PORTFOLIO COMMITTEE ON TRADE AND INDUSTRYComments on the Companies

Bill 61-08 13 August 2008

Ignatius S SehooleIgnatius S Sehoole

Executive President – SAICAExecutive President – SAICA

General comment

We commend the dti on the latest version of the Companies Bill:We commend the dti on the latest version of the Companies Bill:•Greater consistency with the definitionsGreater consistency with the definitions•Tighter wordingTighter wording•Purpose and effect of the Bill are, for the most part, clear and Purpose and effect of the Bill are, for the most part, clear and unambiguousunambiguous

Although SAICA has a number of suggestions to make in respect of Although SAICA has a number of suggestions to make in respect of individual sections of the Bill, it has no hesitation in supporting it as an individual sections of the Bill, it has no hesitation in supporting it as an important element in the development of the South African economyimportant element in the development of the South African economy

Major comments

Proposals regarding the Financial Reporting Standards Council’s authority to issue Proposals regarding the Financial Reporting Standards Council’s authority to issue standards in consultation with the Minister rather than the reverse position as set standards in consultation with the Minister rather than the reverse position as set out in the Billout in the Bill•Define “financial statements” per IFRSDefine “financial statements” per IFRS•Council to control standards to avoid timing issues, notably for JSE listed Council to control standards to avoid timing issues, notably for JSE listed companiescompanies•Time consuming, specialist functionTime consuming, specialist function•Differential standardsDifferential standards•Promote South Africa as international investment destinationPromote South Africa as international investment destination•Standards must include interpretations issuedStandards must include interpretations issued

Major comments

The need for establishment of the Financial Reporting The need for establishment of the Financial Reporting Investigations PanelInvestigations Panel•Monitoring compliance with reporting standards essentialMonitoring compliance with reporting standards essential•Highly skilled function requiring dedicated focus separate Highly skilled function requiring dedicated focus separate from Councilfrom Council•Access to specialist skills requiredAccess to specialist skills required

Major comments

The exemption from preparing financial statements should only The exemption from preparing financial statements should only extend to owner-managed businesses owned by natural persons extend to owner-managed businesses owned by natural persons and not having a significant public interest elementand not having a significant public interest element

•Wholly-owned subsidiaries of companies must reportWholly-owned subsidiaries of companies must report

•Define accounting records as in S284 of current ActDefine accounting records as in S284 of current Act

•Fair presentation i.t.o. financial reporting standardsFair presentation i.t.o. financial reporting standards

•Publish financial statementsPublish financial statements

•Board of directors must accept responsibility for reportsBoard of directors must accept responsibility for reports

Major comments

The definition of a group should be constrainedThe definition of a group should be constrained• Apply only one degree of consanguinityApply only one degree of consanguinity• Remove or define “affinity”Remove or define “affinity”• Group should be defined with reference holding company and subsidiaries onlyGroup should be defined with reference holding company and subsidiaries only

The solvency and liquidity tests should be refined and applied at company level The solvency and liquidity tests should be refined and applied at company level only, not group levelonly, not group level

• Assets > liabilitiesAssets > liabilities• Insolvent subsidiary may be part of solvent groupInsolvent subsidiary may be part of solvent group• Remove requirement for an outside shareholderRemove requirement for an outside shareholder

Major comments

Minimum criteria for audit committee members should be set, Minimum criteria for audit committee members should be set, including independence and appropriate skillsincluding independence and appropriate skills

•All Board committee members must be directorsAll Board committee members must be directors

•Independence of Audit Committee members essentialIndependence of Audit Committee members essential

•Financial literacy essential, coupled with industry knowledgeFinancial literacy essential, coupled with industry knowledge

•Board may determine additional functions, but oversight functions Board may determine additional functions, but oversight functions onlyonly

•Board, not shareholders, to appoint Audit CommitteeBoard, not shareholders, to appoint Audit Committee

Major comments

All major regulations should be issued well in advance of the effective date of the Bill All major regulations should be issued well in advance of the effective date of the Bill and entities supporting the objectives of the Bill similarly be formed prior to and entities supporting the objectives of the Bill similarly be formed prior to commencement of the Actcommencement of the Act•Allow adequate, well-informed preparation timeAllow adequate, well-informed preparation time•Establish FRSC and issue standardsEstablish FRSC and issue standards•Publish differential reporting standardsPublish differential reporting standards•Determine “public interest” companies required to reportDetermine “public interest” companies required to report•Define officersDefine officers•Clarify review requirementsClarify review requirements•Set out transitional arrangementsSet out transitional arrangements

Secondary comments

Numerous sections have been commented on under Numerous sections have been commented on under “Secondary comments”“Secondary comments”

These comments are in many instances related to the Major These comments are in many instances related to the Major Comments and are significant in their own rightComments and are significant in their own right

These have not been addressed today in the interests of timeThese have not been addressed today in the interests of time

Closing remarks

SAICA is committed to ensuring the highest quality corporate governance,SAICA is committed to ensuring the highest quality corporate governance,

Which requires high quality reporting standardsWhich requires high quality reporting standards

and the promotion of public disclosure and transparencyand the promotion of public disclosure and transparency

We encourage the Portfolio Committee of Trade and Industry to grant serious We encourage the Portfolio Committee of Trade and Industry to grant serious consideration and full deliberation of comments made by us and other interested consideration and full deliberation of comments made by us and other interested partiesparties

A high quality Companies Act is imperative to promote South Africa as a trusted A high quality Companies Act is imperative to promote South Africa as a trusted international player in the business arena and to promote a vibrant economyinternational player in the business arena and to promote a vibrant economy

Thank You