Recent news to South Africa’s owner-managed companies has proffered relaxed rulings on audits. After a decade of redrafts, the latest Companies Act announces the audit exemption despite an outcry by accountants, auditors and tax authorities.
The nitty gritty
As covered in the Companies Act 71 of 2008 and its Regulations, it is stated that: ‘Every company must calculate its ‘public interest score’ at the end of each financial year, calculated as; (a) a number of points equal to the average number of employees of the company during the financial year; (b) one point for every R1million (or portion thereof) in third party liability of the company, at the financial year end; (c) one point for every R 1 million (or portion thereof) in turnover during the financial year; and (d) one point for every individual who, at the end of the financial year, is known by the company— (i) in the case of a profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or (ii) in the case of a non-profit company, to be a member of the company, or a member of an association that is a member of the company.
It goes on to state: ‘An independent review of a company’s annual financial statements must be carried out (a) in the case of a company whose public interest score for the particular financial year was at least 100, by a registered auditor, or a member in good standing of a professional body … or (b) in the case of a company whose public interest score for the particular financial year was less than 100, by a registered auditor, or a member of a professional body or a person who is qualified to be appointed as an accounting officer of a close corporation (c) in the case of a company whose public interest score is > 350 and <100 if its annual financial statements for the year were externally compiled by an independent person.
Relax and rejoice?
The collective sigh comes from companies looking to celebrate being able to sidestep the meticulous process of an audit, the costs associated with it, the time that needs to be committed in order to comply with all associated requirements, and the in-depth detail necessary to meet the process and its criteria.
Small companies are celebrating because now it is free driven and for small businesses, the hassle may outweigh their priorities – as may the financial implications of running an audit. When cash flow is a concern, setting aside R20 000 for an audit may not be seen as commercial business sense at the time.
Why are the number-crunchers protesting? With merit, I assure you. These rejoicing business owners and their stakeholders alike should consider both sides of the coin. As a medium-sized company, the dynamic nature of your business, its cash-flow and how you choose to sustain or leverage your business dealings will almost certainly guarantee the need for a sound, thorough and professionally drafted set of financials which was at least reviewed or audited by a professional. The delay or complete avoidance of an audit or review is almost guaranteed to pose bigger problems down the line.
Straight off, the most immediate benefit is to have a solid understanding of what your business’ financial status is – at a glance – at any given time. An annual review (at the very least) guarantees your shareholders an authentic appraisal of how your annual figures have behaved – which may be used to leverage how you make internal strategic and operational decisions for the following financial year.
Furthermore, you may need finance to sustain or grow your business needs. To get the ball rolling, a bank will want to see your latest financials – an authentic assurance of the status of your business’ wellbeing. Using an auditing firm to compile these financials and perform an independent review will cost you nowhere near what an audit would.
Consider the big picture
It is important for companies looking to take advantage of the alleviations in the Companies Act not to see it solely as a headache they no longer need to suffer or a bill they no longer need to pay. Accounting professionals should be cognisant of educating their clients on the importance calculating their annual score, and that should they try to side-step or delay the audit and/or review, the time and costs invested in catching up are likely to exceed the initial industry-related costs suggested here.
In truth, the benefits attached to being able to confront your numbers on an annual basis speak for themselves. You may be surprised by realities you hadn’t yet considered, but with enough information to preempt any serious or long-term damage. Rather be afforded the opportunity to iron out small creases than face a potentially damaging likelihood when it is too late. A detailed review or an audit by experienced practitioners will mitigate risk while highlighting problem or questionable areas. Audited numbers could also lower your tax risk, as incorrect tax calculations could result in penalties much higher than your auditor’s bill
1: sections 26, 28 and 29 of the Companies Regulations, 2011 (GNR 351 of 26 April 2011) to the Companies Act 71 of 2008.
Technology In Accounting – Race For Relevance
Change is not just coming, it’s already here and the rate of change is growing exponentially.
Change is not just coming, it’s already here and the rate of change is growing exponentially. The recent research from ACCA around the race for relevance talks of six key technologies (Analytics, Artificial intelligence, Cloud computing, Cyber, Social and Robotic process automation), likely to present opportunities that challenge our traditional ways of working to all businesses, including SMEs – as well as their finance function.
The report explains that whatever the size of the business, technology change is having an impact.
