditors at an annual general meeting, the person who wanted to ask the question should provide the auditor with the question in writing ten days or a number of days before the annual general meeting. This would ensure that a properly documented response containing the relevant information would be prepared and shown to the directors of the company to ensure that there was no breach of confidentiality and that an accurate response was given to the question.

Members raised a number of issues which included the following:
- Why should questions be submitted to auditors ten days before the annual general meeting? Why should the answers be shown to directors before being presented to the meeting? Was it the director who would answer or the auditor as expected? It seemed like the argument was that directors should confirm answers before they were presented before the meeting.
- One should be careful about following systems that had led to disasters. The Financial Times had carried an article that seemed to suggest that the Enron disease was related to the structure of the internal audit unit. The Bill was written for South Africa and not the United States (US) and there was need to be cautious when taking the lessons from the US onboard. South Africa should be very careful on how the Bill proposed to structure the audit unit because linking it to profit and earning would be fatal.
- How would one establish if an organisation had complied with its tax obligations if there was no audit

MINUTES
The Chairperson said that it was very important for people to forward their submissions to the Committee before the actual date of the meeting. This would give the Committee an opportunity to engage with the presentation and come fully prepared for the meeting. In future the Committee would not accept submissions on the day of the hearing.

Submission by the South African Institute of Professional Accountants (SAIPA)
Mr N van Wyk (SAIPA: Technical Executive), Ms D Pretorious (Senior Lecturer: UNISA) and Prof. W Geach (Associate Professor: UNISA). Mr van Wyk gave the presentation and apologised for the late submission of his input. (See document attached).

 

He said that due diligence should be given to the specific needs of closely-held companies as opposed to widely-held companies. The distinction between the two was becoming more and more important internationally and locally. As a result, the legislature, the accounting profession and other stakeholders should recognise this and make the necessary adjustments to the legislation and regulations. He said that the Bill should clearly state what was meant by phrases like "prescribed manner". He suggested that an audit should not be a mandatory requirement for private companies.

Discussion

 


Prof. B Turok (ANC) agreed with almost everything said by the presenter. The Committee should take serious cognisance of the submission. The accounting profession should clearly be regulated and organised. Issues around auditors and consultants fees were omitted from submissions of the big four auditing companies: Deloitte, Price Waterhouse Coopers, KPMG and Ernst & Young. The Constitution required non-governmental organisations (NGOs) to have auditors. The funders required this and this was a very important safeguard for donors and the public. He wondered if the presenters were saying that small companies should be exempted from audits. He would be hesitant to go along the suggested route in relation to NGOs not having auditors. Accountants should provide some kind of assessment about the big audit companies doing bookkeeping and accounting. The issue was whether there was a conflict of interest, potential or actual. Could all those tasks be done in within one company?

He said that the Business Day newspaper had an interesting article about the importance of internal audit. The article blamed the whole Enron disaster on the failure of internal audit. This was relevant to the Committee because it had been told that the internal audit unit should be slightly watered down. The article argued that there would be a disaster should earnings be linked to audit roles (namely: the internal audit unit which consisted of directors who were paid and got earnings as a result of bigger profits. The watchdogs of internal audit unit would become complicit in the earnings management scam or the increase of the market value of the shares. This would lead to bigger earnings by the directors, management and the internal audit unit. There would be the Enron scam should the balance of the audit unit be wrong or should the unit not be independent. This was a fair warning to South Africa that it should be very careful on how the Bill proposed to structure the audit unit because linking it to profit and earning would be fatal.

Mr van Wyk replied that an Accounting Profession Act would not be strictly regulatory because the scope and focus of auditors and accountants were different. Accountants were involved in the business of their clients. They assisted and advised them on various issues and as such they not need to be regulated because independence, though important, was not a strict requirement. Their Act should be an empowering one. He suggested that the Bill should allow members of certain specified professional bodies to assist companies in preparing their financial statements. This was not intended to mean that all accountants who worked for a particular firm should be regulated. Only those people who provided services for a fee to the public should be recognised. Some legislation provided that an audit should be performed but did not say that it should be done by an auditor. The Co-operatives Act was a case in point. The profession was as a result left in a predicament. The question was what kind of an audit was required. Was it the costly full-blown audit or just a report that could provide for the needs of the entity?

