KPMG SA fights for survival as public image shattered

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KPMG’s South African unit is flying in trouble shooters from around the globe and hurriedly meeting clients to stem any further loss of business after becoming embroiled in three evolving scandals. This is according to a report on Moneyweb.

Over the past eight months, the auditor issued a public apology for work done for the politically connected Gupta family, withdrew the findings of a report about the country’s tax authority, and interrogated staff who signed off on VBS Mutual Bank’s accounts before it failed. In meetings over the weekend in Johannesburg, directors came up with three ways to convince its customers that the audit firm still deserves its fees. That didn’t stop it losing one of its biggest clients on Tuesday, the government’s Auditor-General.

“We’ve reached the breaking point,” chairman Wiseman Nkuhlu told reporters on Sunday, before pledging to vet KPMG’s more than 3 000 staff spread across two large buildings in central Johannesburg every two years for warning signs of malpractice. He’s also called in international colleagues to help probe the quality of past audits and set up a hotline for employees to report corruption. “Owning up to the fact that things are broken is very important,” the 74-year-old said.

Worried clients

KPMG South Africa’s VBS crisis erupted last week when two of its partners resigned instead of facing disciplinary proceedings for not disclosing financial interests related to the bank. The company last year lost publicly traded clients including clothing retailer The Foschini Group Ltd. and financial services firm Sasfin Holdings Ltd. After the Auditor-General cut ties, KPMG can’t afford to further risk its biggest business — the auditing of four of South Africa’s six largest lenders.

Standard Bank Group, Africa’s largest lender by assets, is assessing the latest “adverse information,” a spokesman said, while Nedbank Group Ltd. said it can’t practically change auditors this year because parent company Old Mutual Plc is splitting into four separate units. Barclays Africa Group Ltd said its board will discuss KPMG’s role in the collapse of VBS next month, and Investec Plc said it was scrutinising an ongoing audit by KPMG into financials for the 2017 fiscal year.

KPMG didn’t immediately respond to requests for comment on the banks’ reaction.

While South African banks are required by regulators to have two auditors and there’s a scarcity of alternative candidates, KPMG is “fairly certain” to lose more clients, said Iraj Abedian, the head of Pan-African Investments and Research Services, who has consulted with Nkuhlu about the auditor’s strategy. The latest measures are not enough “by a long shot,” he said.

Global woes

VBS’s administrator withdrew the bank’s 2017 annual financial statements on Monday, saying they contained “ material mis-statements.” That followed KPMG’s admission last year that parts of a 2016 report on a so-called rogue unit at the country’s tax authority “should no longer be relied upon.” And an internal investigation into work done for Gupta-linked companies including Oakbay Resources and Energy. found the auditor fell short of its own standards and eight senior executives quit.

KPMG’s woes aren’t confined to South Africa. In August the firm agreed to pay more than $6.2 million to resolve allegations that it didn’t adequately audit US oil and gas company Miller Energy Resources Inc. Then this year the UK Financial Reporting Council opened a probe into KPMG’s audits of Carillion Plc, the builder that collapsed under a mountain of debt in January.

Another consequence for KPMG South Africa has been a higher-than-normal rate of senior departures, according to chief executive officer Nhlamu Dlomu. Chief economist and Partner Lullu Krugel has joined PwC LLP’s South African unit, alongside fellow economics specialists Christie Viljoen and Maura Feddersen.

Investigations abound

In South Africa, KPMG is facing three probes. The Independent Regulatory Board for Auditors (IRBA) and the South African Institute of Chartered Accountants (SAICA) are both investigating the company, while a commission of inquiry has been set up by the government to investigate allegations that the Gupta family siphoned off state money and influenced ministerial appointments. The Guptas, who have left South Africa, have denied wrongdoing. But for KPMG, sanctions could range from fines to being forced to close down.

“KPMG still believes its problems are such that it can manage by adding layers of ‘new measures’ and ‘new promises’ on top of a broken organisational culture and operational codes of behaviour,” Abedian said. KPMG needs to set up an independent team of people who aren’t linked to the company to probe “what went wrong, why it happened, and put out a public report irrespective of the consequences,” he said.

