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.
How To Strategically Minimise Accounting Costs As A Start-up
“Financial Compliance can be a costly exercise when approached carelessly”.
As a practicing accountant one of the most common phrases uttered by clients is that “I will get to my accountant when I can afford one”. The reality is your accountant costs can be minimised when you applying some simple tricks to avoid being charged an arm and a leg.
I have compiled a few areas where you can streamline your business to minimise your businesses accounting fees. Please bear in mind these are guidelines and a consultation with your accountant will still serve you best.
1. The ‘Shoe Box’ strategy is dead and gone
The shoe box is a box filled with all your company and supplier invoices jumbled into one box. As an accountant when faced with the shoe box we smile because now we get to charge our hourly rate doing admin that could have been done by either you the business owner or one of your employees. Accountants make a large portion of their turnover from doing admin that could have been avoided if business owners had more foresight.
2. Separate personal from business transactions
Nothing is more time consuming for an accountant then having to comb through a business income and expenses only to realise through consultation with the client that personal items were accounted for as business income or expenditure. As a rule of thumb remove all personal income and expenditure from your business in totality.
3. Record keeping! Record keeping! Record keeping!
Simple record keeping can be your best friend in reducing costs. Here are a few guidelines to live by:
- As pointed out in Number 3 have a separate bank account for business and another for personal
- Date and Number your invoices, sounds simple but very few start-ups put emphasis on this administrative function.
- Provide complete statements for the period requested by your accountant for your credit card and bank statements.
- Keep supplier statements as this will aid your accountant especially during the financial year end of your business.
- When submitting your debit/ card receipts and there is no accompanying invoice list on those receipts what was purchased.
4. Ask your accountant for a Retainer Agreement
A retainer agreement is a great way to ensure your monthly accounting costs do not fluctuate. With a traditional agreement your fees may spike when it is your company’s financial year end or when your taxes are due. With a retainer agreement your able to budget for a set figure payable monthly. This also translates to an attractive for your accountant who can now rely on a guaranteed cash flow injection monthly.
The bases for an accountants pricing will involve what their hourly rate is , the longer they spend on doing record keeping and deciphering what activities took place in your business the more you will be charged. Remember regardless of how close you are with your accountant or how simple you feel your business structure is your accountant will need as much information as possible to represent your business activities accurately on your financial records.
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.”
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