What's new on the regulatory front - July 2019

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What's new on the regulatory front - July 2019

• 09 July 2019
• Accounting
• Ciaran Ryan

It’s time to look at some of the major regulatory and legal changes. This article is prepared with the help of Lettie Janse van Vuuren, technical specialist at the SA Accounting Academy (SAAA).

Sign up for the SAAA webinar on 24 July 2019 here to get the full rundown on change in laws and regulations: https://accountingacademy.co.za/events/compliance-and-legislation-update-july-2019

Here are some of the highlights to be covered in the webinar:

Improper conduct for auditors

The Independent Regulatory Board for Auditors (Irba) has issued new rules regarding improper conduct and a Code of Professional Conduct for registered auditors. It lists the circumstances were an auditor is guilty of improper conduct. This would include preparing or signing false statements, false accounts or other records, lending the auditor’s name to any estimate of future earnings that cannot be accurately measured, applying a restraint of trade on auditors after termination of their services, or fails to deal with communication from the regulator. Read the full report here: https://www.irba.co.za/upload/Rules%20and%20IRBA%20Code%20(Revised%202014)%20Issued%2017%20March%202014.pdf

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Rules for issuing second opinions

Final Amendments to the IRBA Code of Professional Conduct for Registered Auditors in respect of Second Opinions: second audit opinions not based on the same set of facts can create divergent opinions. Irba has now set out rules for the provision of second opinions.

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BEE amendments

The Broad-based Black Economic Empowerment Act: the general codes have been amended.

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Transport competition inquiry

The Competition Commission is conducting a market inquiry in the land based public passenger transport sector to understand the general state of competition. The Commission initiated the Inquiry because it has reason to believe that there are features or a combination of features in the land based public passenger transport sector that may prevent, distort or restrict competition within the sector; and to achieve the purposes of the Act.

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Cost containment at local government

The Local Government Municipal Finance Management Act (Municipal cost containment regulations). Municipalities and municipal entities must disclose cost containment measures in their in-year budget reports, and annual costs savings in their annual reports. These reports must be submitted to Council for review and resolution. This measure is to enhance transparency and local accountability. These regulations therefore provide a framework that is consistent with the provisions of the MFMA and other government pronouncements.

Link: http://www.cogta.gov.za/?p=6765

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The Tourism Amendment Bill

The Tourism Amendment Bill has been issued for comment. One of the key changes is the regulation of “short-term home sharing” to rope AirBnB and other similar accommodation into the tourism regulatory framework (which means if you rent your home on a short-term basis you will have to comply with health and safety and other regulations).

Link: https://www.gov.za/sites/default/files/gcis_document/201904/42404gen235.pdf

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Parma Ham now a protected trademark

The Merchandise Marks Act was amended with a notice to prohibit the use of the Parma Ham trademark.

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Auditor regulations

The following changes to audit requirements were announced.

Illustrative regulatory auditor's reports for use by registered auditors for banks and affected entities with year-ends on or after 28  February 2019:

• The revised Illustrative Macro-Prudential Foreign Exposure Limit Return (MPL) reports (required in terms of the Foreign Currency Exchange Manual);

• The new Illustrative Mutual Banks Act (MBA) reports (required in terms of Regulation 6 of the Regulations to the Mutual Banks Act; and

• The new Illustrative BA 501 report (required in terms of Directive 4 of 2017, which was issued in accordance with the Banks Act).

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Guide to auditing SMEs

Summary of changes made to the IFAC guide to using International Standards on Auditing (ISAs) in the audits of small-and medium-sized entities: The South African Institute of Chartered Accountants (Saica) has issued a new guide for the audit of SMEs.

Link: https://www.saica.co.za/Portals/0/documents/Summary_of_changes_to_IFAC_Guide_Using_V1.pdf

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Legal Entity Identifier (LEI)

The Financial Stability Board (FSB) has just released a peer review exploring the implementation of the Legal Entity Identifier (LEI) around the world. An LEI is a 20-character, alpha-numeric code that was introduced following the financial crisis of 2008 to be adopted globally, to uniquely identify legally distinct entities that engage in financial transactions.

Let’s look at the background to this, which will become a crucial legal requirement for all businesses in the coming years.  

At the time of the financial crisis of 2007–2008, regulators realised that a single identification code unique to each financial institution was not available worldwide. It means that each country had different code systems to recognise the counterpart corporation of financial transactions. Accordingly, it was impossible to identify the transaction details of individual corporations, identify the counterpart of financial transactions, and calculate the total risk amount. This resulted in difficulties in estimating individual corporation's amount of risk exposure, analysing risks across the market, and resolving the failing financial institutions. This is one of the factors that made it difficult for the early evolution of the financial crisis.