 

Article originally published on: https://accountingweekly.com/kpmg-sa-fights-for-survival-as-public-image-shattered/

How to survive a SARS audit

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The recent developments at the South African Revenue Service (SARS) promises to cause a shake-up for many unsuspecting taxpayers. They are short on budget and the general perception is that there has been a lapse in taxpayer morale. The SARS audit teams will undoubtedly start in earnest with the targeting of taxpayers to see how additional tax revenue, penalties and interest can be collected.

As a firm that includes specialist tax attorneys, we have a front row seat in seeing the mistakes made by taxpayers who do not engage with SARS correctly. The price is either an unnecessary and drawn out tax audit process, which puts your life on hold, even you are squeaky clean; or where you are caught, a very large tax bill.

Here are some of the most important aspects to consider:

Your unpaid taxes are not your main problem. If you are caught not paying income taxes on R100 000 earned 5 years ago and your tax rate was 40%. The tax hereon is obviously R40 000 (R100 000 x 40%).

However, SARS is obligated to impose the applicable understatement penalty percentage in accordance with the table in section 223 of the Tax Administration Act (TAA), No 28 of 2011, which could be as much as 200%.

Section 89(2) of the Income Tax Act (IT Act), No. 58 of 1962 computes interest thereon at the prescribed annual rate (currently 10.25%), which means where SARS raises an additional tax assessment, you should expect an initial tax bill of R140 500 (R40 000 tax + R80 000 understatement penalty + R20 500 interest for 5 years), which will continue to increase for the duration of the period of non-compliance.

Importantly, a taxpayer may also face other types of penalties or interest and this is confirmed by the wording of section 213(1) of the TAA, resulting in a possibly even greater tax bill, depending on the circumstances at hand. An example is a percentage based penalty of 10%.

The penalties imposed can sometimes be reduced or remitted in their entirety, depending on the facts. You will always do better negotiating this upfront, before the assessment is finalised and by correctly engaging with SARS. The Tax Court is the last place where you would want to argue the remission of penalties – there are many cases where the Tax Court has instead increased the penalty and the cases where the penalty is waived are rare.

Some if the must-know items to ensure you are protected:

• Where SARS starts the audit incorrectly, such as sending an incorrect notice, you can stop the process in its tracks by addressing this through the correct legal procedure.

SARS is obligated to keep you updated, under law, on the progress of an audit. Where they have started an audit a while ago and not kept you updated every 90 days, tax law gives the advantage to the taxpayer. We have used this, many times, to terminate an audit process.

Know your rights, there are checks and balances; which serve to also protect taxpayer rights. Should SARS wish to conduct an audit, verification or inspection, section 42 of the TAA places an onus on them to ensure that they keep the taxpayer informed of the status of the audit whilst it is being conducted, and upon conclusion thereof. This specifically requires of SARS to provide a taxpayer with a report which sets out the stage of completion of the audit.

Section 42 furthermore requires that SARS inform the taxpayer, within a period of 21 business days, of the outcome of the audit or criminal investigation; including a mere indication that same was inconclusive.

In the outcome of the audit, SARS is also required to state the grounds for the proposed assessment it intends issuing against the taxpayer. SARS must share their findings with you before raising an additional tax assessment. Section 42 of the TAA compels them to give you their findings within 21 business days of the audit or criminal investigation being concluded.

Luckily for the unsuspecting taxpayer, section 42 allows a taxpayer the opportunity to respond to SARS and to the facts and/or conclusions set out by SARS in the outcome of the audit. This is particularly useful where the findings are factually or legally incorrect and may even prevent an assessment being raised incorrectly.

Also, even after the tax assessment has been raised, the taxpayer has extensive rights during the processes of asking for “reasons” for the assessment (Rule 6 of the Rules promulgated under section 103 of the TAA), “objection” (Rule 7), as well as the “appeal” and “alternative dispute resolution” processes (Rule 10 and Part C of the Rules, respectively).

The best defence possible remains that you should come clean with your taxes before you are being audited. Once the audit has started, you are prevented from claiming the relief under section 227 of the TAA for coming clean. The key requirement is that you need to approach SARS correctly on your non-compliance and this always ensures not just a much better outcome under law, but also that you can sleep better.

 

Article originally published on: https://accountingweekly.com/how-to-survive-a-sars-audit/

FICA – Heavier compliance may be on horizon for professional accountants

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The proposed inclusion of professional accountants into a schedule of the Financial Intelligence Centre Act (FICA), making them accountable institutions, will have major repercussions for the accountancy industry.

