Disclosure – The pathway to corporate reporting reform

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Corporate reporting has undergone, and continues to undergo, substantial changes, upgrades, advances, and methodological enhancement. The nature and scope of reporting today has had a paradigm shift compared to forty years ago.

In the 1980s, there were essentially three elements to corporate reporting. An income statement which focused on profitability, a balance sheet which focused on solvency and a cashflow statement that concentrated on movements in cash and essentially working capital. The associated disclosure too was relatively narrow. Notes to the balance sheet provided reconciliations to the amounts per the balance sheet and were more of a substantiated calculation rather than any type of analysis. Predominantly the disclosure focus was on investors and lenders.

Today, 40 years later, we have disclosure requirements more akin to a thesis, rather than a set of accounts. This is because of the transition from a predominantly single stakeholder view, to that which is necessary for a far broader stakeholder view.

The nature of corporate reporting has shifted fundamentally from a set of predominantly historical reporting accounts to a balanced set of accounts that combine analysis of the period under review with a forward-looking focus. From an IFRS perspective, required disclosure includes the anticipated future recovery of assets, including leased assets (Right of Use) and various financial instruments. Disclosure around liabilities include the anticipated settlement thereof (lease liabilities, financial liabilities). As we know, one cannot fully anticipate what the future may bring. For this reason, detailed disclosure around key judgement areas and assumptions are vital.

The above is especially relevant as the global community is still grappling with the impact and uncertainty that Covid–19 has brought, and will continue to bring for the foreseeable future, until herd immunity is reached not just at a local or national level, but at an international one too. This requires management insight, assumptions to be made, models to be predicted and stress-tested. To enhance the corporate reporting environment then, detailed disclosures surrounding these need to be made. This requires then not just a quantitative approach to disclosure, as was historically the case, but a qualitative approach too. Preparers are required to bring users of corporate reports into their confidence and almost provide a behind-the-scenes view around the results and sustainability of the entity. The only way that this can happen is through a process of transparent and informative disclosure.

The word sustainability was used deliberately in the above paragraph. Sustainability reporting is fast becoming a significant focus area. The future of corporate reporting lies in a multi-stakeholder approach to reporting. A system of reporting that discloses not only the financial performance and position at a point in time and over time, but societal performance too. Disclosure around the entity’s contribution towards climate, towards the environment, towards its customers, employees and stakeholders are crucial too. Simply put, without a broad range of stakeholder analysis and transparency, corporate reporting will not be effective. Environmental, Social and Governance (ESG) reporting is indeed far broader than simply a climate focus or an environmental focus, but rather a corporate reporting practice that represents risks and opportunities that will impact a company’s ability to create long-term value. This includes environmental issues like climate change and natural resource scarcity. It covers social issues like labour practices, product safety, and data security. And it involves governance matters that include board diversity, executive pay, and tax transparency.

ESG reporting and disclosure, combined with a robust set of annual financial statements entrenched in the principles of International Financial Reporting Standards (IFRS) cumulatively will produce an annual report that will truly represent the value of an entity and its related citizenship. The higher the levels of disclosure, the more transparent the disclosure, the wider the global reach of the disclosure, then the deeper its impact will be. This is a significant step required to regain user and stakeholder confidence and continue to reform corporate reporting, both locally and globally. The detail and transparency lies within the depth and breadth of its disclosure.

 

Source: https://www.bizcommunity.com/Article/196/511/213917.html

FINANCIAL EMIGRATION REMAINS THE CLEANEST ROUTE OUT OF SOUTH AFRICA

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The process of financial emigration, which is the process that allows a taxpayer to formally place themselves on record as a non-resident for tax purposes with the South African Revenue Service (SARS), recently changed and came into effect on 1 March 2021.
Jonty Leon, Legal Manager (Expatriate Tax) at Tax Consulting South Africa, says the company has seen an increased volume of inquiries regarding the benefits of financial emigration, the new process, as well as the timelines involved in financial emigration.