In response, the LEI system was developed by the 2011 G20.

Why is this needed?

• Because you can identify each transaction between parties, you can reduce the risk associated with the counterpart.
• You can also reduce the cost of various reporting tasks, such as reporting the details of out-of-court derivatives transactions and reporting of the regeneration and cleanup plans.
• You can enhance market transparency.

The peer review’s major findings are:

• Since 2012, over 1.4 million entities uniquely identified by an LEI in more than 200 countries
• Most FSB jurisdictions have implemented LEI use in at least one area
• Several financial institutions and trade associations have called for the mandating of LEI use, citing the need to increase efficiency and lower costs of customer identification, transaction processing and data aggregation
• LEI adoption is concentrated in North America and the European Union (EU)
• LEI is too low to effectively support some regulatory uses and encourage voluntary take-up by market participants.

The FSB peer review recommends wider use of the LEI in financial transactions, as well as for over-the-counter (OTC) derivatives that have been historically difficult to track.

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FSCA clears Resilient and Nepi NEPI of insider trading

Resilient is a real estate investment trust (REIT) that was mired in suspicions of insider trading nearly a year ago that resulted in investors losing R120 billion following what looked like a well-timed collapse in share price. There were calls from investors for an independent investigation into allegations of insider trading involving Resilient and fellow group companies: Fortress, Green Bay and Nepi Rockcastle.

Nepi Rockcastle is the largest owners of shopping centres in Eastern and Central Europe.

That investigation was picked up by the Financial Sector Conduct Authority (FSCA), which has just released its findings. “We are satisfied based on evidence obtained, that there is no substance in the allegations made that directors, related parties and other parties believed to be related to either Resilient REIT Limited, Fortress Limited, Lighthouse Capital and NEPI Rockcastle plc, were supporting the NEPI Rockcastle plc share price during the period 1 October 2017 to 28 February 2018 (investigation period).

“We found no evidence that the share trades completed on NEPI Rockcastle plc by the alleged related parties’ accounts contravened section 80 of the Financial Markets Act 19 of 2012 relating to prohibited trading practices (price manipulation). The FSCA has now closed the investigation in this matter.

“The FSCA is mandated to investigate, and in appropriate instances, take enforcement action in cases of market abuse on the financial markets. Three kinds of market abuse are prohibited in South Africa, namely insider trading, market manipulation (prohibited trading practices) and false reporting relating to the affairs of a public company. Our investigation procedures include interviews under oath, acquiring documentary evidence and obtaining assistance from foreign Regulators.”

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SARS filing update

The South African Revenue Service (SARS) has improved online filing and filing at a SARS branch with several exciting innovations for Tax Season 2019 to make it simpler and more convenient for taxpayers to file an income tax return.

The innovations also include the issuing of customised notices indicating specific documents required in the event of an audit or verification and a simulated outcome issued before a taxpayer has filed.

 The objectives that drive these changes are improved service delivery, increased conversion to online channels such as eFiling and the SARS MobiApp for simple income tax returns (which excludes provisional tax returns), as well as improving our ability to detect non-compliance.

 The revamped SARS MobiApp will make it even easier than before to use a smart phone to file a simple income tax return because of the following new and convenient features:

• simpler navigation
• the introduction of biometric authentication
• a one-time pin as an added security feature
• the ability to reset username and password
• security questions
• and the scanning and uploading of supporting documents.

The other online platform, eFiling, has been improved to make it easier to navigate and perform the functions necessary to file a return, submit supporting documents and make a payment as well as improved browser compatibility.

This year taxpayers who meet ALL of the following criteria need NOT submit a tax return:

• 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).

To further reduce unnecessary trips to SARS branches, taxpayers who are not required to file a return will receive a simulated outcome from SARS as if they had filed a return. The taxpayer can accept this outcome or update the return and file.

Tax Season 2019 starts on 1 August for taxpayers who file their income tax returns at a SARS branch.

However, taxpayers who go to a SARS branch will be encouraged to register as users of eFiling and the MobiApp. Once they are registered for these two online channels our staff will demonstrate how to use these online channels to file a simple income tax return. SARS branches will provide wi-fi for taxpayers to use eFiling or the MobiApp in our branches.

Taxpayers who are registered for eFiling or have access to the MobiApp can file their income tax returns from 1 July via these channels.

The closing dates for Tax Season are as follows:

• 31 October 2019 for branch filing.
• 4 December 2019 for non-provisional taxpayers who use eFiling and the MobiApp.
• 31 January 2020 for provisional taxpayers who use eFiling.

Sign up for the SAAA webinar on 24 July 2019 here to get the full rundown on change in laws and regulations: https://accountingacademy.co.za/events/compliance-and-legislation-update-july-2019

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