The Act does non clearly specify what constitutes an independent reappraisal, the criterion that should be followed or even the individual that will be allowed to publish an independent reappraisal. However harmonizing to the South African Institutes of Professional Accountants there is an understanding as to what administrations would necessitate to undergo an independent reappraisal.
An independent reappraisal is compulsory merely for that company ‘s whom appoint managers from individuals other than stockholders. Companies with merely one stockholder or companies where all the stockholders are appointed as managers are exempt from the independent reappraisal demand.
It is of import to maintain in head that non-shareholder-director companies can voluntary choose to hold an audit performed alternatively of the independent reappraisal. The same would use to stockholder -director companies or owner-managed companies may take to hold their fiscal statements audited or independently reviewed.
Something that stands out about The Companies Act of 2008 is that it does non tie in the independent reappraisal with public involvement. When taking into history the public involvement nature of a peculiar company/entity, the Minister may merely command that a peculiar company is capable to an audit.
It is hence recommended that in finding the signifier and content of the independent reappraisal the followers should be good thought-out:
The different international criterions applicable to different types of studies on the fiscal statements.
The public involvement as determined by the economic and societal significance of the company.
The types of entities that are made capable to the independent reappraisal – these are, non public involvement companies, hence to be borne in head that merely public companies and public involvement private companies are capable to a compulsory audit.
Public involvement is non associated with the independent reappraisal as the Act merely defines the audit, but there are lone ordinances for the independent reappraisal.
The audit may non be performed by an employee of the company whereas no such exclusion exists for the independent reappraisal.
The Act allows the stockholders of non-owner managed private companies either to accept the compulsory independent reappraisal or to take a higher degree study in the signifier of the audit.
Harmonizing to Theashen Ashley Vandiar, Project Director: Auditing and Members ‘ Advice, at the South African Institute of Chartered Accountants ( SAICA ) .
He explains that all companies, whether public or private are required to be audited in footings of the Companies Act of 1973, but in footings of the new Companies Act, the purpose is to take down the regulative load for little houses. He states that merely public companies and companies considered as being in the public involvement are required to be audited. Non- public companies would hold a pick between an audit and an independent reappraisal of their fiscal statements.
Vandiar states that there is a immense misconception as to the cost and work load involved in a reappraisal battle as compared to the lesser benefits derived from it. One misconception is the thought that a reappraisal battle would be cheaper than an audit because no substantial processs are required for reappraisal battles. Vandiar besides says that concerns need to to the full understand the two options ( An independent reappraisal or an Audited account ) available to them in order to do the best pick for the concern.
He besides states that depending on the size of assets and turnover a company topic to an independent reappraisal may be required to:
Merely bring forth a digest study, as is presently the instance with close corporations.
Have a independent reappraisal performed in conformity with the International Standards on Related Services ( ISRS 4400 ) , a criterion that relates to hold upon processs, or
Have a reappraisal performed in conformity with the International Standards on Review Engagements ( ISRE 2400 ) .
Vandiar says that merely the 3rd provides some signifier of confidence. An audit involves trials of controls and substantial processs and would ensue in a positive sentiment being expressed by a registered hearer, audit consequences in a sensible degree of confidence. An independent reappraisal performed in conformity with ISRE 2400, involves merely enquiry and analytical processs, hence an independent reappraisal therefore consequences in merely limited confidence being expressed by a practician.
Consequently, Vandiar finds that many view the reappraisal battle, as an option to an audit, as cheaper and simpler, but most fail to recognize that a reappraisal is a double-edged blade. It might look quicker than an audit, since a reappraisal comprises merely of analytical processs and enquiries and therefore it would be by no agencies cheaper or simpler, given the degree of expertness required of the referee and his experience and cognition of the client.
How an Independent reappraisal is done and who can make it
The new Companies Act has stated that private companies do non hold to be audited as was the instance antecedently ; they merely need to hold independent reappraisal.
