The Committee continued to hear public submissions on the Company Law Amendment Bill (the Bill).
Deloitte supported the Bill but suggested some changes. Firstly, it supported the exemption to some companies that they not be required to have financial statements audited. It believed, however, that Chapter 3 should apply to private companies that were required, under clause 30(10) to have audited financial statements, to create greater certainty. Deloitte supported previous submissions that the regulations should be made available before the Act came into effect and suggested a staggered implementation. Deloitte noted that there was no provision for limitation of auditor liability, and believed that this was necessary. It cited the position in the United Kingdom, where auditors and the Board could reach agreement to limit auditor liability, but that the agreement must be approved by the shareholders, be fair and reasonable and be re-negotiated each year. It was suggested that similar provisions be inserted into the Bill and that the necessary changes to the Auditing Profession Act be effected. The question of International Financial Reporting Standards was raised, and it was suggested that there should be distinctions made in the Bill, as smaller companies did not necessarily have the skills or resources to apply these standards, although public companies, State Owned Enterprises and companies under clause 30(10) should do so. Proposed wording was submitted for amendments to clause 29. In respect of rotation of auditors, it proposed that the cooling off period be two years, and again be limited to the three categories of companies already listed. Deloitte proposed that no employee employed in the previous three financial years could be a member of an audit committee and proposed changes as to what an audit committee could be required to do. Substantive comments were made in relation to “related persons”, with the suggestion that only two degrees of consanguinity be taken into account, and “a group of companies”, where the suggestion was that only holding / subsidiary relationships apply, and not personal relationships between owners. Deloitte supported the rescue chapter, and believed that it was appropriately placed in this Bill. It suggested that certain criteria be set out clearly in clause 30(10). It also suggested a change in respect of the takeover regulations, so that the restrictions would apply where the private company had 10 or more security holders or the transaction exceeded R10 million.
Members’ questions related to the scales for reporting, and the necessity for distinctions between categories, how best to strengthen the reporting of State Owned Enterprises, whether non-audit services should be done by an audit committee, whether the Bill was considered to legislate adequately for directors’ duties, any ethical problems that the firm might have encountered, problems around a small number of prominent families controlling large companies, and the business rescue provisions. Clarity was sought on the limitation of auditor liability.
PriceWaterhouseCoopers (PWC) believed that the Bill promoted transparency, accountability and good corporate governance. It was concerned at the failure to define “auditor” in the Bill, as there was doubt whether it applied to external and internal auditors. The business rescue provisions were fully supported. PWC believed that the Financial Reporting Standards Council should be permitted to set financial reporting standards, rather than merely advising the Minister, to avoid delays and increase investor confidence and certainty. It made recommendations for how contraventions should be investigated, by way of a transparent and pre-determined process. PWC also raised concerns with the lack of limitation of auditor liability, referring also to the United Kingdom position, and recommending its incorporation into the Bill. PWC did not agree that private companies that were wholly owned should be exempted from having to prepare financial statements, but agreed that these should not necessarily be audited, nor follow International Financial Reporting Standards. PWC questioned the motivation behind requiring current individually-wholly-owned companies to have one outside shareholder. It recommended that certain company records should be kept in perpetuity, as opposed to the seven years mentioned in the Bill. In regard to disqualification of directors, it suggested that any director who had been disqualified by reason of dishonesty should not be permitted even to be a director of a private company. It also suggested that the cooling off period of five years was too long, and that two years would be appropriate. Finally it suggested amendments to clause 94, so that reports of the audit committee did not appear as part of the Annual Financial Statements (where they would need to be audited as well) but only as part of the Annual Report. Members asked questions around auditor liability, commenting that there should be full transparency, and enquiring whether there could be distinctions made between financial and commercial information. Clarity was sought also on the proposed amendments to clause 94. Members questioned why it was being recommended that South Africa follow standards and practices from the United Kingdom, who could draw financial statements, and the problems if non board members served on board committees
Company Law Amendment Bill (the Bill): Public Hearings
Mr Johan Erasmus, Regulatory Analyst, Deloitte, noted that the Department had done some excellent work on the Bill. Deloitte supported the Bill, but wished to suggest a few changes.
