What has been of concern or at least served as consideration when electing which business vehicle to apply in running your business was the audit requirement. Previously companies (whether private or public) had no option but to audit, which was financially out of reach for many businesses whereas close corporations did not have to be audited.
Audits no longer compulsory
With the enactment of the Companies Act of 2008 (as amended), the audit requirement is no longer compulsory. The audit requirement is based on the calculation of the public interest score – which applies to both companies and existing close corporations – which is calculated annually (at financial year end) as the sum of the following:
- A number of points equal to the average number of employees of the company during the financial year
- One point for every R1 million (or portion thereof) in third party liability of the company at the 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 the end of the financial year, is known by the company to directly or indirectly have a beneficial interest in any of the company’s issued securities (for profit companies), or who is known to be a member of the company or of an association that is a member of the company (for non-profit companies).
The question now arises: is it really better to audit or not or is the independent review an appropriate alternative?
Independent review vs the audit
According to Professor Steven Sirer in Independent Audit v Independent Review published in the March 2013 edition of Without Prejudice, “The independent review is an alternative assurance engagement where the independent reviewer provides limited assurance on a set of annual financial statements when compared to that of the reasonable assurance provided by the external auditor.
“Assurance is the degree or level of trust the users can place on the credibility of the information contained in the annual financial statements. This implies that the external audit will provide the users with a higher level of confidence that management have disclosed all the necessary information via the annual financial statements so that they can make informed business decisions regarding the entity.”
This is thus important from the perspective that the level of trust or confidence instilled by financial records by the manner in which the external auditor or independent reviewer verifies or substantiates the assertions made by management.
How is data integrity verified?
The conceptual difference between an external audit and independent review is in the procedures to verify data integrity as supplied by management or the relevant person designated to produce such information and approved by management.
The auditor verifies data by comparing it to voucher evidence. Thus the process instils credibility and serves as proof of the authenticity of financial data contained in the annual financial statements.
Limited assurance on the other hand, suggests that independent review is not obliged to acquire such evidence. Accordingly, the independent review only proves that the annual financial statements are credible as long as they appear plausible in the circumstances.
According to Professor Steven Sirer “the word plausible is often defined in terms such as the information being credible, appearing worthy of belief, or seemingly or apparently valid, likely or acceptable.”
Thus the independent reviewer only provides a limited level of confidence that information contained in the annual financial statements is actually credible.
Therefore the processes and levels of confidence instilled by them are very different.
Cost versus credibility may be the real issue
The independent review is a more cost effective option, but it is apparent from the above that it is less credible due to the level of investigation and testing followed in establishing data integrity.
The company should therefore assess whether the cost saving is aligned with the compromise on the confidence and in-depth analysis of data integrity done by virtue of an audit.
In many industries such as the financial industry where confidence of annual financials are of the utmost importance or in instances where stakeholder or investor confidence is based on the accuracy and credibility of financial records, the decreased cost of independent review may not be a sound business decision.
Seeking the appropriate professional advice is therefore fundamental.
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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