This document summarizes key points from a presentation on how the South African Companies Act of 2008 impacts small and medium enterprises (SMEs). The Act aims to promote business growth while ensuring good governance. It requires independent reviews for companies below a certain size/risk threshold. The public interest score calculation and who can perform audits and reviews are explained. Issues around other services accountants provide to clients and auditor rotation requirements are also covered. The value of other assurance engagements and influences on the profession are briefly discussed.

1. IFAC SMP FORUM
Supporting SME Growth Through
Innovation: SA Companies Act
Bernard Peter Agulhas
Kampala, Uganda
5 June 2013

2. Innovation ‘in action’
• Financial Reporting Frameworks
– IFRS for SMEs
• Risk-Based Approach to Inspections
– Indirect impact on SMEs
– Changed Basis for Inspections Fees
– ISQC1 Inspections
• Companies Act, 2008
– Direct impact on SMEs
– Impact of Section 90(2)?

3. Companies Act and Regulations
• Effective from 1 May 2011
• Ultimate goal in repealing the previous Act was to
ensure that the regulatory framework for all types
and sizes of enterprises promotes growth,
employment, innovation, stability, good governance,
and confidence
• Different types of companies must comply with
different rules as set out in the Act
3

4. The Independent Review
For all financial year ends after 30 April 2011,
independent reviews are required by all companies
which:
• Are not required in terms of the Act to be audited;
and
• Do not choose to be voluntarily audited; and
• Do not meet the exemption criteria set out in the Act
4

5. Public Interest Score
Is calculated by all companies at financial year end as:
• One point per employee for the average number of
employees during the financial year
• One point for every R1 million or portion thereof in
third party liabilities at financial year end
• One point for every R1 million or portion thereof in
turnover during the financial year
• One point for every individual who at financial year
end has a beneficial interest in issued securities of a
profit company or is a member of a non-profit
company
5

6. Who can perform audit/independent
review
Category Qualification Impact on SME
Audit • Registered Auditors
Independent Review of
Companies with a public
interest score of 100-
349
• Registered Auditors
• Members of IRBA
accredited
professional body
• Increased access
• Increased competition
• Decreased costs
Independent Review of
Companies with a public
interest score of less
than 100
• Registered Auditors
• Members of IRBA
accredited
professional body
• Accounting officers
• Increased access
• Increased competition
• Decreased costs
6

7. Regulation of Independent Reviews
Category Regulator
Audit IRBA
Independent Review of Companies
with a public interest score of 100-349
? (but must be less stringent)
Independent Review of Companies
with a public interest score of less than
100
CIPC? (but must be less stringent)
7

8. Other Services – Section 90(2)
Accounting, Bookkeeping and Secretarial Services:
• An auditor and the audit firm may not be currently
involved, nor in the five years preceding
appointment, in the maintenance of a company’s
financial records or the preparation of its financial
statements or in performing
accountant/bookkeeper/related secretarial duties
• Impact on SMP – Impact Analysis performed
• Impact on SME – Impact Analysis performed
• Extension of monitoring of compliance
8

9. Rotation
• The same individual may not serve as auditor of a
company for more than five consecutive years,
commencing 1 May 2011
• No rotation requirements for independent reviewers
9

10. Increasing Thresholds
• Already discussed with Companies and
Intellectual Properties Commission
• Could be solution to Section 90 (2)
• Inflationary adjustments for PI Score elements to
be considered

11. Value of Other Assurance Engagements
• Lower cost to client?
• Procedures followed by auditor in expressing
negative assurance are less?
• Increased access to profession?
• More efficient for client?
• Early days

12. Other Influences
• Requirements of the Revenue Service and
Banks
• Expectations
– Parliament: IRBA is the Custodian of the Profession
– EU Green Paper
– Responsibility for high quality assurance services
– Response by IRBA
• SMP Support
• Promotion of Protection of the Public

13. Thank You
Phone: +27879408800
Email: bagulhas@irba.co.za