Deloitte supported the exemption given to some companies that they not be required to have their annual financial statements audited. This Bill should not address those issues, but rather concentrate on auditing larger and State Owned Enterprise (SOE) companies. It noted the transparency requirements of Chapter 3 of the Bill. Clause 84 stated that the requirements should apply only to public companies, State Owned Enterprises; and private companies with certain conditions, limited liability and non profit companies only if included in the Memorandum of Incorporation. However, Clause 30(1)) then allowed the Minister to require different companies also to do so. This seemed to be conflicting. The proposal by Deloitte was that Chapter 3 should also apply to private companies that were required in terms of clause 30(10) to have audited financial statements. Detailed written proposals were contained in the written submission. It did not necessarily think that the whole of Chapter 3 should apply to private companies. However, they should meet the audit requirements.
The commencement of the Act had been mentioned in previous submissions. It was suggested that there was a need for people to have sight of regulations before the Act came into effect. This particularly applied to the financial reporting standards, and the regulations under Clause 30(10). Deloitte agreed with these submissions, and asked the Committee to follow the approach set out in the Consumer Protection Bill, where there was a staggered implementation proposal. Proposed wording was contained in the written submission. By the time the Act became fully effective, everyone would have had sight of the regulations.
In respect of the limitation of auditor liability, dealt with in the Companies Act of 1973 (the Act) and Auditing Profession Act of 2005 (AP Act), it was noted that there was no provision for such limitation in the Bill. Auditors could be held jointly and severally liable for losses suffered by people caused by a company. There was an international view that there was a need to limit their liability. The United Kingdom (UK) had included some provisions in their relevant legislation, to the effect that the company and auditor must reach agreement, each year, to limit auditor liability and that this must be approved by shareholders. That limitation would only be effective if it was fair and reasonable - and that would be determined by the Board, but adjudicated upon by a Court if any dispute arose. He asked that such a construct be included in the current Bill.
Mr Erasmus then noted that Clause 29 of the Bill provided that if a company provided financial statements, these must comply with International Financial Reporting Standards (IFRS). If a company that was not required to have financial statements nonetheless did so for any reason, these would therefore need to comply with the IFRS. Deloitte thought that many small companies would use cost accounting methods, rather than IFRS, as they might not have the skills to comply with the latter. He suggested that there should be distinctions. Public companies and State Owned Enterprises should be obliged to comply with the IFRS. Other companies could, however, use generally acceptable accounting standards. He proposed a change therefore for Clause 29, the wording of which was set out in the written submission.
A similar argument applied to rotation of auditors. The Bill proposed that if an auditor had rendered auditing services to a company for two years, there had to be a "cooling off" period of five years. He pointed out that this might be impractical for small towns and smaller firms. Deloitte suggested that the rotation only apply to those public companies and state owned enterprises and categories of private companies that were required to provide audited statements.
In regard to the audit committee, he noted that an executive employee for the previous three financial years could not be a member of the audit committee. Deloitte suggested that this be changed to "all employees". The Bill proposed that the Board could assign other duties to the audit committee, including the development of plans with regard to internal controls or risk management. Deloitte proposed some changes, as detailed in the written submission: namely that the audit committee should not be responsible for development and implementation of plans, only the oversight. It was suggested that the Board ‘may‘ (and not ‘must’ ) similarly assign other functions related to oversight.
Mr Erasmus noted that comments had been made on "related persons” and “a group of companies”. The Bill proposed a person was considered to be related to another person if separated by no more than three degrees of natural or adopted consanguinity or affinity. Affinity had not been defined. It was suggested also that this be reduced to two degrees of consanguinity. Deloitte felt that the interrelated person definition was also too wide. This would be difficult to assess. He gave the example that if one person controlled two companies, they would be considered to be a group of companies. If Person A and his first cousin B each controlled a company acting in entirely different business fields, they would also be considered to be a “group” and this would have an effect on insolvency, where the assets and liabilities of Cousin B’s company would also have to be taken into account. Deloitte proposed that the “group of companies” should therefore only take into account relationships only between holding companies and subsidiaries, not personal relationships. If, however, the Department was insistent that personal relationships should remain in the Bill, then it was suggested that these should also be limited to two degrees of consanguinity.
Deloitte supported the rescue chapter, and welcomed the financial distress requirements, rather than actual insolvency. It also welcomed the measures to provide oversight and measures to protect all stakeholders, including employees.
Deloitte then referred back to Clause 30(10) and requested that criteria to be used by the Minister be included, as nothing had been specified. Perhaps the impact on public interest, the size of the workforce and the nature of its work should be considered. This would be in line with other similar requirements elsewhere. This would make it easier for companies to determine whether they would fall within a category or not.