He said that different services should be disclosed. SAIPA believed in regulation through disclosure. His opinion on whether auditing companies should do bookkeeping was that they should not be allowed to do so. He agreed that issues around the internal audit unit had to be reviewed. There would be problems should remuneration be linked to the performance of the company.

Mr van Wyk said that an NGO that had received donations was placed in a position similar to a widely held company that had received money from shareholders. Full regulation would therefore apply to the organisation. There would be question marks in cases where the organisation had not received any funding but could still operate on its own funds. The question would be whether there was a need for a third party to verify the organisation's accounts. One was dealing with the organisation's own money that it kept on a daily basis. There was no real or fundamental reason for requiring an audit in cases where the organisation was operating on its own money. In order to avoid forcing NGOs to comply with a full-blown audit, the United Kingdom (UK) had made changes to its Companies Act to provide that other person could conduct audits for NGOs if the organisations had received certain specified amounts of money. Another question was what kind of a report was required? The International Federation of Accountants provided for another type of a report called a review and this was less costly and gave a lessor assurance than an audit. The review could be a solution to striking a balance between 'regulating' and 'enabling'.

Dr P Rabie (DA) said that the possible audit exemption was problematic. The presenter said that the role of the internal audit unit was to separate ownership from management. He asked how the Committee would establish if there was tax compliance if there was no audit. Tax compliance was not accentuated in the past.

Mr Geach replied that limited interest companies were required to adopt the accounting framework. The whole purpose for the accounting framework was to ensure that financial statement were useful to a wide range of users. The qualitative characteristic that made something useful was that it had to be reliable. Reliability was the representation by the members of the corporation. Was it really necessary to have an external audit in addition to the representation? Reliability should be an overriding characteristic in the case of limited interest companies or closely held companies. Financial statements should be useful to all stakeholders, including employees.

Mr van Dyk replied that the audit report would be issued for private companies some time after the financial statements had been prepared. There was a delay which further lessened the value of the report for the taxman. The Financial Intelligence Act and the Prevention of Organised Crime Act required anyone to immediately report tax evasion as soon as they had become aware of it. The reporting took place earlier that the release of the audit report. The South African Revenue Services (SARS) had wide-ranging powers and did not need the assistance of auditors or anybody else to enforce their powers. SARS was looking at the regulation of tax practitioners so as to place them in a verification function. The tax base would not be eroded in anyway. There were penalties for tax evasion. SARS had managed to increase the revenue base even though the auditing standards had not improved. There was no relationship between what SARS was able to extract from taxpayers and stringent audit requirements.

He agreed with the views expressed by Prof Geach. Financial statements should be useful to a wide range of users. In jurisdictions where there were audit exemptions, a person who wanted a loan from a bank would be required to provide a report from a professional accountant before the loan could be approved. Such an intervention was by contract and outside the Companies Act. This meant that a company that would not ask for loans would not be required to have a report from an accountant. Audits should be required if the company would apply for loans or take money from shareholders.

Ms F Mohamed (ANC) focused on suggestions around protection against accountants who were not registered with professional bodies. The Committee recognised that there were accountants who were not registered with professional bodies. Such people had sometimes abused their positions. She asked for suggestions on how to include this issue in the Bill. She noted the submission that clause 13 referred to "he or she". Mr van Wyk had suggested that the Committee should review referring to both genders in the legislation. She thanked the presenter for raising this issue because there was clear discrimination where business was concerned. Males dominated this domain. She agreed that the proposed Section 440P(d) should refer to "two users of limited interest company financial statements; and two users of public interest company financial statements".

Mr van Dyk agreed that it was problematic that anybody could use the name "Accountant". He thanked the Member for supporting the suggestion that the proposed section 440P(d) should refer to "two users of limited interest company financial statements; and two users of public interest company financial statements".

Mr S Rasmeni (ANC) said that the submission was quite intensive and probing. He asked if the organisation had had an opportunity to make submissions during the consultation phase or if this was first the opportunity to do so.

Mr van Dyk replied that SAIPA had made submissions during the initial stages of the Bill and most of its submissions had been accepted.