It is imperative for SMEs to understand these technologies and start to, at least, plan. Failure to capture opportunities runs the risk of businesses being marginalised.
Technological advances provide finance functions with significant opportunities to play a valued role in maximising the organisation’s strategic ambitions and in how it is evolving. Not of all the key technologies may be relevant to all immediately, however, understanding which of them apply and can deliver value, is important.
In this corporate race for future relevance, recognising the opportunity is essential. Organisations are in a race to remain relevant to their customers and communities. Adapting and embracing technological changes in business is critical. Companies who leverage new technology well are going to win big in business. If CFO’s are to remain in decision making roles the need to understand the importance of data analytics is crucial. Businesses need forward thinking CFO’s who:
- understand how to use the information available to them to provide strategic insight in real time;
- capture, measure, report and predict future performance in a much more agile manner to support better and quicker decision making;
- ensure they have in place effective and efficient processes that satisfy the overall business requirements of finance.
This is not to say that there is one approach. No single model fits all finance teams but there is an overall direction of travel. However, its not enough to become more efficient, but finance function must assist businesses to make decisions based on the right data. To achieve the goal of transforming the finance function, the CFO needs an understanding of the emerging technologies and the opportunities available. The CFO must ensure that there is sufficient governance of the data sources, be these internal or externally generated, to provide insights based upon ‘one version of the truth’.
In realising the finance technology strategy, it should be remembered that this is often a partnership between the Information Technology (IT) team and the finance function. As business partnering has affected the relationship between finance and its customers so the same process can be replicated in the relationship between finance and IT.
By 2020, organisations are expected to gain $1.2 trillion in business from their slower-to-adapt peers. How do you, as the accounting professional, influence this today? How do you work with IT to thrive in this age of change?
Can Computers Replace Human Accountants? We Doubt They Can
People remain paramount to the accountancy profession despite advanced modern technology and artificial intelligence. But accountancy is no longer just about financial statements and tax returns.
“The secret lies in embracing the technological advances without sacrificing the values and ethics that sustains and defines the profession,” says Jeanne Viljoen, Project Director: Practices at the South African Institute of Chartered Accountants (SAICA).
“Don’t fear technology – embrace it and use it wisely. By embracing technology, the profession can provide deeper insight to their clients while helping them understand the rapidly approaching ‘new normal’ for business operations.”
The radical transformation of accounting
“It is no secret that accounting has been radically transformed by globalisation, digitisation and a growing amount of technological integration into business operations.
External disruptors, like the use of big data, the cloud and distributed ledger technology also affects the profession, but computers will never replace human interaction or advice.
Computers and algorithms may increase accuracy and can crunch numbers and vast amounts of information at increasing speed, but they have no feelings and cannot learn common sense or the ability to plan creatively. They also cannot deploy human judgement or professional scepticism,” Viljoen continues.
This, paired with a human accountant’s technical knowledge and adherence to a global Code of Ethics and international standards applicable to certain types of engagement, offers vast new potential for accountants to accurately interpret data and develop insights that will underpin more valuable strategic recommendations for their clients.
The focus of accounting is changing
“While traditional services will continue to remain an important part of what accountants do, the focus will be different. The biggest benefit of using artificial intelligence (AI) instead of manual bookkeeping, is probably the time it frees up for accountants to provide strategic advice to businesses and organisations.
Real-time accounting can help small to medium businesses to take decisions when needed instead of waiting for months for financial statements.”
Correct analysis of business data is exactly what gives a business a competitive edge and help generate a higher profit margin.
“If, for instance, your company sell products online, software that enables you to determine when your customers are most active online will help you determine the best time to market to them. The correct technological systems and software can make your business lean and mean and will enable a total overview of your business at the press of a button.”
This can prevent relatively small problems like absenteeism on certain days and over claiming on business trips to turn into big crisis situations.
“This is exactly where accountants will continue to play an important advisory role, because they are trained to analyse risks, and spot outliers, exceptions and trends.”
Accountants can also assist businesses and organisations with cyber security and successfully navigating their digital landscape, helping to avoid cyber fraud and the theft of personal information.
The future of accounting
Viljoen also referred to twelve predictions about the future of the accountancy profession made by Rob Nixon, an internationally renowned accountancy expert. These are:
- Compliance will be completely commoditised, meaning less “human” time spent on ensuring compliance.