Mr Erasmus then dealt with the takeover regulations. The Bill said that these would apply to private companies if they had traded 10% of their securities over the past 24 months. Some very large companies would fall outside this, as they would not generally trade their securities, meaning that shareholders were not protected. Deloitte proposed that these should apply where the private company had 10 or more security holders, or where the transaction size of a fundamental transaction exceeded R10 million.
Prof B Turok (ANC) said that he thought there should be scales for reporting; there was no reasons to leave them open,
Mr Erasmus agreed that the more certainty the better, as it would make it easier for understanding and compliance. He believed that regulations could make a distinction between different categories and circumstances.
Prof Turok asked if Deloitte was satisfied with the way that SOEs were reporting. He felt they had a different role to that of ordinary public companies, and asked whether, in view of their stronger public obligation, any suggestions could be made on how to strengthen the reporting.
Mr Erasmus said that Deloitte supported that SOEs be treated in a similar fashion to public companies, so that strictest possible implementation should also apply to them. This Act could only regulate those institutions as far as they were companies. It must be remembered that other pieces of legislation also regulated them. He understood the feeling that these institutions should impact on the public in a certain way but perhaps that should be embedded in the founding legislation under which the SOEs were formed, rather than in this Bill.
Prof Turok said that, during discussions on the Corporate Laws Amendment Act (CLAA), the question of non-audit services was quite controversial. He asked for clarity whether non-audit services should not be done in an audit committee. An audit committee chosen for its expertise should not necessarily be required to do forward planning, risk management and the like. He felt it was preferable to ask the Board to set up specific committees for tax planning or risk planning. He felt that the Bill should be as clear as possible about functions.
Mr Erasmus said that he had proposed that the audit committee should meet certain requirements. He believed that the types of services being provided should not infringe on the independence of the auditor. If the audit committee dealt with all audit functions, it could assess the independence of the auditor. A practical problem was that a non-audit firm might ask the audit committee how to do something. However, as a general principle, an auditor should not prescribe to management how it should work, but should only give general advice - such as the fact that the Act could be interpreted in one of two ways, or that two options were available; it should never suggest which option to take. Although it was good to have a blanket provision to allow for other duties to be assigned to the audit committee, this should be couched in the form of ‘may’ and not as an obligation. The Board should not be compelled to assign any functions other than those dealing with appointment of the auditor.
Prof Turok noted that on the previous day the Law Society of South Africa had spoken of shadow directors. It had suggested that the company's face may be false, and that regulations for the code of conduct may be ineffectual if in fact those “behind the scenes” were effectively running the company. He asked for comment on that, and on other matters raised by the Law Society submission.
Mr Erasmus said that it was difficult to legislate for shadows. The Bill did legislate well for the duties of directors. There were strict liability requirements prescribed, and if they were not met, then directors would be held liable. If a director or manager took instructions from a shadow director, he would not be complying with his duties. This Bill did require directors and nominee directors to act in the best interests of the company, not the shareholders. He felt that the directors' liability sections were well balanced.
Prof Turok noted that there had been considerable talk of ethics. He asked whether Deloitte encountered many ethical problems as the legislation was designed so that ethics were being taken more seriously.
Mr Erasmus noted that Deloitte relied on its reputation in the market, and could not be seen to associate with companies that did not act ethically, either internationally or locally. It would steer clear of companies that did not act properly, and would insist upon its clients maintaining certain ethical standards.
Dr P Rabie (DA) noted that his constituency was a rural one and he supported the comment on the rotation of auditors. He felt that this was a source of employment to individuals in small towns, and would have dire cost implications and possible job losses. He too called for flexibility.
Mr Erasmus noted these comments. He said that Deloitte had tried to consider the point of view of small companies. A positive aspect of rotation of auditors was that it would ensure greater independence of auditors, and not allow them to become too involved in the business of the company. However, the suggestions that he had made were to be seen from a practical point of view; they should not be seen as a general relaxation but should be limited to instances where companies were not required to have financial statements. Such companies would not even necessarily use an auditor each year. The regulatory board also regulated audits, and that should form further protection.
Dr Rabie noted that the South African economy was quite concentrated and a number of prominent families controlled companies. He felt that the Committee and Department must look more carefully at how to prevent consanguinity problems, while stressing that it should not be too prescriptive.
Mr Erasmus agreed with the comment, but felt that it became difficult to implement the provisions of the Bill if the limitations were too wide. The limitation of consanguinity to two degrees did not mean that a family member could not be part of the company. However, it would mean, for instance, that if one family member wanted to extend credit, there would have to be a study of the liquidity test. If the company to whom money was to be lent was genuinely part of a group of holding and subsidiary companies, then the group situation must be looked at. If the companies were in a group only because they were controlled by related persons, it might be difficult to access that information. The mere fact of the controlling parties being related should not force investigation of the family members’ companies. He thought that this should apply if the related persons fell within two degrees of consanguinity. They should not be barred from being part of the company, but the test should be narrower as it would be easier to enforce.