The Financial Intelligence Centre has identified the sector as being “vulnerable” to money laundering and terror financing activities.

Accountable institutions
Institutions identified in Schedule 1 to the FICA include lawyers, estate agents and banks and in Schedule 3 include motor vehicle dealers and dealers in Kruger rands.

The act requires that accountable institutions register with the Financial Intelligence Centre (FIC), that they disclose the identity of their clients to the centre, train their employees, appoint a compliance officer, draw up a risk register and plans to mitigate the risks, give them additional recordkeeping duties, and oblige them to report to the FIC.

SAIPA has raised concerns in terms of the compliance burden that will now go way beyond the existing obligation to report suspicious transactions or activities. The latest proposals will impact on the administrative and financial burden of especially small practices and people running their own businesses.

Legislative alignment
The “overly broad” wording of the proposal is upsetting. It also appears to be in conflict with existing legislation such as the Companies Act. In terms of the act a person can register his own company by simply registering with the Companies and Intellectual Properties Commission.

SAIPA is not shunning its responsibility as a regulatory body, but it does request much more clarity on some of the wording, to understand the impact of the proposals. Questions which beg answers are whether there will be monetary thresholds or number of employees which may exclude some of the smaller firms from this heavy compliance burden, whether there will be financial or administrative assistance if smaller firms are not excluded, and what exactly defines “assisting” a client.

Who will be an accountable institution 
According to the FIC any person who carries on a business of preparing for or carrying out transactions for a client concerning the following activities will be considered an accountable institution:

* assisting a client in the planning or execution of the buying or selling of immovable property; the buying or selling of a business; the opening or management of a bank, investment or securities account; the organisation of contributions necessary for the creation, operation or management of a company outside South African; the organisation of contributions necessary for the operation or management of a close corporation; the creation, operation or management of a company or a close corporation; and the creation, operation or management of a trust outside the country.
* representing a client in any financial transaction;
* assisting a client in disposing of, transferring, receiving, retaining, maintaining control of or in any way managing any property; or
* assisting a client in the management of any investment.

Money launderers and accountants 
According to the FIC professional accountants are “particularly useful” for money launderers when it comes to the seeking of financial and tax advice to reduce their tax liabilities or to place vast amounts of proceeds.

They also approach professional accountants to help with the setting up of companies and trusts to hide the proceeds of crime and the perpetrator of crime. They also use property transfers as a cover to move illegal funds and they use accountants to get access to financial institutions.

SAIPA believes there are solutions to deal with concerns raised by the FIC, but that the current proposal is a kneejerk reaction to the behaviour of unscrupulous practitioners.

However, if the proposal is accepted as it is accountants who are awarded the professional accountant designation by the institute must be aware that they will be considered an accountable institution. They will have to comply with the requirements set out in the FICA schedule.

However, SAIPA is of the view that the obligations that will be placed on a professional account is to become a forensic investigator and an auditor – all in one.
The FIC is of the opinion the inclusion of professional accountants will improve its capability for producing “better quality and more substantive financial intelligence reports” for use in solving crime.

A concern is whether the FIC will have the capacity to give due regard to all the new sources of information.

 

Article originally published on: https://accountingweekly.com/fica-heavier-compliance-may-be-on-horizon-for-professional-accountants/

Can Computers Replace Human Accountants?

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“The secret lies in embracing the technological advances without sacrificing the values and ethics that sustains and defines the profession,” says Jeanne Viljoen, Project Director: Practices at the South African Institute of Chartered Accountants (SAICA).

“Don’t fear technology – embrace it and use it wisely. By embracing technology, the profession can provide deeper insight to their clients while helping them understand the rapidly approaching ‘new normal’ for business operations.”

This in an article on Entrepreneurmag  he says that it is no secret that accounting has been radically transformed by globalisation, digitisation and a growing amount of technological integration into business operations.

External disruptors, like the use of big data, the cloud and distributed ledger technology also affects the profession, but computers will never replace human interaction or advice.

Computers and algorithms may increase accuracy and can crunch numbers and vast amounts of information at increasing speed, but they have no feelings and cannot learn common sense or the ability to plan creatively. They also cannot deploy human judgement or professional scepticism,” Viljoen continues.