“The advantage of financial emigration is that it allows you to cleanly cease tax residency of SA, ensuring your foreign income and foreign assets are ring-fenced outside of SARS’ jurisdiction. Financial emigration used to be a tax and exchange control process, but the new process means that financial emigration has become solely a tax process. The exchange control process created an additional set of administrative challenges with financial institutions, which is no longer the case. Under the new financial emigration regime, there are no disadvantages for those who intend to reside outside of the country permanently,” says Leon.

In-depth audits and proving non-residency

As SARS will no longer be able to tax an individual on their worldwide income and assets once they have ceased tax residency of SA, the institution has ramped up its collection power to ensure the taxpayer has truly met the requirements to cease tax residency. This translates to more in-depth audits from SARS to ensure these taxpayers meet the criteria of non-residency.

“For many years, South Africans abroad have flown under the radar. Many expats are still of the opinion that they are no longer liable to pay tax in South Africa if they have been abroad for many years. It is important to note that the process is not automatic, and the burden of proof always lies with the taxpayer. SARS now has a team dedicated to investigating and recovering tax from South Africans abroad who have not ceased their tax residency in South Africa,” says Leon.

Steps involved in financial emigration

The individual seeking financial emigration must be entirely up to date and compliant with SARS. This compliance extends to any South African trusts or companies that they are linked to, which must also be fully up to date and compliant.

The taxpayer must then pass two tests to determine tax residency outside of South Africa, namely the Physical Presence test and the Ordinarily Resident test.

After this, they can submit an application with full supporting documentation to SARS for an Emigration Tax Clearance Certificate. The application will include an “exit tax” that is calculated on certain worldwide assets as well as a declaration of all South African assets and liabilities. Only once this has been audited and approved by SARS can the taxpayer consider themselves a non-resident for tax purposes.

Leon concludes by advising people to partner with a reputable tax advisory firm with experienced, admitted attorneys in their team. “Taxpayers must follow the most transparent, formal route to financially emigrate to ensure a taxpayer can overcome their burden of proof when ceasing tax residency.”

Source: FA News https://www.taxconsulting.co.za/financial-emigration-remains-the-cleanest-route-out-of-south-africa/

SARS IS CRACKING DOWN ON CRYPTOCURRENCY OWNERS

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Some South Africans who have bought cryptocurrencies in recent years are being audited by the South African Revenue Service (SARS), who has sent them letters requiring more information about these investments.
Last month, SARS commissioner Edward Kieswetter confirmed that undisclosed cryptocurrency holdings will be a big area of focus for the tax agency this year.

Some taxpayers have received audit letters that request that they provide reasons for their cryptocurrency investments, and provide letters from trading platforms confirming the investments, says Thomas Lobban, legal manager for cross-border taxation at Tax Consulting SA.

The cryptocurrency platform Luno, which has seven million trading “wallets” (or accounts) in South Africa, confirms that it has seen an increase in requests from South Africans to download their transaction histories, presumably for tax purposes.

“Luno does not provide tax certificates to users because calculating tax on bitcoin earnings requires the consideration of multiple factors and is not straightforward,” Marius Reitz, Luno’s general manager for Africa, told Business Insider. The platform says while it is relatively simple to download a transaction history from its site, these are not “SARS-ready” documents. It is working on making the process more user friendly.

Asked whether SARS has approached Luno for details about its users, Reitz replied: “Luno does not share customer information with SARS on a routine or ongoing basis.”

Contrary to what many traders and investors believe, cryptocurrency investments can be tracked and traced with the correct expertise and resources, warns Lobbon. Bank transfers by a taxpayer to a cryptocurrency platform can be traced, and SARS is building technical expertise to allow other sleuthing capabilities. “Remember, technology does not forget and once you have clicked on even a cryptocurrency ad, your digital footprint is already there,” says Lobbon.

SARS has already included questions about cryptocurrency investments in the capital gains tax portion of tax returns, creating source codes for cryptocurrency-trading profits (2572) and losses (2573) respectively.