Mr L Labuschagne (DA) was interested at the support given to the business rescue. On the previous day there had been concerns about this aspect. He asked about the "cherry picking” argument that was raised.
Mr Erasmus noted that Deloitte believed that the business rescue should be in this Bill. He did not see any conflict between the Trade and Industry and the Justice Portfolio Committees. Deloitte believed that the Insolvency Act should be limited to insolvent companies. Business rescue was meant to prevent insolvencies. If that failed, leading to insolvency, the company would then fall under the Insolvency Act. He noted that comments about the dangers of suspension of contracts, but noted that this Bill did prescribe time limits for rescue, as well as requirements such as the supervisor meeting with creditors, having to have a set agreement for a business rescue plan and so on. It was true that the business rescue plan might assist a company in getting out of certain obligations in the short term, but within 60 days a decision must be reached on whether the business rescue plan would succeed or not. This was similar to the provisions under credit legislation
Mr S Njikelana (ANC) asked for clarification on the limitation of auditors’ liability. The introduction of this was not market related, but was rather intended to address malpractices taking place over a period of time. He also noted that the limitation agreement should not cover more than one financial year, and he wanted further comment on that. He noted the scarcity of services but pointed out once again that it was remedial action being suggested in this Bill to remedy defects. Exemptions from liability might not address the possible malpractices.
Mr Erasmus said that limitation of auditor liability was not intended to protect an auditor who did not do his or her job properly. It rather sought to protect bigger auditing firms against major claims in a case where both the auditor and the directors had caused a massive loss. Under the joint and several liability, the shareholders suffering loss could claim the entire amount from the auditors, which would result in the firm closing. Under his proposal, and under the situation in the United Kingdom, the auditor would retain liability. However, this would be limited to the monetary level of the misconduct. The auditor should not be responsible for the misconduct of the directors. The proposal for limitation of liability was only to the extent that the limitation was fair and reasonable, at a level approved by shareholders, for a period of one year, with the agreement being renegotiated each year. It was not a blanket agreement.
PriceWaterhouseCoopers (PWC) submission
Mr Thabani Jali, Chairperson, PriceWaterhouseCoopers noted that the Bill did promote transparency, accountability and good corporate governance. He noted that the oral presentation would deal with general principles but the written submission dealt in detail with specific clauses of the Bill. PWC noted that the certain provisions did address the concerns, but there were some problems with unclear or incomplete definitions, and the position of the internal audit committees. He noted that the term "auditor" was not defined in the Bill, creating uncertainty whether this was only the external, or also the internal auditor.
Mr Jali noted that PWC fully supported the business rescue provisions. He noted the other contradictory submissions the previous day, as well as comments made by the Committee and said that although it might be easier to move the provisions to the Insolvency Act they were well placed in this Bill.
Mr Suresh Kana, Deputy CEO, PWC, noted that the role of the Financial Reporting Standards Council (FRSC) would be the standard setter. The IFRS was the set of standards internationally, set by the Accounting Standards Board, reached after a broad and worldwide process. PWC suggested that the FRSC be empowered to independently set financial reporting standards, rather than merely advising the Minister, similar to what was in the Corporate Laws Amendment Act. This would avoid delays and ensure investor confidence in South Africa.
Mr Kana said, in regard to investigating and addressing contraventions of financial reporting standards, that the Bill proposed that there be a Companies and Intellectual Property Commission (the Commission) tasked with matters of compliance. No format was specified, nor how investigations were to take place, nor what the remedies would be for contraventions. PWC recommended that contraventions be investigated by a panel of financial reporting standard experts, and that the process be transparent and pre-determined. Remedies for rectification should be clearly stated. It supported the provisions of the Corporate Laws Amendment Act to deal with non compliance.
In regard to limitation of auditor liability, PWC noted that claims for damages against auditors worldwide were increasing, which threatened the sustainability of the audit profession. He also referred to the UK measures to limit auditors liability, to encourage the growth of small audit firms (important also in South Africa) and to ensure sustainability of the profession and protect against the lack of cover in the insurance market. In June 2008 the Financial Reporting Council in the UK had published guidance on this, and the European Commission had similar recommendations. Section 48(6) of the AP Act said that no limitation of liability be permitted. PWC proposed that the Bill should limit the liability and that the necessary amendment be made to the AP Act.
