From 2022, the global financial reporting agenda is set to change. This change comes as the global standard-setter, the International Accounting Standards Board (IASB), is embarking on its third agenda consultation. Much like the changes which were brought about by the second agenda consultation, the new global financial reporting agenda may result in a significant impact on how some transactions are accounted for and thereby impacting companies in various ways, writes Bongeka Nodada, SAICA Project Director for Financial Reporting.

Through this third agenda consultation, companies, auditors, regulators, and users of financial statements are provided the opportunity to drive the global financial reporting agenda. Consequently, this could improve financial reporting by companies.

This process is important to South Africa because the Companies Act 71 of 2008 requires some companies to apply the global financial reporting standards, International Financial Reporting Standards (IFRS).

Furthermore, the consultation process enables all the role players in the financial reporting ecosystem to influence the strategic direction and balance of the IASB’s activities, criteria that will be applied to assess which projects should be prioritised and advise the IASB as to which projects should be taken onto the global financial reporting agenda.

Current standard-setting activities entail the following: development of new IFRS standards, maintenance and major amendments to IFRS Standards; maintaining IFRS Standards and supporting their consistent application; developing and maintaining the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs); supporting digital financial reporting by developing and maintaining the IFRS Taxonomy; improving the understandability and accessibility of the Standards; and engaging with stakeholders. The global standard-setter is seeking views to determine how its resources should be allocated among the different activities.

Initial outreach activities conducted prior to the commencement of this agenda consultation identified a myriad of potential financial reporting projects that could be added onto global financial reporting agenda. These potential projects will either serve to address gaps that exist within IFRS Standards or enhance the reporting requirements. No doubt that, much like the major overhaul of the revenue, leases and financial instruments Standards which culminated from the second agenda consultation and which significantly impacted many companies in South Africa, some major projects taken onto the future agenda may have a similar effect on companies locally.

Projects which have been put forward thus far for consideration include accounting for cryptocurrencies, accounting for inventory, going concern disclosures and the accounting basis to apply when entity is no longer a concern, accounting for income taxes, accounting for internally generated intangible assets such as brands, and the statement of cash flows and its relevance for companies such as financial institutions.

Companies, auditors, regulators, and users of financial statements have until 27 September 2021 to provide input that will drive the financial reporting agenda for the five years commencing from 2022.

More information on the third agenda consultation can be obtained from the IFRS Foundation website.

Article published by SAICA | 14 June 2021
Source: https://www.saica.co.za/News/NewsArticlesandPressmediareleases/tabid/695/itemid/6453/language/en-US/language/en-US/Default.aspx

While many South Africans have taken to remote working with enthusiasm, the question of when to switch off from work is looming large as the next big workplace challenge.

South African law has not yet developed to the extent that some other countries have, say experts at legal firm Bowmans.

The firm pointed to France and the French Labour Code which includes a mandatory obligation for employers with 50 or more employees to negotiate terms that regulate an employee’s ‘right to disconnect’.

It also regulates the use of digital tools, to ensure respect for rest periods and leave, as well as personal and family life.

“In South Africa, employees earning below the threshold set in the Basic Conditions of Employment Act (BCEA) have some protection from the ‘always on’ culture through limits on maximum working hours and overtime.

“However, more senior employees and employees earning above the earnings threshold do not. The gap in legal protections for the two different groups of employees is considerable.”

Below the earnings threshold

The current earnings threshold in the BCEA is R211 596.30 a year.

Subject to limited exceptions, the position of employees who earn less than this or are not in senior positions is relatively straightforward, Bowmans said.

“Employees who work five days a week, for example, may not be permitted to work more than nine hours in a day or more than 45 hours in a week.

“Accordingly, time worked in excess of this amounts to overtime, which can only be required by agreement and is statutorily limited to 10 additional hours in a week per employee.”

Ordinarily, employment policies also require employees to obtain pre-authorisation from their employers before working overtime, Bowmans said.

“Moreover, counting ordinary hours and overtime, such employees cannot be required to work more than 12 hours in a day.

“These employees, again subject to limited exceptions, are also entitled to a daily rest period of 12 hours from the end of work on one day to the start of work on the next, as well as a weekly rest period of 36 hours, which must include a Sunday, unless otherwise agreed.

“This means that any Sunday work must be by agreement.”

For employees who are entitled to overtime in terms of the BCEA, overtime rates are prescribed at 1.5 times the normal wage for time worked more than their ordinary hours or for time worked on Sundays (if employees ordinarily work on a Sunday) and double time on Sundays and public holidays (if employees do not ordinarily work on these days).

However, any work on a public holiday must also be regulated by agreement, Bowmans said.

Above the earnings threshold and senior managerial employees

More senior employees and those earning above the earnings threshold are in a different position as they are excluded from the BCEA provisions regulating maximum working hours and overtime.

These categories of employees may be required to be available after hours, on weekends and public holidays, without any expectation of additional remuneration, Bowmans said.

“This is often incorporated into their employment contracts, adding a further contractual obligation to be available beyond ordinary working hours if the operations of the business require it.

“Failure to comply with an instruction to work after hours may be a breach of the employment contract and could potentially result in disciplinary consequences for the employee.”