“This means that there is no room for a taxpayer to manoeuvre in light of non-disclosure in their returns,” says Lobbon.

What must be declared?

All cryptocurrency transactions must be declared – not only if you cashed out.

If you bought any cryptocurrency, or exchanged cryptocurrency for another cryptocurrency, it must be declared on your tax return. You must also state if you mined cryptocurrency. And SARS is very clear that you need to declare it if you were in any way paid in cryptocurrency.

How will my income from cryptocurrency be taxed?

SARS doesn’t view cryptocurrency as a currency.

If you made money from your cryptocurrency investment, it can either be taxed as income, or attract capital gains tax. This depends on whether you are an active trader in cryptocurrencies, or are investing for the long run.

If you were paid for your services in cryptocurrency, this will considered to be remuneration for tax purposes and is subject to normal tax,

How much tax will I pay?

If you are found to be a short-term investor or trader in cryptocurrencies, you will pay tax at your personal income tax rate (which can be upwards of 40% if you earn more than R782,200 a year). For longer-term investors, capital gains tax (18% for individuals) is payable.

How will I be taxed if I mine cryptocurrencies?

This is not clear, says TaxTim.

“SARS provides little guidance on how you will be taxed if you mine your cryptocurrency. The assumption is that the crypto earned through mining will automatically be seen as trading. The stick in the mud is that it can also be seen as capital gains depending on your intention on your cryptocurrency.”

What are the penalties if I don’t disclose cryptocurrency income?

Taxpayers who fail to correctly disclose their cryptocurrency-related income or comply with an audit request by SARS may be convicted for an offence and be liable to a fine or imprisonment for up to two years, says Lobban.

If found guilty of gross negligence, a taxpayer could face penalties more than double the owed amount, plus interest. And if found guilty of tax evasion, the penalties could be more than triple the original amount.

What should I do if I haven’t declared my cryptocurrency holdings over recent years?

Contact the SARS voluntary disclosure programme (VDP), which offers more favourable penalty amounts than if you were to be found guilty. The unit can be contacted directly at VDP@sars.gov.za.

Source: BusinessInsider

SA’s CEOs optimistic about global economic growth

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One year after Covid-19 was declared a pandemic, CEOs are voicing record levels of optimism in the global economic recovery, with 76% of global business leaders predicting that economic growth will improve in 2021. Coming off of a global recession (3.5% decline in world GDP) and a GDP contraction of 7% in SA, a record share of CEOs are optimistic about global economic growth this year.
The figures come from PwC’s 24th Annual Global CEO Survey, which this year polled 5,050 CEOs in 100 countries and territories over January and February 2021.

The percentage of CEOs expressing confidence in growth is up from 22% in 2020 and 42% in 2019, representing the highest level of optimism since the survey started asking this question in 2012. In South Africa, 57% of CEOs believe global economic growth will improve over the next 12 months.

South African CEOs are also more optimistic about the outlook for their businesses. Some 41% (compared to 36% globally) of those polled said they are “very confident” about their organisation’s prospects for revenue growth over the next 12 months.

Commenting on the survey results, Dion Shango, CEO of PwC Africa says: “After a year of economic and political uncertainty coupled with human tragedy, it is encouraging to note an upswing in sentiment among CEOs about global economic growth. Although we are not out of the woods, CEOs see a path forward – for the global economy and for their own organisations.

“As business leaders prepare for a rebound in the economy, a critical question will be: which management approaches should business retain from the rapid response mode most of them adopted during 2020?

“Fast, high quality decision-making is likely to continue to be top of most companies’ ‘keep’ lists. Other priorities include ensuring top management remain focused on the big issues that matter most, engaging with all staff, revisiting critical decisions frequently, and responding early to unintended consequences.”

Industries were affected in different ways by Covid-19, as lockdowns and other restrictions changed the way we work, live, travel and shop. This disparity is reflected in confidence levels, both in our survey results and in our interviews with CEOs. It is notable that CEOs globally in the technology and telecommunications sectors show the highest levels of confidence at 45% and 43%, respectively. Meanwhile, CEOs in the transportation and logistics (29%) and hospitality and leisure (27%) sectors are among the least confident about their ability to grow revenues over the next 12 months.