So how an independent reappraisal is conducted, who can make it and is at that place any process set out for it?
The Companies Act does non specify the independent reappraisal, nor does it specify the preparation and competences required for the person who will be executing said independent reappraisal.
As the Companies Act does non specify an independent reappraisal it is hence ill-defined as to what is expected.
Here are two readings of how an independent reappraisal should be conducted:
1 ) Is from an scrutinizing position point and the other
2 ) Is from an accounting position point.
Review as indicated in ISRE2400, was included. ( International Standards on Review Engagements ) .
Harmonizing to ISRE2400 criterions independent reappraisal battles includes the undermentioned processs:
Understanding the entity ‘s concern, industry, accounting policies and processs
Analytical reappraisal processs
Reviewing of accounting accommodations made during the fiscal twelvemonth under reappraisal
Review of execution of direction determinations which straight influence the Financial Statements
Inquires from those responsible for accounting records, to find: ( a ) whether all minutess have been recorded, ( B ) consciousness of and conformity to accounting policies, alterations in accounting criterions and policies
Agring the Trial Balance to the General Ledger and the Financial Statements
Reviewing Bank Reconciliations
Surprise hard currency count
Confirmation of sums of liabilities
Confirmation of Assetss
These processs were used to find their importance in the heads of the respondents.
If the independent reappraisal, indicated in the corporate jurisprudence, takes the format of the reappraisal as indicated in ISRE2400, the capablenesss and makings of the person who performs the reappraisal can be clearly interpreted. ISRE2400 refers to a practician in the debut when explicating the intent of the criterion. The definition of a practician harmonizing to the glossary of footings as issued by the International Auditing and Assurance Standards Board ( IAASB ) is linked to the definition of a Professional Accountant in Public Practice.
A Professional comptroller in bend is defined as any individual who is a member of an IFAC member organic structure. A Professional Accountant in public pattern is defined as a professional comptroller irrespective of functional categorization ( e.g. audit, revenue enhancement or consulting in a house that provides professional services. )
Sing that public pattern is non clearly defined within the International criterions the definition of public pattern, as provided in the Auditing Professions Act will be used. This act clearly states that the public pattern means the pattern of a registered hearer who places professional services at the disposal of the populace for wagess. From this reading it is clear that lone members of the Independent Regulatory Board on hearers ( IRBA ) will be allowed to execute the independent reappraisal map until such a clip that the Companies Act will clearly specify this function.
Harmonizing to the Companies Act “ the mode, signifier and processs for the behavior of an independent reappraisal other than an audit, as contemplated in subdivision ( 2 ) ( B ) ( two ) ( BB ) , every bit good as the professional makings, if any, of individuals who may carry on such reappraisals ” should be set by manner of ordinances to the Act.
The Companies Act hence, does non tie in the independent reappraisal with the Auditing Professions Act, 2005, scrutinizing criterions, or the registered hearer. The independent reappraisal should besides non be confused with the term “ reappraisal ” as associated with auditing criterions. The Act does non tie in the term “ independent reappraisal ” with the term “ reappraisal ” as defined in the IAASB Handbook.
The Companies Act moreover, does non tie in the independent reappraisal with the construct of “ public involvement ” . When sing the public involvement nature of a peculiar company the Minister may merely mandate that a peculiar company should be capable to the audit.
Harmonizing to SAIPA:
It is suggested that, in finding the signifier and content of the independent reappraisal, the followers should be considered.