Ms D Ramodibe (ANC) wondered if the presenter was saying that NGOs that had received a certain specified amount of money should not be required to conduct audits. Was he suggestion that the issue whether a company that was operating on its own money should be required to conduct audits should be determined in terms of the profit it had made?

Mr S Njikelana (ANC) said that the presentation had reminded him of resistance faced by an audit committee in a certain section 21 company. The management did not want to provide information to the audit committee to enable it to do its work effectively. There was also some reluctance from the Chairperson of the Board to assist the audit committee. SAIPA had suggested that the words "or consultant" should be included in the proposed section 270A(5)(c) of the Companies Act and that the Companies Act had more stringent audit requirements than professional and industry codes. He asked how or why this was the case. He was of the view that stringent requirements would normally come from the industry and not the legislation.

He said that there was a suggestion that audits should not be mandatory for private companies. He took SAIPA's point and motivation for the suggestion but wondered if there would be guarantees that there would be compliance with best practices and good corporate governance. Audits were required to ensure that there was good corporate governance. He was not convinced that there could be guarantees on this. Audits were not introduced as practices for efficiency and reliability of information. There was an underlying principle that sought to ensure that finances were conducted properly. Each and every business was a component of the economic activity in the country and contributed, negatively or positively, to the overall economic activity. He was reluctant to agree to the exemption due to the principles underlying taxation. The proposal for the introduction of legislation for accountants was interesting. The problem was that such legislation might create entry barriers to the profession. To what extent would the legislation take bookkeepers into account? Was there a regulatory body for accountants and auditors as was the case with other professions?

Prof. Geach replied that the comments on the internal audit unit were very refreshing and important. It was important to state that the internal audit unit was an integral part of good corporate governance in any organisation. The Committee might require that certain public interest companies should have compulsory internal audit functions and that the accounting officer should report on the appropriateness and effectiveness of the internal audit system in the organisation. Financial statements were the responsibility of the entity or organisation.

Mr van Wyk replied that audit exemption seemed a strange concept but was not strange at all. Audit exemptions applied in the UK and the European Union (EU). An EU directive had forced the UK to lift its threshold-based approach to audit exemption. 80% of their companies could apply the audit exemption. There would be a need for some research should SA decide to have an audit exemption based of threshold. The audit exemption regime had been operating in the close corporation environment for some years. Audit exemption had been in place for along period of time in the United States and Canada for private companies, especially those in which the manager and the owner were the same person. Audit exemption had worked very well and was not a strange concept if looked at from an international point of view. He agreed that the distinction would be whether money had been received from shareholders or donors. In USA and Canada the audit exemption was on principles. He said that he was a proponent of the principles based approach.

With regard to the proposed Section 270A(5)(c), he said that the Companies Act should be included as a reference point in order to cover all bases. This would lead to a clear understanding of independence and its importance with regard to public companies. The audit had very specific functions that were related to shareholders, financial statements and the management. Its functions were within the Companies Act. It was within the government powers to make audit more encompassing and include all aspects of tax and corporate governance. The government might want to ask its self what was the purpose and historical development of audits. He reiterated that audits had very specific functions that were related to shareholders, financial statements and the management. SARS had developed a tax practitioners registration process and soon to be regulations to assist SARS with its own verification procedures. There were different sets of regulators across the industries. Audits were not all encompassing solutions for all problems.

Mr van Dyk did not think that there would be entry barriers to the accounting profession. He referred to the regulations of attorneys and said that there were specific persons who could call themselves "attorneys". The government could set minimum criteria for entry into any criteria. A profession was given certain benefits by the society. These included the monopoly in the provision of certain services. The government normally granted the monopoly but put some regulations in place. He suggested that accountancy should be recognised as a profession. There might be experience and qualification entry barriers but all would be regulated by the government and the needs of the society. Accountants should not be regulated like auditors. Most private companies could not afford their own in-house accountants and often contracted accountants to provide certain services. There was a close relationship between accountants and the company. There should not be stringent regulation but recognition of the qualifications and codes of conduct that should be complied with.