US extends its lead over China as the top destination for growth

The survey findings show that the US has extended its lead as the number one market that global CEOs are looking to for growth over the next 12 months at 35%, seven percentage points ahead of China at 28%. In 2020, the US was only one percentage point ahead of China.

New political developments and existing tensions have had an impact on the views of US CEOs. They are reducing their emphasis on China as a growth driver and increasing their focus on Canada and Mexico: compared to 2020, US CEOs’ interest in the latter two countries rose by 78%. Meanwhile, China CEOs report growing interest in large economies such as the US, Germany and Japan — prime destinations for exports.

At 17%, Germany holds on to its number three spot on the list of growth destinations, while the UK, post-Brexit, moves up to number four (11%), surpassing India (8%). Japan also rises up the ranking to become the sixth most attractive growth destination, overtaking Australia which held that position last year.

South African companies continue to see China (27%) and the UK (27%) as key to growth, but are also looking to other African countries for opportunities — Ghana (11%), Nigeria (11%) and Kenya (8%).

Headcount of talent

In view of South Africa’s rising inequality and employment challenges, it is concerning that 51% of SA CEOs (compared to 37% globally) report they have reduced staff in the last 12 months and that 41% (compared to 21% globally) plan to do so in the year ahead. The proportion of South African CEOs expecting to reduce staff has exceeded those expecting to increase it for the first time — and by a margin of 25 percentage points. This is unprecedented in the history of the survey. The survey findings are based on the economic outlook at the time — namely, a level 3 lockdown period, issues arising from the rollout of vaccinations, as well as load shedding.

Only 16% — compared to 42% in 2020 — of local businesses expect to increase their headcount over the next 12 months. Forty-three percent of organisations (compared to 35% globally) expect their headcount to remain the same.

Opportunities for growth

We’ve seen in previous surveys that when the operating environment gets more difficult, CEOs focus on areas in which they can have a direct impact while limiting risk. Operational efficiencies (South Africa: 89%; Global: 77%) and organic growth (South Africa: 70%; Global: 73%) top the list of CEOs’ actions planned to drive growth. In addition, 41% of South African CEOs (compared to 38% globally) also intend pursuing mergers and acquisitions, while 35% of CEOs both in South Africa and globally are looking for a new strategic alliance or joint venture.

In the year of COP26, climate change is not being approached with urgency

The percentage of global CEOs expressing concerns about climate change has risen from 24% in 2020 to 30% in 2021. This represents only a marginal increase in the context of COP26, which is being held this year in Glasgow, UK. The finding also comes in the context of rising anxiety about nearly all types of threats.

Climate change still only ranks ninth among CEOs’ perceived threats to growth. Furthermore, another 27% of CEOs report being “not concerned at all” or “not very concerned” about climate change. This may be because climate change is not seen as an immediate threat to growth compared to other issues such as the pandemic, over-regulation and cyber threats.

It is notable that 27% of South African CEOs report not being concerned about climate change; and 49% of CEOs (Global: 60%) have not factored it into their strategic risk management activities.

At a country level, CEOs in countries with high exposure to natural hazards such as India and China are some of the least prepared for climate change risk.

Shirley Machaba, CEO for PwC Southern Africa adds: “The Covid-19 pandemic has provided the world with a real opportunity to make a change and realise governments’ ambitions to transition from a low carbon global economy. This has provided South Africa with an opportunity to achieve its ambition of achieving a just transition to a low carbon economy as set out in the National Development Plan (NDP). This opportunity was also recognised by the Government at the virtual High-Level Meeting of the United Nations Sustainable Development Goals Moment in 2020.”