This is not to say the working hours of these categories of employees may be open-ended, Bowmans said.

“The BCEA, which cannot be contracted out of, requires employers to regulate the working time of all employees, including senior employees and those earning above the earnings threshold, from the perspective of health and safety and the family responsibilities of employees.

“Taking into account the potential adverse physical and mental health consequences that may arise from an always-on-culture, reasonable boundaries may be required when it comes to working hours of more senior employees or those earning above the earnings threshold.”

Bowmans said that the law does not guide as to what boundaries might be reasonable for the working time of employees in these categories, which largely leaves it to employers to self-regulate, depending on their environments and requirements.

Instead, the firm has outlined a few suggestions for employers to consider in setting working hour boundaries:

• Set the tone from the top: leaders can demonstrate their own commitment to maximising productivity during ‘ordinary working hours’ by limiting communication with team members to these hours (except when the work is genuinely urgent).

• Be clear about expectations: employers should clearly and frequently communicate the company’s stance as a productive organisation where work done during ordinary or core hours is the norm. Employers should encourage high productivity and responsiveness during these hours and make it clear that employees should switch off thereafter unless it is necessary to do otherwise.

• Put processes in place to cater for urgent work and emergencies: each business unit or department should specify how it will deal with urgent after-hours work requests, including who should be contacted and how and what work can be considered urgent work. What is urgent may depend on the nature of the job and the level of seniority of the employee. For example, employees may reasonably, in certain instances, be expected to be contacted telephonically in genuinely urgent cases after hours.

• Make time management a priority: if certain employees are habitually working overtime or after hours and on weekends, employers should interrogate the underlying reasons.  It may be that employees are working beyond core hours because they are not able to effectively manage their time. Alternatively, additional resources, such as another employee, may be required to handle the workload or there may be capacity issues.

• Employers could also explore ways to disable push-notifications for emails after hours and on weekends and while on annual leave, allowing employees to switch off for a period and in this way minimising the ‘always on’ culture, which can be detrimental to their mental well-being and have an indirect, detrimental impact on the business of the employer in the long term.

Commentary by Melissa Cogger (senior associate) and Leila de Saude (associate) Bowmans South Africa.

Article published by Business Tech | 18 June 2021
Source: https://businesstech.co.za/news/business/499073/the-laws-around-overtime-and-working-from-home-that-every-south-african-should-know/

The appendix to IFRS 10 defines consolidated financial statements as the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. In simpler terms, a set of consolidated Annual Financial Statements (AFS) portrays the results of the entire group as if it were only one entity with one or more divisions, writes Milton Segal, SAICA Senior Executive: Corporate Reporting.

To this end, any transactions that are deemed intercompany are eliminated upon consolidation. These include intercompany loans, sales, purchase of assets, settlement of debt, etc. The methodology behind this, as noted above, is to allow only external transactions (those outside the group) to be portrayed within the consolidated financial results.

An interesting conversation ensued after the release of the Eskom financial statements during the week of 25 May 2021. The Eskom debt had decreased substantially by over R80 billion as compared to the prior period. There was praise in this regard, and indeed some good work has occurred. However, there were two main reasons why the debt had decreased.

1. The stronger rand had a favourable impact on its foreign borrowings, creating a foreign exchange gain because of the loan, being a monetary financial instrument being restated to its closing rate.
2. Eskom had received ‘funding’ in the region of R50 billion from government during the period. It used this funding towards reducing its loans. So the majority of Eskom’s debt reduction was not from cash generated through operations being utilised to offset debt, but rather shifting its debt from one organ of state to another.

Inherently then, some of Eskom’s debt was merely transferred to the taxpayer, as ultimately the revenue that government receives is through collection of taxes, a significant percentage of which comes from the South African taxpayer. The purpose of this is not to single out Eskom, but rather to use it as an example of an SOE.

Essentially then, from a state perspective, the above transaction was merely an ‘intergroup’ transaction if one considered the South African treasury as the ‘parent’ or controlling company. If South Africa was required to prepare a set of consolidated South African accounts, where treasury was the parent, all these interdepartmental, inter-state owned entities (SOEs) and reapportioning of budgets would simply be eliminated to depict the results as if South Africa was one entity as described in the opening paragraph.

If this was to occur, then we would get a very clear picture of how much pure revenue (read tax collections) the state earns versus how much it is expending and would produce a clearer ‘state’ income statement. Perhaps more relevant, and of more use to rating agencies and potential investors, would be the consolidated cash flow statement that would to all intents and purposes reverse the accounting entries and rather focus purely on the actual cash flows for the year, starting with the opening balance, ending with the closing balance and therefore reconciling the opening to closing balance, i.e. the cash movement for the year.

It is the author’s view that that would present a very meaningful representation of how the state’s cash flow was managed, and ‘users’ of these theoretical consolidated annual financial statements, which would include us taxpayers as stakeholders, could begin to unpack the true reality of genuine money collected by the state and paid outside of the state.