- Cloud accounting will be installed in more than 90% of small- and medium-sized entities, because more and more people want their data and information on their mobile devices.
- More than 90% of accounting firms will have cloud practice management, as it improves efficiency and mobility and lowers operating costs.
- Coaches and consultants – even non-financial – will become competition for tomorrow’s accountant.
- Clients will be more transient because of cloud accounting. All that is required for data to be captured is a login code. This will result in tighter and more enduring relationships between client and accountant.
- Offshore teams will be more prevalent – cloud computing will enable your teams to work anywhere.
- Compliance prices will plummet, new systems costs will be reduced and financial reporting will be current.
- Marketing and sales skills will be needed – with commoditised services comes price pressure and new low-cost entrants into your market. Accountants will need to differentiate and give compelling reasons as to why clients should stay with them.
- Young people will not buy into staid and boring systems – they are not interested in old-fashioned systems/equipment and offices. Instead, they will be tech-savvy and will want progress faster than ever before.
- There will be no more time-based billing, but rather a valuation of the intellect that has taken many years to develop.
- The role of business advisor will result in more than 80% of an accountant’s revenue, as accountants can add a huge amount of value when they know the facts. Spending less time on compliance services will mean that an accountant will have more time to truly live up to the trusted advisor status that they deserve.
- Advanced technology will mean that clients are finally served properly with real-time data, resulting in the accountant adding real value to the business.
In the light of all of this, it is important for small to medium businesses to look critically at their digital strategy, she concludes. “You don’t need to buy the biggest, most expensive accountancy system. Look at your cash flow and needs and invest in a system that can grow with your business. Your accountant will be the best person to advise you on this.”
Save Your SME Money With A Good Payroll Management System
Not only does an efficient payroll system enhance staff morale and boosts your reputation, it can also save your business significant costs.
Payroll solutions are designed to help hone the strategic focus of your business’ HR department, by shifting HR and payroll managers’ from paperwork to developing and motivating employees.
“The biggest potential saving comes from full compliance with tax and labour laws and regulations,” says Ania Strydom, Compliance Specialist at Sage. “Avoiding the massive costs of fines, interest and penalties that a company risks if it doesn’t comply.”
Here are her tips for conducting payroll, saving money on a good system, and pitfalls to avoid that most SMEs don’t see coming:
Choosing a viable payroll management solution
- Look for a scalable product that can grow alongside the business
- Find a solution with full local support that is kept up to date with relevant labour and tax laws for the markets where the business operates
- Make sure the vendor has a proven track record and local reference sites
- Ensure that the solution is built on flexible modern technology that accommodates today’s trends — mobility and the cloud, for example
- Consider a solution with integrated employee self-service functionality.
Vital considerations when conducting payroll
- Ensure that the payroll department consists of people with a good knowledge of payroll and the required skills set to ensure success and compliance with payroll
- Instil a payroll environment that does not need regular review
- Conduct regular payroll compliance audits to ensure compliance minimises the risk of exposure.
How a good payroll management system actually save you money
- Using automated payroll software with employee self-service functions can help organisations save time as it diminishes the need for manual data capture, calculations, reporting or returns
- Rest easy knowing that automation reduces the possibility of human error, allowing businesses to focus on strategy, customers, and employee engagement rather than on red tape
- Payroll can help businesses understand how employees are contributing to profitability, what resources are needed, the cost for major projects, and identifying gaps or surpluses in their human capacity
- The risks of payroll fraud and incorrect payments are reduced by giving managers better visibility into transactions, providing an audit trail, and providing a set of controls, checks and balances
- The biggest potential saving comes from full compliance with tax and labour laws and regulations – avoiding the massive costs of fines, interest and penalties that a company risks if it doesn’t comply.
Avoid payroll errors SMEs typically make
- The use of manual solutions due to tight budgets. They should instead, look at affordable, cloud-based solutions that are priced per payslip per month instead
- Failing to enforce separation of duties. Different people should have responsibility for capturing payroll data and for managing access to the system as well as adding and removing employees from the payroll. Another person checking that the numbers add up could reduce risks of fraud and error
- Not keeping abreast of changes to tax and labour laws such as the Employment Tax Incentive.
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