He said that there was a regulator called the Independent Regulatory Board for Auditors (IRBA). The Board regulated registered auditors and not accountants. There was no legislation that regulated or gave recognition to professional accountants. Although the Board regulated registered auditors, it did not regulate the auditors as required by the Co-operatives Act, Schools Act or the Sectional Titles Act. There was a grey area that needed to be addressed in order to assist the profession in ensuring that there was proper reporting. There was no intention to say that co-operatives should fall within the regulation of the Board. The initial intention of legislature was to give recognition to the fact that the needs of certain entities were of owner-manager nature. Certain entities should not be required to have audits and should be allowed to use accountants if they wanted a report on their finances. The report could be in the form of a review which provided a lesser form of assurance than an audit.

Mr Griesel emphasised that the idea of an audit exemption was not new. It had worked very well with close corporations. The Committee could introduce personal liability in the legislation for gross abuse of the existence of a corporate entity. Gross abuse would include misrepresentations in financial statements, fraud and non-disclosures.

Submission by Ernst and Young
Mr M Bourne (Professional Practice Director) and Mr G Coppin (Head: Financial Reporting Standards) appeared on behalf of the company. Both Mr Coppin and Mr Bourne made the presentation. (See document attached). Ernst and Young supported most of the proposed amendments to the Companies Act and the Close Corporations Act insofar as they endeavoured to improve corporate law in South Africa. This was in the best interests of the public and other key stakeholders relating to these entities.

Mr Coppin said that the Bill proposed that limited interest companies would be allowed to comply with less onerous accounting standards. He said that it was unlikely that this objective would be achieved. The proposed Section 285A(2)(a) would require limited interest companies to comply with the accounting framework of financial reporting standards instead of financial reporting standards. The accounting framework gave guidance on its application and provided that the requirements of the International Accounting Standards would prevail over those of the framework in the event of a contradiction. This meant that compliance with the framework also required compliance with the financial reporting standards and accordingly did not provide limited interest companies with any relief from the more onerous requirements.

There would also be problems in relation to auditing because the framework that auditors had to comply with provided that auditors had to determine whether the framework that was being used for the preparation of financial statements was acceptable. The auditors should also determine if the criteria used in the framework was suitable. The IRBA had issued a practice statement that gave guidance as to what was regarded as an acceptable framework. One of the requirements was that different accountants of similar standing had to produce similar accounting if given the same facts. This was why the issue of reliability was particularly important. He did not believe that the current framework was sufficiently specific to ensure that reliability would be achieved.

Mr Coppin said that item 4.10 of the Memorandum on the Objectives of the Bill implied that there was a feeling that the disclosure requirements in Schedule 4 to the Companies Act would be sufficient. Schedule 4 dealt with what had to be disclosed but not with how the various amounts were determined. He suggested that the wording of the proposed Section 270A(2)(c) should provide that the financial statements were "properly prepared in terms of a disclosed basis of accounting". This would allow companies to determine their own accounting policies. Legislation should provide for the future financial reporting council to provide financial statements for limited interest companies. This might take some time to develop. It was interesting to note that when the South African Institute of Chartered Accountants had proposed this SARS was not in favour of this. SARS had felt that companies would use different types of accounting practices to try and pay less tax. The standard of assurance given for the audit of the financial statements of limited interest companies could be lowered and a review could be used for this purpose.

Mr Bourne was concerned that an auditor who was questioned during the course of an annual general meeting and had to respond "according to his or her knowledge and ability to any question relevant to the audit of the financial statements". This might result in the auditor breaching the confidentiality requirements. In terms of the code the auditor might not disclose any information which went beyond that provided by the directors and which was included in the audit report without appropriate authority being given. He suggested that if a question was to be addressed to the auditors at an annual general meeting, the person who wanted to ask the question should provide the auditor with the question in writing ten days or a number of days before the annual general meeting. This would ensure that a properly documented response containing the relevant information would be prepared and shown to the directors of the company to ensure that there was no breach of confidentiality and an accurate response was given to the question. He said that he was not against auditors being asked questions in annual general meetings.

