Monthly Compliance and Legislation Update for July and August 2019

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Monthly Compliance and Legislation Update for July and August 2019

• 09 August 2019
• Accounting
• Ciaran Ryan

The last month has been another busy month for legal and regulatory updates. Here are some of the highlights that will be covered in the SA Accounting Academy (SAAA) webinar, hosted by SAAA technical advisor Lettie Hanse van Vuuren, on Wednesday 21 August 2019. Book your place for the webinar to get a full update on all the legal and regulatory updates here:

https://accountingacademy.co.za/events/compliance-and-legislation-update-august-2019

Key changes

Here are some of the key changes:

• Implementation of the IRBA Code of Professional Conduct for Auditors
• New eCode issued by International Ethics Standards Board for Accountants (IESBA)
• Engagements on Attorneys’ Trust Accounts
• SARS eFiling changes
• The Companies and Intellectual Property Commission (CIPC) deregisters companies
• Sweeping changes in labour law after court orders domestic workers to be covered under COIDA

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Implementation of the IRBA Code of Professional Conduct for Auditors

Key parts of the IRBA Code of Professional Conduct for Registered Auditors became effective in June 2019.

Parts 1 and 3 of the IRBA Code will be effective as of 15 June 2019.

Part 1 of the Code states: “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.” This is quite a departure from the traditional understanding of the role of the auditor which was to act in the interests of the client. The guiding principles of the new Code are:

• Integrity
• Objectivity (the auditor must be free of bias, conflict of interest or the undue influence of others);
• Professional competence and due care (auditors must have the technical knowledge and skills to perform their duties)
• Confidentiality, and
• Professional behaviour (auditors must comply with laws and regulations).

Part 3 of the Code which became effective on 15 June 2019 deals with the professional services offered by auditors. This section deals with various threats to which auditors may be exposed, such as:

• Self-interest threats (which can arise when the auditor has a financial interest or close business relationship with a client, or has confidential information which can be used for personal gain – what might otherwise be called blackmail material)
• Self-review threats (auditors reviewing their own work and issuing assurance reports)
• Advocacy threats (auditors promoting the interests or shares of the client, or lobbying for legislation for a client)
• Familiarity threats (auditors having a close family member who is a director or officer of the client)
• Intimidation threats (where auditors are intimidated by the client into agreeing with the client’s judgement in a matter, or being threatened with dismissal or having receipt of a gift by the client made public).

The Code spells out various remedies for these threats, including bringing in new auditors or a new audit firm to review the work done, and communicating threats to the relevant governance bodies.

Part 4A of the IRBA Code relating to independence for audit and review engagements and became effective on 15 June 2019. Auditors must be independent in both “mind” and “appearance” (independence of mind means operating with professional objectivity, and independence in appearance means avoiding judgements that an informed third party would likely conclude).

Part 4B of the IRBA Code relating to independence for assurance engagements (other than audits and reviews) and became effective on 15 June 2019. The Code states: “In an assurance engagement, the firm expresses a conclusion designed to enhance the degree of confidence of the intended users (other than the responsible party) about the outcome of the evaluation or measurement of a subject matter against criteria.”

The release of the IRBA Code (revised November 2018) will lead to significant changes and implementation risks that all registered auditors and audit firms will need to respond to, and these include the following:

• Training for firm personnel across all levels;

• Updating of the firm methodology, across audit and non-audit service lines;

• Considering amendments to firm policies and procedures;

• Noting differences between local requirements and international requirements;

• Transitional arrangements, and catering for the differing effective dates;

• Re-assessing safeguards currently used under the extant IRBA Code, among others; and

• Confirmation that all relevant firm personnel have understood the implications of the IRBA Code.

The full code can be accessed at the IRBA website: https://www.irba.co.za/guidance-for-ras/ethics:-the-rules-and-the-code/the-irba-code-revised-2018

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New eCode issued by International Ethics Standards Board for Accountants (IESBA)

The IESBA Code was launched in June 2019 and sets out the fundamental principles of ethics for professional accountants (PAs). It also sets out the International Independence Standards for audits, reviews and other assurance engagements.

All PAs are required to:

• Comply with the fundamental principles of ethics and, when applicable, be independent.

• Apply the conceptual framework – a three-step approach which involves identifying, evaluating and addressing threats to compliance with the fundamental principles of ethics and meeting their responsibility to act in the public interest.

Why an eCode?