This, paired with a human accountant’s technical knowledge and adherence to a global Code of Ethics and international standards applicable to certain types of engagement, offers vast new potential for accountants to accurately interpret data and develop insights that will underpin more valuable strategic recommendations for their clients.

“While traditional services will continue to remain an important part of what accountants do, the focus will be different. The biggest benefit of using artificial intelligence (AI) instead of manual bookkeeping, is probably the time it frees up for accountants to provide strategic advice to businesses and organisations.

Real-time accounting can help small to medium businesses to take decisions when needed instead of waiting for months for financial statements.”

Correct analysis of business data is exactly what gives a business a competitive edge and help generate a higher profit margin.

“If, for instance, your company sell products online, software that enables you to determine when your customers are most active online will help you determine the best time to market to them. The correct technological systems and software can make your business lean and mean and will enable a total overview of your business at the press of a button.”

This can prevent relatively small problems like absenteeism on certain days and over claiming on business trips to turn into big crisis situations.

“This is exactly where accountants will continue to play an important advisory role, because they are trained to analyse risks, and spot outliers, exceptions and trends.”

Accountants can also assist businesses and organisations with cyber security and successfully navigating their digital landscape, helping to avoid cyber fraud and the theft of personal information.

Viljoen also referred to twelve predictions about the future of the accountancy profession made by Rob Nixon, an internationally renowned accountancy expert. These are:

  1. Compliance will be completely commoditised, meaning less “human” time spent on ensuring compliance.
  2. Cloud accounting will be installed in more than 90% of small- and medium-sized entities, because more and more people want their data and information on their mobile devices.
  3. More than 90% of accounting firms will have cloud practice management, as it improves efficiency and mobility and lowers operating costs.
  4. Coaches and consultants – even non-financial – will become competition for tomorrow’s accountant.
  5. Clients will be more transient because of cloud accounting. All that is required for data to be captured is a login code. This will result in tighter and more enduring relationships between client and accountant.
  6. Offshore teams will be more prevalent – cloud computing will enable your teams to work anywhere.
  7. Compliance prices will plummet, new systems costs will be reduced and financial reporting will be current.
  8. Marketing and sales skills will be needed – with commoditised services comes price pressure and new low-cost entrants into your market. Accountants will need to differentiate and give compelling reasons as to why clients should stay with them.
  9. Young people will not buy into staid and boring systems – they are not interested in old-fashioned systems/equipment and offices. Instead, they will be tech-savvy and will want progress faster than ever before.
  10. There will be no more time-based billing, but rather a valuation of the intellect that has taken many years to develop.
  11. The role of business advisor will result in more than 80% of an accountant’s revenue, as accountants can add a huge amount of value when they know the facts. Spending less time on compliance services will mean that an accountant will have more time to truly live up to the trusted advisor status that they deserve.
  12. Advanced technology will mean that clients are finally served properly with real-time data, resulting in the accountant adding real value to the business.

In the light of all of this, it is important for small to medium businesses to look critically at their digital strategy, she concludes. “You don’t need to buy the biggest, most expensive accountancy system. Look at your cash flow and needs and invest in a system that can grow with your business. Your accountant will be the best person to advise you on this.”

 

Article originally on: https://accountingweekly.com/

Betty Bookkeeper answers your questions on who can act as an Accounting Officer

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Hi Betty

I am a registered tax practitioner through SAIT but I have a client which is registered as a close corporation. I have a BCom Accounting degree but am not certified as a professional or chartered accountant through SAIPA or SAICA. Am I able to act as the Accounting Officer for the business or do I need to register with another certified body?

Regards,
Dean

Hi Dean

The appointment of Accounting Officers in terms of Close Corporations is regulated by Section 60 (4) of the Close Corporations Act, 1984. It provides that any person who is a member of a recognised profession as listed in subsection 2, may be appointed as an Accounting Officer of a Close Corporation. Currently thie CIPC unfortunately does not recognise membership to SAIT as qualifying criteria to be appointed as an Accounting Officer. Please refer to the following link in this regard: http://www.cipc.co.za/index.php/manage-your-business/manage-your-close-corporation/compliance-obligations/appointment-accounting-officers-.htm

Hope that helps!

Don’t forget that I’m here to answer your questions about the ICBA, or just queries about your accounting at work. All you have to do is email me with a copy of your ICBA membership certificate. Not yet a member? Send in your application form!