He said that the Bill provided a definition of a "public interest company". He wondered who would fall under the term "public" and suggested that the word should be properly defined. Would a member of the public also include a director of a company in question? He was unsure about the application of the definition of a public interest company to the proposed Section 1(h)(ii) of the Companies Act. The question was whether the requirements of the Act would have to be modified for a subsidiary company incorporated under the Companies Act which was a subsidiary of an offshore company. The legislation was not intended to create enormous practical difficulties for subsidiaries of global companies because this could be a deterrent to investment.

Mr Bourne said that the proposed Section 38(2A) inserted the requirement that, subsequent to the transaction, the consolidated assets of the company fairly valued should more than its consolidated liabilities. He submitted that the introduction of the word consolidated would overly complicate the legislation and could create more difficulties than perhaps it was intended. The Act should merely refer to the fair value of both assets and liabilities. Sub-Section (2B) provided that directors should consider any contingent liabilities that might arise to a company. This provision merely required the directors to "consider" but not include contingent liabilities in the assessment of the company's liabilities. He submitted that it would be prudent to require that the directors should "include any contingent liabilities" in their assessment of the company's liabilities. The word "consider" might be misinterpreted. A contingent liability was one that might not eventuate but in the context of what the legislation was trying to achieve, financial assistance should not be given where the liabilities (inclusive of contingent liabilities) exceed the fair value of the assets. The same principle applied to Section 228(4) of the Act which dealt with the disposition of the whole or greater part of the company's assets. The proposed section 228(4) referred to the "fair value of the undertakings or assets". There was no need to refer to financial reporting standards in this section.


He said that Section 270A(1) set out the matters that had to be attended to by the audit committee. In the draft bill published in the Gazette of 13 July 2005 one of the duties of the audit committee was "financial statements ... are in compliance with the provisions of any applicable law". This was one of the most important duties of an audit committee and therefore should be included in the proposed section 270A of the Bill. Section 269A(3) required that an audit committee should have at least two members and consist only of non-executive directors of the company and who should act independently. He proposed that one of the members should be financially literate or else the audit committee would not function effectively.

Discussion
 

 

Ms Mohamed wondered if the presenter could assist the Committee in formulating a provision that would incorporate the submission made in relation to foreign public interest companies. She supported the suggestion on membership of the audit committee.

Mr Bourne replied that the company would be very happy to assist even though it was not an expert in matters of law.

Mr D Dlali (ANC) noted the statement made in the presentation that "it would appear to us that Section 440FF deals with an offence which is already covered by Section 287 and 287A". He was of the view that Section 287 provided for the offence whilst Section 440FF dealt with the penalty in detail. It was submitted that the definition of a public interest company could have the effect of imposing additional compliance burdens on foreign public interest companies. If this was that case, was there anything that would be hidden should the definition not be introduced? Why should the questions be submitted ten days before the meeting? Why should the answers be shown to directors before being presented to the meeting? Was it the director who would give an accurate answer or the auditor as expected? It seemed like the presentation was arguing that the director should confirm answers before they were presented to the meeting.

Mr Bourne replied that the submission on Section 440FF was more of a question more than a statement. The suggestion was that the drafters might have to revisit the sections and see if they did not overlap. In relation to foreign public interest companies, the observation made was that there might be a foreign company that could be a holding company of a South African company. The holding company could, in terms of the definition, be a public interest company and therefore the subsidiary could be a public interest company as well. The word "company" referred to a company incorporated under South African legislation. The question was whether Ernst and Young's understanding was correct. If it was correct, then there might be a need to exempt such a company.

He said that Ernst and Young normally attended annual general meetings of companies it audited. The company was aware of the sort of trivial questions that could be raised in such meetings. The difficulty was that an enormous number of trivial questions could be asked which could detract from the proceedings of the meeting. Such matters could be dealt with expeditiously if there was a strong Chairperson of the Board. The Bill did not make it an offence for an auditor not to answer a question. Ernst and Young would accept any decision on the number of days within which questions should be submitted to the auditors. The important thing was that some notice of question would be welcomed. There was no suggestion that auditors would not disclose something that had to be disclosed. Auditors should disclose everything they were required to disclose irrespective of instructions for directors.