The role of ethics in the work of PAs cannot be overemphasised. The need to emphasise the importance of the accountancy profession to the global economy is even more apparent in an environment of declining public trust. With the increase in regulatory divergence, there is a need for a robust, globally operable code of ethics that is high quality and fit for purpose. The eCode is designed to make the Code accessible to everyone, anywhere with internet access. It is tailored to suit the needs and work-style of today’s professional. It is versatile and can be used on both desktops and mobile devices. The eCode will be an impactful resource to help individual PAs, firms, regulators, national standard setters, professional accountancy organizations, academics, educators, and others better understand, apply and, as appropriate, enforce the provisions in the Code. The IESBA anticipates that the eCode will help stimulate and inform global discussions about ethics and independence matters and will better demonstrate how the IESBA Code deals with key topics. The eCode will increase aware

PAs are also required to understand the general sections in other parts of the Code as they are relevant to their role and circumstances. These general sections also include additional overarching requirements.

The Code can be accessed via this website page: https://www.ifac.org/system/files/publications/files/Preparing-for-the-IESBA-eCode.pdf

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Engagements on Attorneys’ Trust Accounts

IRBA has issued a revised guide for auditors dealing with Engagements on Attorneys’ Trust Accounts.

The guide provides guidance for auditors performing reasonable assurance engagements with regard to attorneys' trust accounts and whether they comply with the Attorneys Act. This is to ensure that auditors pick up instances of theft and fraud and that their reports accurately reflect the state of these accounts.

The Guide can be accessed here: https://www.irba.co.za/upload/Guide_Engagements%20on%20Attorneys%20Trust%20Accounts%20FINAL.pdf

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The Companies and Intellectual Property Commission (CIPC) deregisters companies

The CIPC has announced the deregistrations of com[anies and close corporations for non-compliance with the obligation to submit annual returns to the Commission. Several hundred companies and CCs have been deregistered and will only be reinstated on submission of all annual returns and the required audited financial statements or financial accountability supplements.

The CIPC notice can be accessed here: http://www.cipc.co.za/files/9515/6267/9424/Notice_45.pdf

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Sweeping changes in labour law after court orders domestic workers to be covered under COIDA

Domestic workers have long been regarded as among the most neglected segments of the working population. That has been changing in recent years, as they are now covered by minimum wage legislation and in 2003 they were included for unemployment insurance under the Unemployment Insurance Act. But they still remained excluded from the Compensation for Occupational Injuries and Diseases Act (COIDA). This meant they were not covered when sustaining injuries or diseases at work.

In 2015, Sylvia Mahlangu, with the backing of the Socio-Economic Rights Institute and the South African Domestic Service and Allied Workers Union, decided to take the fight to the Department of Labour by seeking the inclusion of domestic workers under COIDA. This follows a tragic incident in 2012 when Ms Mahlangu’s mother, a blind domestic workers, fell into a pool while cleaning a nearby window and drowned. Her family did not qualify for compensation under COIDA. The case was brought before the High Court at the same time as the Department of Labour was working on an amendment that would include domestic workers in COIDA. The court decided in favour of Ms Mahlangu, and the Department of Labour must now prepare to shoulder the administrative burden of paying out a new batch of claims likely to come from this segment of the workforce.

A summary of the case from ENS Africa can be found here: http://www.mondaq.com/southafrica/x/825714/Constitutional+Administrative+Law/Sweeping+Changes+In+The+Domestic+Sector+In+South+Africa+Inclusion+Of+Domestic+Workers+Under+COIDA

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Analysis of the Changes to the Legal Profession relevant to Accountants and Auditors

SA Institute of Chartered Accountants (Saica) has issued an analysis of changes to the legal profession that are relevant to accountants and auditors.

This deals extensively with attorneys’ trust accounts. For example, any unclaimed money in a trust account must be paid over after 12 months to the Legal Practitioner’s Fidelity Fund (LPFF). Bank statements on trust must be given when requested by the Legal Practices Council (LPC) or its board. Previously, the Attorneys Act only required banks to provide a balance on the account. The analysis also sets out the rules dealing with the receipt of commissions on investments, responsibilities for ensuring compliance and the standards of reporting with regard to trust accounts.

The analysis can be found here: https://www.saica.co.za/portals/0/documents/Analysis%20of%20the%20Changes%20to%20the%20Legal%20Profession.pdf

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Companies Tribunal launches new on-line case management system

The Companies Tribunal has issued a new on-line case management system to expedite the lodging of applications. The Tribunal is mandated under the Companies Act to adjudicate applications made in terms of the Act, to assist in the resolution of company disputes through Alternative Dispute Resolution (ADR) and perform any other function assigned to it in terms of the Act.

Since the Tribunal’s inception, filing of applications has been done manually. This proved to be inefficient as applicants would not be able to track or have knowledge of the status of their applications. In order to advance efficiency, transparency and its vision of a world-class adjudicatory and alternative dispute resolution that contribute to the promotion of fair and ethical corporate practices, the Tribunal is implementing a computerised business system called Case Management System (CMS).