The Bill stated that private companies that were wholly owned did not need to prepare financial statements. PWC did not agree with this exemption. It believed that preparation of financial statements, whether audited or not, was a basic principle of governance and financial discipline. The Bill was trying to protect stakeholders, not just shareholders. The Bill also proposed a capital regime based on solvency and liquidity. If financial statements were not available, it would be difficult to do such assessments. PWC therefore proposed that all companies should be required to prepare financial statements, although it agreed that these did not need to be audited.
PWC noted that the Bill required one shareholder that was not part of the same group of companies. PWC did not understand the reasoning behind this. Many companies were wholly owned and there was no need for a second shareholder.
PWC referred to the requirement that subsidiaries of public companies should also be required to appoint an auditor. This was not in the Bill.
Mr Kana noted that the Bill required certain forms and standards for company records to be kept for seven years. PWC thought that, in line with the CLAA, special resolutions, notices and minutes should be kept indefinitely as permanent documents.
PWC proposed, in relation to disqualification, that a person who was disqualified from being a director of a public company should not be permitted to be a director of any company, and that the Bill should be amended to reflect this.
Mr Kana said, on the rotation of auditors, that PWC believed that the five year cooling off period was too onerous, and that the cooling off period should be two years, as in the CLAA.
Mr Kana then noted that clause 94 of the Bill said that the audit committee should prepare a report, to be included in the Annual Financial Statement. He pointed out that auditors had to report on these Annual Financial Statements. If the audit committee made any assertions in their report, these assertions would also have to be checked by the auditors – an instance might be that the audit committee would say that it believed it had good financial controls. Auditors would then, similar to the position of Sarbanes Oxley in the USA, have to check that the good financial controls did indeed exist. PWC therefore recommended that the audit committee report should not be included in the Annual Financial Statement, but merely in the Annual Report.
Prof Turok noted that he would welcome comments from PWC on any of the questions he raised to Deloitte.
Prof Turok raised the remarks around auditor liability, and said that he would be more sympathetic to limiting their liability if it was shown that the auditors’ work was completely transparent. The auditors wanted protection, but then so did the public. Auditors should, above all, be acting in the interest of the shareholders, rather than the Board. He felt that there was a close link between liability and confidentiality. If the auditors were allowed to keep information confidential, then they must accept full liability.
Mr Kana said that currently auditors had to be present at an AGM to answer questions on the audit. That procedure had not been carried forward into this Bill. The presence of the auditors to answer questions was part of the accountability. There were other mechanisms also for judging auditors' work – including the independent Regulatory Board of Auditors (IRBA) but auditors were not allowed to release confidential information relating to the company business. Questions could be asked about the audit work, but the auditors could not answer questions that should be directed to the Directors.
Prof Turok referred to the written submission and asked for further clarity on the audit committee report being included in the financial statements.
Mr Njikelana also asked for clarity, asking if this should be extended beyond financial issues.
Mr Kana said that Annual Financial Statements were defined. The audit report had to cover everything in the financial statements. If the reports contained any statements that were not verifiable, then the auditors would have to take a position. He reiterated that if a company’s internal audit committee maintained that its financial controls were the best, then the auditors would have to investigate those controls. This would involve an enormous amount of work and it was not the intention of the Bill to get to that level of audit investigation. Audit committees could certainly make statements about internal controls, but if they did so in a report outside of the Annual Financial Statements, then they would not have to be verified by the auditors.
Prof Turok noted that South Africa was always being told it should comply with international standards. The problem was that those setting international standards were not aware of the poverty in South Africa. Parliament had an obligation to protect the poor, small enterprises and so forth, and in that context there should be other provisions that perhaps were geared to those people.
Mr Njikelana commented that much reference was being made to research models and best practice in the UK or Commonwealth countries, with comments that due regard should be given to investor confidence. Whilst he commented that these were the most common trading partners, he commented that other parts of the world could also have best practices. He did not think that South Africa should be locked into comparisons with traditional trading partners.
Mr Kana answered that the financial reporting standards were complex. There were some differing standards, appropriate to different levels of organisations. The AP Act last year noted that the Minister had appointed someone to deal with the issue and it was currently being worked on. This was not only the position in South Africa. The IFRS Board Standards were adopted by about 100 countries around the world, ranging from the UK to Fiji. They included the concept of differential reporting.