Prof Turok said that there was a long presentation about the US practices. He agreed that the US had a lot of experience and had taken a great deal of corrective measures because of the Enron scam. One should be careful about following systems that had led to disasters. The Financial Times had carried an article that seemed to suggest that the disease was continuing. This legislation was written for SA and not the US and there was need to be cautious when taking the lessons from the US onboard. Auditors should attend annual general meetings and could get early written notice of questions because research might be necessary in order to answer some of the questions. However, there were always follow-ups. Auditors should be able to say that, in terms of codes of confidentiality, they were not able to disclose or answer certain questions.

He said that the Committee had heard evidence that non-audit functions were important for auditing firms. KPMG had indicated that non-audit services contributed 40% of their revenue. He asked the extent to which non-audit services were important to Ernst and Young. There was no intention to harm the businesses of auditing companies. The best way to handle this issue might be to define the separate functions that accounting firms did.

Mr Bourne agreed that the auditor could refuse to answers questions for confidentiality reasons. He agreed that the Committee should be careful when adopting practices from other jurisdictions, particularly where there had been corporate failures. IFAC had drafted rules for internationally connected bodies of accountants and auditors. It had produced a handbook of standards and rules which accountants in South Africa were expected to follow. It recognised that there were situations were auditors should not provide non-audit services. Non-audit services could be rendered in certain instances provided that certain safeguards were in place. He recommended that IFAC rules should be used as a starting point when the Ethics Committee of the Independent Regulatory Board for Auditors formulated its rules.

He could not say how much non-audit services contributed to his company's revenue. The revenue had decreased significantly over the years because of the sensitivity around non-audit services provided by auditors and the roles that audit committees had played with listed companies. He said that he would respect the Committee's decision on defining the services of an auditing firm. He agreed with the principle of limiting non-auditing services but had a problem with the way it had been applied. The Act endeavoured, in five lines, to deal with the subject that IFAC had devoted over a hundred pages. He was not sure if the subject could be effectively dealt with in such a short legislation. This could best be left to the IRBA to deal with.

Mr Njikelana asked in what way could auditors say that particular information was confidential to a shareholder.

Mr van Wyk replied that said that Section 300A(2) of the Companies Act required auditors to respond to any question relevant to the audited financial statements according to their knowledge and abilities as auditors. The auditor would be required to respond to questions of audit and nothing beyond this. Any shareholder who wished to get any information from the directors was entitled to request such information and the law should allow this. The risk was that a question raised about the audit could be misinterpreted simply because the person who had received information might not be an expert in audits.

The Chairperson asked the State Law Advisors or the Department to respond to issues raised around a foreign public interest company being a holding company of a South African company.

The Department would respond to the issues raised by the presenters in the next meeting.

Submission by the Independent Regulatory Board for Auditors
The Chairperson said that the IRBA had also made a submission on the Bill. The Board was not scheduled to make an oral submission. He invited Mr B Agulhas (Director: Standards) to take the Committee through the submission. (See document attached). He said that the proposed Section 275A prescribed that certain non-audit services should not be open to the current designated auditor of a public interest company. While the IRBA supported the principle that auditors should not audit their own services, it believed that rules and regulations in respect of the restriction of certain services should be prescribed by the Independent Regulatory Board for Auditors. The proposed Section 285A required public interest companies to comply with financial reporting standards to be established by the Financial Reporting Standards Council (FRSC) in accordance with International Financial Reporting Standards (IFRS). These financial reporting standards were necessarily the same as IFRS.

He said that Section 440S required the FRSC to develop standards for limited interest companies and Section 285A required limited interest companies to comply with the accounting framework of financial reporting standards. The framework alone (presumed to be the conceptual framework of the International Accounting Standards Board) would not necessarily result in fair presentation of financial statements. The framework dealt with concepts that underlie the preparation and presentation of financial statements, while the application of these concepts to recognition and measurement of financial statement items were dealt with in the specific financial reporting standards. The current requirements in the Bill would not ensure that limited interest companies would comply with financial reporting standards that would result in fair presentation of financial statements.

Prof. Turok said that many of the issues raised during the hearings should be floated before Mr Agulhas so that the Committee could get the regulatory view. There was a need for a process in which Mr Agulhas would be involved. He wondered if the Committee could create another opportunity to interact with the regulator.

The meeting was adjourned.

 

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