The Tribunal launched CMS on 1 August 2019 to ensure better management of cases and allow clients to file applications online. This system provides a platform to track cases, provide alerts and will also assist the Tribunal to ensure compliance with minimum time delays. In line with best practices, the Tribunal needed to move with times, embrace technology as a strategic mechanism to resolve company disputes.

The CMS has the following benefits:

• Easy access to justice system anywhere and anytime;
• Timely location and retrieval of information/decisions on new and old cases;
• Effective communication and collaboration between parties and case administrator (registry team);
• Secure web and mobile access to case documentation online;
• Easy sharing of case documents or files between parties (applicant and respondent);
• Increased efficiency and turnaround time; and
• Online tracking and review of the case status.

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SARS eFiling changes

In a major departure from previous years, and to improve service to taxpayers and encourage conversion to online filing, SARS has announced that the 2019 tax season will henceforth be staggered.

This allows taxpayers who use SARS eFiling and the SARS MobiApp for smart phones and tablets, to file their income tax returns from 1 July until 4 December 2019. Taxpayers who wish to use online filing for the first time, may also register as from 1 July.

Taxpayers who want to file their income tax returns at a SARS branch may do so from 1 August until 31 October 2019, a much shorter period than that allowed for users of SARS eFiling and the SARS MobiApp.

SARS has introduced several innovations to its digital channels for Tax Season 2019, including the use of SARS MobiApp for smart phones and tablets for registering for eFiling, retrieval of username and reset of password, submitting a return and using a camera to upload documents, as well as making a tax calculation.

 Income threshold

The income amount above which individuals must pay tax had also been amended. SARS Commissioner also indicated that the period 1 March 2018 - 28 February 2019, the amount was R78 150 for income earners younger than 65 years of age.

However, this does not mean that all taxpayers who pay tax are required to submit an income tax return.

Submission criteria

Taxpayers do not need to submit an income tax return if they meet all of the following criteria:

Their total employment income for the year before tax is not more than R500 000

They only receive employment income from one employer for the full tax year

They have no other form of income (e.g. car allowance, business income, and rental income, taxable interest or income from another job)

They don’t have any additional allowable tax-related deductions to claim (e.g. medical expenses, retirement annuity contributions and travel expenses).

Taxpayers who are not required to file will receive a simulated calculation from SARS via SMS based on information given to SARS by employers and other sources. The outcome will show the taxpayer what they could expect as though they had filed a return themselves.  Taxpayers can accept the outcome of the calculation or resubmit the return with changes they would like to make.

Enforcement actions

While SARS has taken steps to make it easy to comply, it wishes to express its deep concern about the following trends, and assures all those who are non-compliant of its commitment to enforce the law to correct the following behavior:

1. Outstanding returns and late returns remain a concern and SARS will step up its enforcement of penalties in this regard. Many taxpayers still do not declare rental income from properties and we will improve our data matching in this regard by collaborating with the Deeds Office. This matching will also allow us to better enforce non-compliance in the declaration of Capital Gains Tax

2. We will also renew our focus in monitoring income and expenses from Commission earners

3. We are concerned about the accuracy of declarations of Distributions to and from Trusts to the beneficial recipients

4. We have also noticed Tax Preparers unethically promising taxpayers that they will secure a refund. They then look for opportunities to understate income or overstate expenses. This is a serious offence and could results in criminal charges as well as financial consequences for the taxpayer who remains accountable to SARS for their submissions

5. Fictitious refunds are claimed for fabricated expenses and losses, as well as fictitious employers generating IRP5’s for the sole purpose of claiming refunds.

6. Fraudster filing multiple returns to create refund opportunities, as well as syndicates reusing IRP5s across multiple individuals

7. We are working hard to improve the integrity of our profiling capability using sophisticated risk modeling and expanding our data set. Last year SARS prevented over R8.2bn fraudulent returns from being paid

8. We are currently working both the SAPS as well as the NPA to criminally prosecute fraudsters and have already successfully convicted a number of taxpayers for non-compliance. We have also successfully convicted some of our own staff for colluding with taxpayers

9. We are instituting a renewed focus on HNW Individuals who often arrange their affairs in complex ways, often presenting a higher compliance risks to SARS.

The original SARS notice can be found here:

https://www.sars.gov.za/Media/MediaReleases/Pages/1-July-2019---Tax-Season-opens-for-eFilers-and-users-of-SARS-MobiApp.aspx

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Click here to register for the August 2019 Monthly Compliance and Legislation Update.

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