It is of course a theoretical discussion, as the various methods of accounting (Grap vs IFRS vs modified cash basis) would require significant adjustments to allow for one overall method of accounting that could be consolidated, and the exercise would be intense and the cost versus benefit analogy may just win the argument.

Yet, at the highest level, the state controls all its SOEs as it has power over the SOEs, it has exposure or rights to the variable returns and the ability to use its power to affect the amount of its (the investors’) return.

Could the theoretical application of IFRS 10 be the tool required to allow for deep analysis of the state’s genuine cash flows and financial performance and position?

With the poor financial position the South African Government finds itself in, with single-digit growth forecasts and spiralling debt, it could very well be the accountants who need to have the courage to lead the recovery process by producing international standards of reporting and analysis to promote strategic decisions and enable greater transparency.

Article published by Accounting Today | 31 May 2021
Source: https://www.saica.co.za/News/NewsArticlesandPressmediareleases/tabid/695/itemid/6450/language/en-US/language/en-US/Default.aspx

Since Bitcoin first exploded onto the scene towards the end of 2017, blockchain has received quite a bit of attention.

But what are the real implications of blockchain for the accounting profession? While cryptocurrencies may have received most of the coverage and analysis as it relates to blockchain technology, the underlying technology itself may hold more significant potential for the accounting profession. In other words, the cryptocurrency market, platforms, and options may have brought the potential of blockchain to the attention of accountants, but understanding what choices are available is a vital first step toward realising its full potential.

Being able to understand, articulate, and communicate the key components of blockchain technology will allow accountants and CPAs to raise their work products and services to the oft-mentioned level of strategic partner.

What is blockchain and what makes it unique?

Blockchain technology has several qualities that set it apart from other market solutions, especially those using centralised ledger technology. At the core of the blockchain, ideally, are immutability, verifiability, instantaneous transmission of information, and the anonymity that can be granted depending on the organisation in question.

On top of these characteristics are specific use cases and implementation steps that are already differentiating blockchain from existing market options.

The following three implications and insights are not only exciting from a forward-looking perspective but, in fact, are already being implemented in the marketplace.

1. First, and perhaps most importantly, is to understand that blockchain is not an accounting system, finance system, or bookkeeping platform. Any information can be batched and uploaded for approval by blockchain members, which take the form of computers or servers that have downloaded and installed the appropriate software. Blockchain platforms are cloud-based networks that allow people and groups to share, verify, and communicate information.
2. Second, the actual approval process by which information blocks are added to previous blocks to form the blockchain can be customised depending on the needs of the organisations in question. That said, there are several options available for organisations and networks, including the Proof of Work methodology utilised by the most well-known blockchain platform that underpins Bitcoin.
3. Third, and essential for the conversation as it relates to accounting and other financial services professionals, is that just because different organisations are part of the same blockchain network does not mean that all data is available for review by all members. Practically speaking, this means that if your firm has 20 clients as part of the blockchain network, you may be able to see different classes of information, but the 20 different clients do not have to have access to each other’s data. This differentiation, between what data is available in general, and what information is available for members to review, report, and analyse, leads to the next conversation that every accounting professional should be having.

Blockchain as a technology is often spoken about, especially in practitioner publications and conversations, as if it was just one option, tool, or application. This may make for simpler conversation and debate, but it demonstrates an imperfect understanding of how blockchain technology actually works.

Specifically, there are two broad categories that should form the basis for any comprehensive blockchain discussion: public blockchains and private blockchains.

Practical blockchain examples

So, what can blockchain do for you? What impact will it have on your practice? And how will it change the face of your profession?

With regard to accounting-specific software, there are three primary areas where blockchain will have the greatest impact.

• The future of accounting is continuous

As it becomes more widely available (and secure), accountants will have access to – and be able to use – a larger amount of data, including financial and operational information. As it stands, organisations produce information in volumes that are practically inconceivable, but most accounting methods still rely on periodic examination and analysis. As information is secured, encrypted, and transmitted to network members, accounting professionals can provide real-time advice and guidance.

• The way we audit will change

There will always be a need, and market expectation, for human oversight and review of automated processes. It is important to note that even as accounting becomes more automated and continuous in nature, periodic review and analysis of automated results will always be necessary. Even with this human oversight and occasional intervention, large chunks of the audit process will become significantly automated, augmented, or replaced entirely. Market evidence of these changes are already evident at larger firms, and all indications point to continued technology integration going forward.

• New lines of service will become available

This is the most significant benefit that blockchain will provide to our profession. Increased access to your clients’ data and more efficient audits will pave the way for higher-value and more intelligent advice. This is where blockchain will help drive the change in the profession and enable you to provide true value to your clients.

Although blockchain may seem like a difficult-to-understand concept, it also presents an opportunity for CPAs and accounting professionals to embrace an innovative and disruptive technology.

The accounting profession will undoubtedly be impacted by changes in the corporate sector, particularly with regards to blockchain. Now that you have a better understanding of what blockchain is, you can concentrate on the three ways it will transform the profession and be ready for the changes ahead.

Article published by Sage | 21 June 2021
Author: Mongezi Lupindo
Source: https://www.sage.com/en-za/blog/what-is-blockchain-and-examples-for-the-accounting-profession/