The different international criterions applicable to different types of studies on fiscal statements ;
The public involvement as determined by the economic and societal significance of the company ;
The types of entities that are made capable to the independent reappraisal – these are: non public involvement companies ( merely public companies and public involvement private companies are capable to a compulsory audit )
Public involvement is non associated with the independent reappraisal as the Act merely defines the audit, but there are lone ordinances for the independent reappraisal ; a separate chapter in the Act is allocated to the audit while the independent reappraisal does non have the same intervention ;
The audit may non be performed by an employee of the company whereas no such exclusion exists for the independent reappraisal ;
The Companies Act allows the stockholders of non-owner managed private companies to either accept the compulsory independent reappraisal or to take a higher degree study in the signifier of the audit. In finding the group of individuals that would be allowed to publish the independent reappraisal the followers should be considered:
The separate maps performed by accounting officers and hearers in footings of the Close Corporations Act, 1984 and the Companies Act, 1973, severally ;
The function and map of accounting officers in footings of assorted legislative acts to publish studies on facets of fiscal statements and conformity to statute law ;
Independent reappraisal suppliers should be defined in the ordinances as dwelling of individuals that are members of an accounting organic structure that is a member of IFAC. Internationally such a individual is known as a professional comptroller. If acknowledgment is provided in the mode proposed it would intend that the competency of South African study suppliers will be aligned to that required by the International Federation of Accountants ( IFAC ) .
As SAIPA is a member of IFAC. This means that SAIPA members are recognized internationally as professional comptrollers. In South Africa SAIPA members are entitled to the appellation Professional Accountant ( SA )
Other South African organic structures that are members of IFAC include: South African Institute of Chartered Accountants ( SAICA ) ; Association of Certified Chartered Accountants ( ACCA ) ; Chartered Institute of Management Accountants ( CIMA ) . These organic structures, including SAIPA, represent about 35 000 professional comptrollers in South Africa.
How the Independent Review will impact the Accounting and Auditing Profession
First to execute or give the independent reappraisal a professional comptroller does non hold to be a registered hearer although they should be a member of a professional organic structure that has rank with the International Federation of Accountants i.e. South African Institute of Professional Accountants.
The remotion of the audit demand is likely to hold an consequence on when it comes to the preparation of new and existing hearers. This is because some accounting ( including the large five accounting companies ) houses may happen a lessening in their audit concern wing. The academic demands differ to be registered with SAIPA as to with SAICA. The demands to register with SAIPA are a Degree with the following nucleus topics from a SAIPA accredited Tertiary Institution which must include the undermentioned nucleus topics:
Fiscal Accounting 3 ;
Tax 1 ;
Auditing 1 OR Internal Auditing 2 OR Internal Control & A ; Code of Ethics 1 & A ; 2 ;
Corporate Law 1 OR Commercial Law 2 ; and
Coupled with three old ages ‘ supervised preparation at an Approved Training Centre.
There is clearly a less rigorous demands to be a member of SAIPA this makes you think whether the PA will hold the necessary competency to really publish or execute a independent reappraisal
The professional Accountant making the independent reappraisal does non hold to be independent of the entity ( he can be employed by the entity who he is reexamining ) where as in an audit study the professional comptroller has to be a registered hearer.
The issue of the Independent reappraisal creates more occupations for professional comptrollers that do non hold a CA ( SA ) making but it besides takes a manner occupations from those with the CA ( SA ) making. It gives more duty to the individual executing the independent reappraisal every bit good.
Compared to an audit study the independent reappraisal will take much longer to fix than the audit study therefore ensuing in a lesser degree of confidence that is obtained with an independent reappraisal.
The independent reappraisal fee will be less than an audit fee, so if private companies and close corporations do elect on holding their fiscal information reviewed it could intend that there is a loss ( in footings of what they could be acquiring ) for audit houses compared to when an audit is compulsory.
The independent reappraisal will play an of import function in the coverage construction of entities which means that comptrollers and hearers will hold more work to make.
The relationship between comptrollers and concern proprietors is extremely sensitive issue. Regardless of the fact that preparers of fiscal statements, whether they are employed by a concern or hired from outside, will be personally apt for inaccuracies, and can be fined or even jailed. Preparers of fiscal statements can hence be expected to forbear from accepting payoffs in order to demo a good public presentation of that company under reappraisal
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