Steps recently taken by the World Bank will mean good news for small businesses in South Africa, which are currently over-burdened by red tape and bureaucracy.
The new regulation, seen as having positive effects by industry experts, emanates from the World Bank Group’s second report on the Observance of Standards and Codes (ROSC), issued at the behest of Finance Minister, Pravin Gordhan. The first report was issued a decade ago in 2003.
“The National Development Plan highlights the importance of small businesses and this regulation will go a long way towards protecting small businesses,” says Nicolaas van Wyk, chief executive of the Southern African Institute for Business Accountants (SAIBA).
“The accounting profession should welcome the regulation proposed by the World Bank Group, as it will set a standard and introduce accountability. The regulation will ensure that businesses paying for professional accounting services receive service of an acceptable international standard.”
Professor Dovhani Thakhathi, former Dean of the University of Fort Hare and currently SAIBA President, notes that: “The World Bank proposals seek to unify the regulatory model under which accountants operate by establishing a new regulatory authority. The World Bank analysis of the accountancy profession revealed that regulation of the profession is currently fragmented. Parts are regulated by a number of government departments including the Department of Education, Trade and Industry and Finance.
“Fragmented regulation is not an ideal model for reducing red tape, something that adds to compliance costs for business. Multiple regulatory models create confusion and duplication which, in turn, results in unnecessary costs that are pushed down to the business.“
Therefore, he says, the report suggests that the role of the Independent Regulatory Board for Auditors (IRBA) be expanded to include the regulation of accountants and auditors – a significant departure from the scope articulated in the current Auditing Professions Act. As a result, a new Accountancy Profession Act is proposed that will consolidate the regulatory reach of the IRBA to include accountants.
Professor Thakhathi warns that the precise regulatory model has not yet been clearly articulated.
“The proposed regulator will set the education and training criteria for different accountancy services such as audit, independent review, accounting officers, accountants and bookkeepers. In this way, the regulator will align the qualification of accountants with the services that they will be allowed to perform.”
Stiaan Klue, chief executive of the South African Institute of Tax Professionals (SAIT), when questioned on the exclusion of the tax profession from the study and proposed regulation, says the industry was not surprised by this.
“The tax profession is already regulated through the Tax Administration Act. Under the regulation of tax practitioners, professional bodies apply to the South African Revenue Service to be recognised as a controlling body.”
Van Wyk speculates that the World Bank proposals would see the IRBA or its successor body being required to accredit, register and monitor professional accounting bodies and all people providing services in accounting would have to register with an accredited professional body. Van Wyk believed this would ostensibly improve the quality of the accountancy profession.
“It appears that the World Bank is in favour of similar models used in Australia and the United Kingdom,” he said. “Businesses must prepare for the fact that their accountant may soon no longer be able to practise to their level of education, or rather, the lack thereof.”
According to Professor Thakhathi, an additional theme that was evident from the report was the need to monitor and enforce compliance of financial statements to international financial reporting standards.
“Although the Companies Act clearly specifies the rules by which financial statements should be prepared, it failed to identify who will enforce these rules and what the penalty will be for non-compliance. This is a serious omission that needs to be addressed as credit providers, shareholders and investors rely on the quality of financial statements to make economic decisions.
“If not addressed, poorly drafted financial statements will have dire consequences for the broader South African economy.”
Van Wyk highlights an additional proposal, sure to elicit some controversy, relating to how the new regulator would be financed. “The report suggests that government provides the bulk of the regulator’s funding needs as registration fees will only contribute a small portion.
“This model will ultimately see taxpayers forking out additional taxes to fund the regulation of the accounting profession. A possible alternative – and perhaps a fairer model – could be to implement a ‘user pays principle’.
“This model would see commercial enterprises contributing to the cost of the regulator. In this way, the independence of the regulator will be ensured and all regulatory oversight will be performed to the benefit of the business community.”