Threats to growth

Not surprisingly, pandemics and health crises top the list of threats to growth prospects, overtaking the fear of over-regulation, which has been the perennial number one concern for CEOs globally since 2014. Among South African CEOs concerns about the impact of unemployment on their companies’ growth prospects have risen four places (South Africa: 73%; Global: 21%) to become the top threat to business growth.

Other top threats to growth for South African CEOs are: inadequate basic infrastructure (South Africa: 65%; Global: 19%), uncertain economic growth (South Africa: 59%; Global: 35%), and volatile energy costs (South Africa: 57%; Global: 18%). South African CEOs are significantly more concerned about threats than their global peers. So, while pandemics and other health crises are recognised as the leading threat globally, with 52% of CEOs stating they are extremely concerned, in South Africa this threat only rates third – even though 65% of are extremely concerned about it.

Rising digitisation is increasing the risks posed by cyber threats. This, coupled with the significant increase in cybersecurity incidents in 2020, including ransomware attacks, has resulted in cyber threats leaping up the list to become the number two concern, with the level of concern jumping from 33% to 47% globally, and from 22% to 49% in South Africa. Cyber threats are a concern particularly for CEOs in North America and Western Europe, where they are considered a greater threat than the pandemic.

In 2020, tax policy uncertainty ranked outside the top ten concerns for CEOs, with only 19% of CEOs concerned. This year, it has increased rapidly in importance, leaping up to seventh place (31%), with CEOs undoubtedly watching government debts accumulate and realising that business taxes will likely need to rise.

In South Africa, 32% of business leaders “strongly agree” that tax policy changes to address rising government debt levels will increase their respective organisation’s tax obligations.

Around the world, misinformation also rose rapidly from 16% in 2020 to 28% of CEOs in 2021 being extremely concerned, likely due in part to the impact of misinformation on elections, reputations, and public health. With 27% extremely concerned, this threat doesn’t feature in South Africa’s top ten, but we will continue to track it in subsequent surveys.

When asked which threats are explicitly factored into their strategic risk management activities, South African CEOs are significantly more responsive than their global peers about managing threats — most notably around skills shortages, cyber threats and the pandemic and health situation.

People and productivity

South Africa’s CEOs are prioritising productivity through automation and upskilling (South Africa: 49%; Global: 36%) with a greater focus on workplace culture and behaviour (South Africa: 43%; Global: 32%). There is also more emphasis on diversity and inclusion (South Africa: 24%; Global: 25%).

Machaba comments: “Upskilling or reskilling employees to enable their full participation in the workforce means creating more inclusive and sustainable economies and societies that pull people along and catalyse deeper connections between humanity and the economic marketplace.”

Digital investments for the future

Asked about their spending on digital transformation, nearly half of CEOs (49%) project significant increases of 10% or more. Despite the rising level of concern CEOs are voicing about cyberattacks, this has not translated into definitive actions. Less than half of the CEOs planning for heightened digital investment are also planning to boost their spending on cybersecurity and data privacy by 10% or more.
More than half of South African CEOs (59%) plan to pursue greater cost efficiencies and increase their rate of digital investment by 10% or more.

While many CEOs are planning to reduce their workforces and focus on technology to drive growth in their businesses, it is heartening that 49% globally are also planning to increase spending on leadership and talent development.

Shango concludes: “Looking at the survey findings we see an opportunity emerge – a moment for business leaders to take a step back and ask how we can do things better. Although the shape of the recovery remains unknown, we cannot go back to the way things were before. To bring about the change that is needed, company leaders will need to think differently and constantly evaluate their decisions and actions against broader societal impacts.

 

Source: https://www.bizcommunity.com/Article/196/19/214059.html

5 lessons for finance & accounting in 2021

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Chief financial officers and finance and accounting (F&A) teams are under immense pressure to reduce costs, optimise processes, and enhance revenue, especially after the rollercoaster ride that was 2020 and how it reshaped the F&A space during an unprecedented financial year.

Takeaways

The F&A function was lagging behind in terms of timely adoption of new technologies due to large-scale reliance on legacy systems and practices.