The USA and UK were mentioned in the context of auditor liability because that was where the research work had been done. There were requirements relating to auditor responsibility also in Australia, and this was also applied in South American companies.
Mr Labuschagne asked for clarity on the auditors' liability. He noted that the position in the United Kingdom was directly opposed to what was in the AP Act. He believed that somebody doing something negligently or deliberately should be held liable, but that this should not extend to something that they were not directly responsible for.
Mr Kana said that the challenge was that presently the Bill was worded so that auditors would have unlimited liability. Directors might conduct themselves improperly, yet a claim, for unlimited amounts, would lie against the auditor who had not acted with intent, but who might have been negligent to a degree. That was simply not a tenable situation. Worldwide, there were a few large firms, and reputational damage to them was a major issue. In that context, auditors should, with managers, directors and shareholders, agree the level of liability on an annual basis.
Mr Jali added that these agreements should be left to the market forces to decide, unless the Committee could come up with guidelines to say that certain forms of liability could be waived, and set possible amounts. Auditors relied to a large extent on the basic information that they were given. They did not actually undertake a forensic audit every time. Perhaps this Committee might wish to consider giving guidelines rather than a blanket prohibition against limitation of liability.
Prof Turok said that what happened in a company impacted on the public. If there was misconduct in a company, it was not only the direct stakeholders such as the creditors who would suffer, but the public in general, who might have funds invested in pension schemes, could also suffer. That was the reason for the outcry against Andersens in the USA a few years ago.
Mr Kana stressed that the limitation of liability would not only be agreed between the Board and the auditor, but would have to be approved by shareholders at the Annual General Meeting each year. The institutional investors would have to agree on the level of liability.
Dr S Rasmeni (ANC) asked if small companies would be audited, or how it would be possible to check what standards of reporting were being applied.
Mr Labuschagne followed on from Dr Rasmeni's comment, asking if a small company could employ a local bookkeeper to do the books.
Mr Jali said that there was clearly be a need for financial records to be kept. Someone must assist in drawing those records. It was important that people negotiating for wages should be able to access information. If no records were being kept, the negotiations could be frustrated. That was why PWC felt it was important to have records. The maintenance of financial records was a good discipline, not just for large companies. If company directors wished to enjoy limited liability, then rights of stakeholders must be recognised.
Mr Njikelana questioned the comment that one share in a company must be issued to another person or juristic individual that was outside a group of companies, or was not controlled by one or more companies in a group. This meant that a company could no longer be 100% single-owned. He asked for clarity on this. PWC had recommended that clause 35(3)(b) be revised so that every company could have at least one issued share but that there should not be limitations on whom the holder of this may be.
Mr Kana said that if a company was listed, with 100 companies under it, the current situation was that each of those would operate as wholly owned companies, who would consolidate into the listed companies. The Bill was proposing that there must be another one shareholder for any of those companies. The reason for this was not known. If any of these companies wanted to enter into other empowerment companies, it might hinder such attempts. The Bill had not explained the issue.
Mr Njikelana asked what would happen if a sole director, who was also a sole shareholder, was disqualified from acting as a director under clause 69.
Mr Kana said that if the director was disqualified, the shareholders must decide what to do. If he was the only shareholder and director and was disqualified, then the company would have to be wound up. Those who had been guilty of fraud or theft should not, in the view of PWC, be directors of companies.
Mr Njikelana queried why PWC had suggested that documents be kept indefinitely and why there was reference to the seven year period.
Mr Kana noted that he did not know why the seven years was elected. Some tax legislation contained references to five, ten or fifteen years. PWC believed that certain company documents should be kept in perpetuity.
Mr Njikelana asked why there might be a problem with non-board members being part of board committees, as he felt that they might be offering additional expertise.
Mr Kana said that a board member could not necessarily call for the same information as a board member could obtain. If a person did not have all the information he would not be able to assume the same level of liability.
Prof Turok noted that he agreed that there must be some degree of confidentiality, for reasons of business, such as a company not wishing to disclose what it was working on, although it might have to inform the auditor that provision had been made for certain amounts. He asked if it was possible to distinguish between commercial information and financial information that ought to be in the public domain. He asked if the limit of confidentiality could also be limited so that integrity was maintained.
Mr Kana answered that the issue of confidentiality was a cornerstone of the profession. The current position was that the auditor must attend the AGM, and could be questioned on the financial affairs. Directors and managers could be asked questions relating to the business. The auditor could only be asked how he had satisfied himself, during the audit procedures, not what he had been told.
The morning session was adjourned.
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