Steinhoff investors voted to absolve directors of liability

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More than 98% of Steinhoff International’s shareholders voted to discharge all of the directors and supervisory board members from liabilities at the group’s annual general meeting (AGM) in March 2017.

The existence of the little-known resolution has raised concern that shareholders may not be able to take legal action against board members.

The Public Investment Corporation (PIC), which is one of the largest shareholders in Steinhoff, has sent a note to fund managers who manage its investments, asking them to indicate whether they voted in favour of the resolution.

Given that 98.37% of shareholders attending the 2017 AGM backed the resolutions it seems inevitable that all of the fund managers holding Steinhoff shares on behalf of the PIC voted in favour.

But Amsterdam-based company law authorities say the resolutions will not absolve the directors of their liability. The protection granted by the resolutions is based on the assumption that shareholders can fully rely on the information provided by Steinhoff’s annual accounts and the annual report. This is certainly not the case with Steinhoff, whose annual accounts dating back to 2015 have been withdrawn and will be restated on completion of what is expected to be a lengthy investigation by PwC.

As for the group’s annual reports, at the top of every page of the 2015 and 2016 reports is a warning: “Information can no longer be relied on.”

Armand Kersten, head of European relations at the Dutch Investors Association, which initiated a class action against Steinhoff in December, said that liability resolutions are common in Dutch-registered companies.

“The Dutch Companies Act provides for the adoption of the annual accounts by the general meeting of shareholders but it does not imply a discharge of liability for the executive directors or the supervisory directors. This means there must be an explicit resolution dealing with the discharge,” Kersten said.

But he said the discharge was based on the information provided to the shareholders in the annual accounts, the annual report or through discussion at the general meeting of shareholders.

“In the Steinhoff situation Dutch case law dictates that a discharge does not condone management failures that have been kept under wraps.”

Kersten said members of the managing board (equivalent to executive directors in SA) and supervisory board (nonexecutive directors) should not rely on the discharge granted to them at the 2017 AGM so as to avoid liability for the proper fulfilment of their duties to the company.

The resolution put to the 2017 AGM states: “It is proposed to the general meeting of shareholders to discharge the members of the management board in office during the financial year that ended 30 September 2016 from all liability in relation to the exercise of their duties for such financial year ended 30 September 2016, to the extent that the exercise of such duties is apparent from the 2016 financial statements or has otherwise been disclosed to the general meeting of shareholders.”

One Steinhoff shareholder who balked at the resolution said that in terms of South African company law directors could not be excluded from liability. When he asked for additional information the shareholder received a curt note from the company secretary saying that he was no longer a shareholder in a South African company but in a Dutch company and that, in terms of Dutch law, directors were annually discharged of their liabilities.

Source: Business Day

Chief Executive Officer (CEO) Salary

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A Chief Executive Officer (CEO) earns an average salary of R1,060,398 per year. The highest paying skills associated with this job are Strategy Development, Financial Modeling, Leadership, and Business Strategy.

Salary Graph

Job Description

A chief executive officer (CEO) is someone who is in charge of an organization and normally makes the vast majority of all business related executive decisions. In order to succeed at the position, a CEO must have great social skills, possess the ability to be an effective leader and not shy away from making big decisions. The specific job duties that are required from a CEO will vary depending on what type of organization they happen to be the leader of, as there could be a wide range of job responsibilities that may differ from one another. A CEO shoulders the large burden of having the majority of accountability when it comes to the success or failure of an organization, as one major decision can often take a large toll on a company whether it is good or bad. A few of the many job responsibilities that a CEO may have include several commanding responsibilities such as leading, guiding, overseeing the job performance of other highly ranking company employees such as the president and vice presidents. Furthermore, the CEO will also be responsible for putting together and formulating a strategic set of plans on how to address the direction of their company, as this is one of the more important parts of carrying the job title. It is their job to make sure that all employees carefully follow these plans when it comes to all business decisions and matters that go on within the company itself. A CEO makes a great living and can afford a very nice lifestyle away from the company, but the position comes with some large responsibilities and long hours that can be very stressful. (Copyright 2018 PayScale.com)

 

Chief Executive Officer (CEO) Tasks

  • Drive strategic planning, business development, and fiscal operations.
  • Establish positive relationships with stakeholders and other business leaders.
  • Determine overarching goals and initiatives.

 

Information from: https://www.payscale.com/