CIPC compliance checklist raises concerns

---

CIPC compliance checklist raises concerns

• 13 January 2020
• Accounting
• Moneyweb

For a detailed explanation of the implications of the new CIPC Compliance Checklist and other regulatory issues surrounding this, you can listen to teh webinar given by SAAA technical advisor Lettie Janse van Vuuren here. 

The Companies and Intellectual Property Commission (CIPC) Compliance Checklist, which became effective from 1 January 2020, now requires all companies except close corporations to answer a 24 question compliance list.

The purpose of the checklist is:

• to ensure companies are compliant with the Companies Act
• to serve as an educational tool for directors and company secretaries, in guiding them with regards to their responsibilities in terms of the Companies Act;
• to monitor and regulate proper compliance with the Act, and allow action to be taken accordingly.

SA Institute of Chartered Accountants’ (Saica) Juanita Steenekamp points out the checklist comprises 24 “yes”, “no” or “not applicable” questions though no provision is made for companies to explain their answers.

The CIPC responds that companies can supplement their answers by emailing to [email protected].

Penalties

The board of directors are responsible for compliance with the Companies Act, and directors are expected to be aware of their responsibilities. Anyone knowingly providing false information to the CIPC is guilty of an offense under Section 215(2)(e) of the Act with a penalty of 12 months, or both a fine or imprisonment in terms of Section 216(b) of the Act.

Concerns

Steenekamp says there are concerns over how the information provided will be dealt with and what happens when there are differences of interpretation over clauses in the Act.

Is solvency and liquidity test a compliance issue?

Saica recommends that directors and accountants document their interpretations and subsequent answers to the questions. As an example, the first question of the Compliance Checklist is: “Does the company comply with section 4 of the Companies Act?”. However, section 4, in Saica’s view, does not per se contain a compliance obligation. Rather, section 4 explains how the solvency and liquidity test should be applied, where this test is mentioned in other sections of the Companies Act, such as sections 45 or 46.

Can you complete the Compliance Checklist if you don’t have a company secretary?

Another example is section 86.  Section 86 lists a number of compliance obligations, including section 86(4) that deals with the appointment of a company secretary. Section 86(4) requires that a vacancy of the company secretary position must be filled within 60 days after the vacancy arose. What if the Compliance Checklist must be completed while the company secretary post has yet to be filled?

“The fact that the Compliance Checklist does not indicate which sub-sections of section 86 it refers to and does not provide an opportunity to explain the particular facts of a situation, makes the appropriate completion of the Compliance Checklist very difficult,” says Saica.

The problem with grouping many sub-sections into a single question

Most sections of the Companies Act have a number of compliance obligations grouped into subsections.  Section 15, for example, deals with the content of the Memorandum of Incorporation. The section further deals with company rules and provides that the rules must not be inconsistent with the Act. Should the shareholders have a shareholders’ agreement then it should also be consistent with the Act’s requirements. In SAICA’s view, section 15 includes too many requirements for compliance to be affirmed in one question. A question with sub questions would probably achieve a more focused and valuable answer to the CIPC for it to achieve its objective in monitoring compliance.

What does the Companies Act mean by Calendar Year?

Calendar year is not defined in the Companies Act and the annual return must be filed within 30 business days after the anniversary date of the company’s date of incorporation. It is therefore not clear to which period the Checklist refers. The annual financial statements submitted with the annual return normally represents the financial position of the previous financial year. This could lead to a mismatch in financial and compliance reporting periods.

Example: Company’s year-end is 30 June 2019 and its anniversary date is 1 September 2019.

Annual return to be submitted by 1 October 2020 with the annual financial statements for the year ended 30 June 2019 and compliance checklist for the calendar year 1 January to 31 December 2019.

What you should do

The current format of the Compliance Checklist is however both onerous and vague, says Saica, which encourages its members to focus the questions in the questionnaire and to provide a reasonable opportunity for explanations for areas of non-compliance or interpretation. At the very least, more guidance is required.

Accountants should engage with their clients with regards to the completion of the Compliance Checklist. “Members should specifically agree the accountants’ responsibility when completing the Checklist on behalf of clients. These matters should ideally be incorporated in an engagement letter. SAICA members should be mindful of the restrictions in the Legal Practices Act and agree with clients on the treatment of potential interpretational differences of the Companies Act, for example where a client believes that it is in compliance with the Companies Act while the accountant or registered auditor has a different view. SAICA members and associates are also reminded of their responsibility under the SAICA Code of Professional Conduct (Revised 2018) when they become aware of non-compliance of legislation,” says Steenekamp.

CIPC Compliance Checklist questions

Questions

1. Did the company comply with section 4 (solvency and liquidity test) during the previous calendar year?
2. Did the company comply with section 15 (Memorandum of Incorporation, shareholders’ agreement and rules of the company) during the previous calendar year?
3. Did the company comply with section 26 (Access to company records) during the previous calendar year?
4. Did the company comply with section 27 (Financial year of company) during the previous calendar year?
5. Did the company comply with section 28 (Accounting records) during the previous calendar year?
6. Did the company comply with section 29 (Financial statements) during the previous calendar year?
7. Did the company comply with section 30 (Annual financial statements) during the previous calendar year?
8. Did the company comply with section 32 (Use of company name and registration number) during the previous calendar year?
9. Did the company comply with section 33 (Annual return) during the previous calendar year?
10. Did the company comply with section 44 (Financial assistance for subscriptions of securities) during the previous calendar year?
11. Did the company comply with section 45 (Loans of other financial assistance to directors) during the previous calendar year?
12. Did the company comply with section 50 (Securities register and numbering) during the previous calendar year?
13. Did the company comply with section 61 (Shareholders meeting) during the previous calendar year?
14. Did the company comply with section 66 (Board, directors and prescribed officers) during the previous calendar year?
15. Did the company comply with section 69 (Ineligibility and disqualification of persons to be director or prescribed officer) during the previous calendar year?
16. Did the company comply with section 70 (Vacancies on board) during the previous calendar year?
17. Did the company comply with section 72 (Board committees) during the previous calendar year?
18. Did the company comply with section 86 (Mandatory appointment of company secretary) during the previous calendar year?
19. Did the company comply with section 90 (Appointment of auditor) during the previous calendar year?
20. Did the company comply with section 92 (Rotation of auditor) during the previous calendar year?
21. Did the company comply with section 94 (Audit committee) during the previous calendar year?
22. Did the company comply with regulation 21 (Registered office of the company) during the previous calendar year?
23. Did the company comply with regulation 43 (Social and Ethics Committee) during the previous calendar year?
24. Did the company comply with schedule 1 (Provisions concerning Non-Profit Companies) during the previous calendar year?

To access the webinar and also recieve 2 Bonus documents (CIPC compliance checklist working paper and Sections of the Companies Act that are in Checklist) Click here

 

0 COMMENTS

LEAVE A COMMENT