However, with the Covid-19 pandemic and all the uncertainties resulting from it, we witnessed the F&A function taking a giant leap towards discarding old-school processes to embracing everything new. To drive this point further, a survey reported that 67% of accountants preferred cloud accounting over regular, on-premise solutions. Such trends mark a new and welcome chapter in the history of F&A.

While CFOs and F&A decision makers have spent most of the past 14 months trying to brainstorm, firefight, and solve novel challenges, 2021 will undoubtedly throw unexpected questions their way, especially from a long-term strategic perspective.

1. To automate or not to automate?

Industry experts and tech solution providers have been harping on the fact that automation is indispensable for organisations that want to be future ready. That era of automation adoption is finally here.

A vast majority of repetitive tasks and rules-based transactions, which consume numerous man hours, will now be automated. This includes tasks like invoice processing, vendor inquiries, payments execution, supplier registration, payments reconciliation, and so on.

Finance functions that have already implemented automated processes in place before the pandemic managed the phase better than those saddled with legacy processes. Today’s finance leaders are evaluating and applying technologies such as intelligent automation, robotic process automation, and cloud computing for better productivity and to improve their bottom line.

2. The sun is shining on the cloud

Cloud computing in the finance and accounting sector delivers faster access to data, promotes transparency, and prevents data siloes. The cloud accounting software market is expected to grow at a CAGR of 8.5% until 2025. It is not surprising that cloud adoption has become a priority for the accounts function.

Secure document storage, seamless access to files from anywhere in the world, and a hybrid, collaborative approach are cloud-enabled capabilities that organisations strive to achieve.

3. Learn, upskill, collaborate

The F&A specialist is expected to go beyond traditional accounting. CFOs and finance leaders should ensure that select new hires and existing team members are well-versed in strategic technologies such as data science, cloud computing, and blockchain, along with better communication and decision-making skills. Resources like Gartner’s skill gap assessment map out must-have digital finance competencies.

To amplify productivity and cut costs, the accountant of tomorrow must embrace flexible roles and develop a holistic focus for the organisation. The C-suite can encourage and lead by example in this digital upskilling.

On the other hand, CFOs can benefit from collaborations with seasoned outsourcing consultants. For instance, F&A outsourcing from Infosys BPM could go a long way in standardising and automating processes without having to expend time and effort in extensive training.

4. Work from home is here to stay

Remote work became the norm during the pandemic because of worldwide lockdowns and restrictions. For F&A professionals, this meant taking all their daily work home and ensuring there are no snags in the process. Of course, the transition came with challenges in employee engagement and productivity, but leaders soon realised that this is a highly effective working arrangement, with a potential to extend it for a longer term.

To enable effective remote working, F&A leaders must stay committed to providing the best technology tools and support, keeping individuals engaged and motivated, and empowering people to make decisions at their levels. The hybrid model (working from home and occasionally working from the office) has seen many takers and will continue to be an efficient system in the near future.

5. Help, my laptop is under attack

From leaking customers’ personal information to compromising highly-sensitive financial data, cyberattacks are a high-stakes concern for every F&A leader.

The FBI reported a 300% hike in cyberattacks from the beginning of the pandemic. With organisations determined to ensure their virtual presence, unscrupulous hackers have found more room to exploit existing loopholes. It is critical that CFOs and CPA heads ensure multi-faceted protection of F&A data in the age of remote work.

While the hybrid model of work is the way forward in many ways, F&A functions must increase the focus on data privacy and protection. Apart from ensuring two-factor authentication and VPN policies, organisations must invest in relevant staff training, real-time risk management, and regular security audits (third party) to quash potential threats.

Moving forward, an agile, adaptive, and resilient F&A function is what business leaders must help create.

With digital disruption arriving at the core of accounting processes, CFOs must consider strategies that include the right mix of tech adoption, re-skilling and upskilling, and partnerships in F&A outsourcing to streamline and synergise finance processes and enable F&A teams to create a positive and ever-lasting transformation.

 

Source: https://www.bizcommunity.com/Article/196/511/214200.html