THE CIPC COMPLIANCE CHECKLIST
The new companies act has made many things easier and has reduced auditing for smaller companies. In fact, most companies in South Africa don’t need to be audited. The act has modernised many things and has provisions that try and protect all stakeholders in a company, not only shareholders but employees and creditors of which SARS is one. There are many provisions that protect stakeholders and minorities against abuse. It’s not perfect but certainly better than we have had before.
Reading all the articles on SAIBA and Accounting Weekly about the CIPC compliance checklist and the negative comments by various parties and why suddenly this is a huge problem 6 months after the compliance notice was published. Why now? I believe that many of the complainants do not understand the issues involved.
First of all, let’s get to the facts in South Africa! Corruption is endemic and has been carried out by everyone, government, big business and of course small business. In order for our country to grow and create jobs corruption has to be stamped out.
This article deals with what has arisen with the CIPC Compliance checklist and the negative publicity.
In short this is what has been published by various sources which I summarise for convenience: -
It’s true that there is a lack of company law knowledge in the accounting profession. I know this for a fact as I have been teaching company law to company Secretarial Practitioners and Partners in accounting firms for the last 15 years. Directors of companies and small companies know even less. Facts are facts and we need to deal with this lack of knowledge and come to grips with it.
THE SITUATION BEFORE THE COMPLIANCE CHECKLIST WAS INTRODUCED
Let’s deal with the situation before we knew about the compliance form checklist. The new 2008 Companies Act came into being on 1 May 2011 the provisions of which are quite easy to read, there are courses and there are very good textbooks that tell you what these provisions are. So, before the compliance form, directors should have still understood the companies act and should have made sure that the company was compliant according to the laws. The law is the law and needs to be carried out. If the directors did not know about a compliance issue, they relied on their accountants and the company secretarial practitioners who do the company secretarial transactions anyway. Good company secretarial practitioners made sure their clients complied.
So, during this period did accountants not advise their clients accordingly about the law. Did they not advise them about a distribution when one took place? Did they not advise them about a share register that they didn’t have and did they not help them fix it? What did they do about directors’ debit loans, did they just leave them because they did not think it was a distribution? What was the position where there was a fundamental transaction and the fact that the company could be defined as a regulated company? Did they not know these facts and ignore the compliance responsibilities? Many of them did know about all these things.
By now you are starting to understand where I going with this!
WHATS ACTUALLY CHANGED NOW THAT THERE IS A COMPLIANCE CHECK LIST
So, what’s changed now is that we now have to answer a checklist to indicate if we have been doing our jobs and complying with the law since 2011 which we should have been doing anyway. Now suddenly there is over-regulation, interpretation issues and moaning about all kinds of things because accountants or directors responsible did not do their jobs in the first place or did they, and they are now moaning about a form that has to be filed, a form that if they did their jobs properly by making sure company secretarial transaction were taken care of would take 10 minutes or less for most companies.
The compliance form is the CIPC’s right to ensure that compliance takes place. Many companies in South Africa if they don’t have a company secretary certainly the bigger ones employ the company secretarial department of the accounting firm to carry out the company secretarial duties and they know if there is compliance or not. We have to do this anyway so why are we complaining about a form that helps us comply, helps the community and helps South Africa.
THE ARTCLES TALKS ABOUT SMALLER COMPANIES
We are talking about smaller companies which may not be a concern because it won’t cause the economy to go into a decline as it is not systemic. Of course, it will cause decline, one company at a time. If one job is lost because of non-compliance or if a creditor loses money because of non-compliance then there is a problem and it needs to be addressed. Have you noticed that company insolvencies are on the increase?
What about a distribution that is missed and the company is liquidated and the directors are sued by a shareholder or creditor, who is to blame? Sorry it can’t be the accountant who compiled the accounts because he did not do a compliance form an he was not even aware of a distribution! The compliance checklist is an opportunity to learn and correct what is wrong and make small business a better place.
OVER-REGULATION AND INVESTMENT IN SOUTH AFRICA
In the Accounting Week article, it mentioned that “overregulation flies in the face of government’s plan to turn the economy around”. This is absolute nonsense in regard to this matter as this is not over-regulation as this is a check to make sure that we are running our companies compliantly which we should have been doing anyway since 2011. What does this say for the accounting profession if we are complaining about this?
The compliance checklist itself should attract more investment into South Africa as investors want to see that their investments are safe and won’t be subjected to abuse by crooked directors.
THE CORE OF THE ARGUMENT IS SMALL BUSINESS
Let’s get to the core of what the argument is. It looks like bigger companies are going to have to do this checklist anyway and we might get a pass on smaller companies that are not audited. This is wrong as the companies that are not audited are precisely the companies that we need to do the compliance check list for as these companies don’t know any better and don’t know the law and need their accountants to help, but may not be getting any help at all.
Let’s take a smaller company as an example, the ones that are going to get a pass on this. Say a small company starting to grow, there are no secretarial transactions and there are no distributions during the course of the year. They keep a share register but there is no movement. In order to comply with most of the questions on the questionnaire the accountant does it in about 5 minutes – what’s the big deal and they even charge for it! Where is this over-regulation?
THE QUESTION OF RISK
There is a question of risk and the directors are in fact responsible so we need to do what we do in the tax environment and pass the risk back to the directors and this can easily be done by a standard mandate that all the directors sign. In fact, if you do the company secretarial work you should have a mandate signed specifically for the secretarial work which will include the compliance form.
Saiba’s principle concern is that it will raise the costs for small businesses. Sure, it will, companies will pay a fee of at least R750 per annum to ensure that they comply and make them safe.
CLAIM OF R1,2 BILLION IN FEES TO ACCOUNTANTS
There must be a serious question over the amount claimed as a cost to the country.
I refer to SARS 2019 statistics that states that expected company tax returns are 991,207 of which 814,151 returns have been assessed. Now we have been told that CC’s out number companies by 8 to 1. This means that there are only 110,135 company returns which includes all size companies. CC’s don’t do the checklist. Let’s say that 80% of these companies are small companies. This means that the compliance checklist only applies to 88,108 companies. Say the fee is R750 per checklist per submission which comes to R82 million charge to the economy.
This is nowhere near R1,2 billion. Whatever the fees charged it does create jobs in the profession teaches accountants and directors about company law and improves compliance in the country.
SAICA SAYS THE CHECKLIST HAS INTERPRETATION PROBLEMS
Let’s say you need to answer the question “did the company comply with Section 4”. Section 4 deals with the solvency and liquidity test which is triggered by distributions of the company. This mean that the filer has to know what the distributions are. They are clearly visible in the act. If one knows the companies act there is no interpretation required. I can deal with many of the other questions on the same basis.
The CIPC can improve the checklist by having sub questions, like did the company pay a dividend, do a buyback etc. I guess there will be complaints about this because of the extra time. I would be in favour of this as it makes everything very clear.
OSIDON SAYS THEY GOT AN EMAIL ABOLISHING THE COMPLIANCE CHECKLIST FROM THE CIPC
Since when does the CIPC publish a notice through an accounting firm?
SAIBA in an Official Notice says – “Until we have a final notice from the CIPC we urge members to obtain an instruction from their clients on whether to submit the current Checklist or postpone submission until more clarity is received.” The important point here is that the list should be done.
I believe that I have dealt with some very valid points based on my experience and the knowledge that I have of company law and would implore the CIPC not to backtrack on something that I believe is extremely important to this country and the economy and is important to them as they would not have implemented this in at all in the first place if they did not think it was important.
If one looks at the proposed new companies act amendments the new provisions takes compliance even further. That’s a discussion for another day.
23 February 2020