Accounting Standards Board 2005 Annual Report: briefing

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Finance Standing Committee

19 September 2006
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Meeting report

FINANCE PORTFOLIO COMMITTEE
20 September 2006
ACCOUNTING STANDARDS BOARD 2005 ANNUAL REPORT: BRIEFING

Chairperson:
Mr N Nene (ANC)

Document handed out:
Accounting Standards Board slide presentation
Work plan of the ASB for the next three years
Work accomplishment of the ASB

SUMMARY

The Accounting Standards Board briefed the Committee on its 2006 Annual Report. Clarity was given on the need for the ASB and the link between the ASB and other international accounting standard setters. A progress report was given on the number of standards that had already been set, the number submitted to the Minister of Finance for approval and Exposure Drafts currently issued or still to be issued for inspection by the Board’s major stakeholders.

The Committee was mostly concerned about the fact that the board had three vacancies, the application of accounting standards to municipalities, the costs of implementing standards, whether accounting standards had improved and selection procedures for members of the Board.

MINUTES
Accounting Standards Board (ASB) presentation
Mr R Cottrell (part-time Chairperson) said that accountants globally were getting together to create universal standards and that was where the ASB came into play. The role of the ASB was to look at international standards and try to make them applicable to the financial environment in South Africa (SA) by firstly issuing Exposure Drafts (EDs), seeking comments from the public and then issuing the standard after approval from the Minister of Finance. The move towards more SA-based standards came as result of an assessment that revealed that international standards focused more on entities that had a profit motive, whereas the SA government is more concerned about service delivery in every financial sphere. The ASB had three standards already; eight have been submitted to the Minister for approval and four international EDs are still being looked at.

Ms E Swart (Chief Executive Officer) explained the relationship between the Accountant General, the Auditor General (AG) and the ASB. The Accountant General worked on the implementation of standards, the AG worked with assessment of complaints and the ASB managed the setting of standards. Ms Swart mentioned that in terms of corporate governance, the ASB shared its audit committee and internal audit function with National Treasury and that the internal controls were appropriate for the size of the organisation. The ASB had met all the requirements of the Public Finance Management Act (PFMA) which included having an unqualified audit report, no disciplinary issues against staff, complying with the National Archives Act, good management of working capital, the use of resources effectively, efficiently and economically and no significant or material losses. The target of the ASB was to have high-quality standards by 2008/9 to assist National Treasury with the system of financial management they were moving towards. When an ED is issued workshops are conducted by the ASB together with National Treasury. Lastly, Ms Swart mentioned that the board was supposed to have ten members but currently only had seven and most cost savings had occurred as a result of these vacancies.

Discussion
The Chairperson asked about the impact of the three board vacancies on the operations of the board.

Mr K Moloto (ANC) asked for the purpose of financial reporting in hyperinflationary economies. He also asked what the differences between Standards and Exposure Drafts were.

Mr Y Bhamjee (ANC) asked who bore the costs of implementation of standards. He raised concern about the reported racial composition of the board and the reasons for non-attendance at board meetings.

Mr S Thebe (ANC) asked about a time frame within which municipalities would be identified in terms of Generally Accepted Municipal Accounting Practice (GAMAP). On the issue of the number of board members, Mr Thebe asked if there was any requirement that stated they needed ten members to operate at optimum level.

Mr I Davidson (DA) asked whether standards had improved. Why was the fixed asset register incomplete? He also asked for clarification on expense claims.

Ms Swart said the absent board members posed a problem as there was a large volume of work but not enough staff. They were coping currently, but it would become a big challenge in the long-term.

Mr Cottrell clarified that the board had been broken down into working groups which consisted of a variety of skills, but more members would add more skills.

Ms Swart said that South Africa was conducting business with Zimbabwe that happens to be a hyperinflationary economy and that the ASB had agreed with National Treasury to issue a core set of standards for hyperinflationary economies. On explaining the difference between an ED and a standard, the ASB normally started with an international standard, converted it by making changes for South Africa specific issues, issued it to the public for a period of three months, considered recommendations from stakeholders and then drafted the ED to the board for consideration. When the board approved, it was taken to national level for standard implementation.

Ms Swart said that the ASB bore most of the costs of implementation and that training costs were budgeted for and came from the National Treasury budget. The disclosure of the racial composition of the board was done for reasons of transparency but was not a requirement and she asked for suggestions from the Committee on how to report it next year.

Ms Swart said that GAMAP was an interim solution and that all the municipalities had to be placed on Generally Recognised Accounting Practice (GRAP). The question was whether they should be placed on GRAP immediately or whether they should be left on GAMAP and be allowed to transform into GRAP. She elaborated that medium capacity municipalities had a 2007 implementation date and low capacity municipalities had a 2008 implementation date.

Ms Swart said that the fixed asset register did not reflect all items in the office because those were once-off expenses and did not need to be in the register. She however added that the board would look into the matter. Ms Swart agreed that the expense claims were not signed even though the cheque had been authorised, but that had been corrected accordingly. In response to the allegations that the ASB was over-deducting tax on employees Ms Swart said that it was rather an issue of how the audit was done than it being a major problem. She added that she had not received any refunds from the SA Revenue Services (SARS) to indicate that such allegations were true.

Mr Bhamjee suggested the ASB seek the Committee’s assistance to address the shortage of board members. He also asked why the Chief Executive Officer had not attended a training programme that had been budgeted for, as CEOs needed to always keep updating their knowledge and skills.

Mr L Johnson (ANC) asked for clarity on the selection process of board members. He mentioned that some municipalities were struggling and asked if ASB had the capacity to assist these municipalities in presenting their financial statements. Mr Johnson asked how the ASB advanced the cause of "a better life for all."

In response to Mr Bhamjee's questions, Ms Swart said that the programme she was meant to attend was scheduled for September and that was the busiest time of the year for the ASB. She could not be out of the office for a period of thirty days considering the workload.

Mr Cottrell added that he was keen on the CEO attending the course but at the time they were only aware of Wits University offering it and they would look for similar programmes in other tertiary institutions.

Ms Swart stated that the PFMA provided that the Minister of Finance appointed board members. Vacancies were normally advertised, but the response to this has frequently been very poor. As a result the ASB writes to a list of organisations asking them to submit nominations and then those candidates are submitted to the Minister who makes the final appointment.

The meeting was adjourned.

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