IFRS - there's nowhere to hide - Grant Thornton

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2 Volume 2. November 2005 The sheer volume of the various standards can make implementing IFRS a daunting task in any entity, particularly where management are not familiar with the new IFRS implications. To assist you in understanding the standard conversions a little better, we have enclosed a handy reference card for you. AC statements and South African GAAP Should you adopt IFRS What most people don't realise is that, as a result of the All listed companies and public reporting institutions are required harmonisation process undertaken by the South African Institute to adopt IFRS with effect from 1 January 2005. Other entities of Chartered Accountants (SAICA) over the years, our South may choose to either convert IFRS or to remain on SA GAAP. So African statements were already closely aligned to the IASs. Thus, what should these other entities do many of the transitional changes and implications envisaged by the IASB in other countries are not applicable to South Africa. Convert to IFRS: On conversion to IFRS the entity will have to make an explicit and unreserved statement that it has now At the time of the “improvements project” in March 2004, SAICA converted to IFRS and it can then apply IFRS 1. This allows made the South African aligned AC statements the same as the certain exemptions that make it easier to handle the effect of the amended IASs and the new IFRSs. Thus, all old AC statements implementation on prior year balances. have been improved (in accordance with the improvements project), revised (in addition to the improvements project) or Remain on SA GAAP: An unlisted entity may choose to continue aligned (to align the text thereof with the equivalent international to prepare its financial statements in terms of SA GAAP. As SA statement). GAAP has been aligned with international standards the entity will, in effect, still have to implement the same accounting policies All new IFRS statements are now issued as South African as under IFRS. The implementation exemptions allowed by IFRS statements without any amendments with a dual AC number (e.g. 1 will however, not be available to the entity and all changes will IFRS3 was issued in South Africa as AC 140). have to be made retrospectively. We therefore encourage our clients to convert to IFRS. It is the practice of the various accounting bodies to issue interpretations which provide further guidance and clarity to existing standards. In South Africa, these have been issued by What is the likely impact of the new standards SAICA within the AC 400 category. The historical international To bring an entity's accounting policies either in line with IFRS or equivalents were known as SICs. Under the new IASB, the newly aligned South African Standards (which, as set out interpretations are now known as IFRICs. above, are identical to IFRS with the exception of IFRS 1), a company needs to perform a detailed review of existing As part of the improvements project, many existing SICs were accounting policies. Experience has shown that the following incorporated into the actual body of the standards and have thus areas require the most attention: now fallen away. There are currently eleven SICs and four IFRICs. These interpretations have the same force as the related property plant and equipment accounting standards. introduction of component accounting reassessment of useful lives and expected residual values Statements in the AC 500 series are issued to address South annually African specific matters which are not addressed in the goodwill is assessed for impairment and no longer amortised international standards. AC 501 - Secondary Taxation on accounting for share options and the recognition of the related Companies - is currently the only standard issued in this series. expense and liability in terms of IFRS2 the requirements of IFRS 3 to allocate the purchase price in Re-looking at existing standards any business combinations after 1 March 2004 to the fair The increased focus on the content of the existing standards values of the underlying identifiable assets tangible and during the current year has identified various areas where South intangible, liabilities and contingent liabilities. African companies were incorrectly applying these standards. The financial instruments accounting profession is, therefore, currently experiencing a the removal of alternative accounting treatments for foreign refinement of opinions on paragraphs in the standards. Even operations. though the wording of the standards has not changed, the opinion reclassifying non-current assets held for sale. of what they mean has changed. An example of this is the wider related party definitions and disclosure requirements. requirement to recognise operating lease income or expenditure on a straight-line basis over the period of the lease. The Grant Thornton IFRS implementation team: Frank Timmins ftimmins@gt.co.za Jeanette Hern jhern@gt.co.za Jessica Saayman jsaayman@gt.co.za Chris Paul cpaul@gt.co.za Stephen Bruce sbruce@gtec.co.za Rudi Scholtz rscholltz@gtec.co.za Neil Adams nadams@gtct.co.za Catherine Tillard ctillard@gtdbn.co.za Anabel Vieira av@gtpta.co.za
Volume 2. November 2005 3 the Guest line: To audit or not to audit By Linda de Beer, Senior Executive - Standards, South African Institute of Chartered Accountants (SAICA) Significant debate surrounds the nation's proposed corporate law reform, with the following questions being anxiously posed: should all companies be subjected to an audit do smaller companies only need an accounting officer's report should close corporations be abolished must every company comply with International Financial Reporting Standards (IFRS) including small companies Yet the debate has not addressed the heart of the matter, thereby rendering it impossible to come up with the appropriate answers. Corporate law - limited liability Of crucial importance is an appreciation of a vital principle of corporate law, that of limited liability which comes with extended responsibility. The shareholders or members of a limited liability entity (company or close corporation) have the privilege of decision-making, acting and running operations for which they, in their individual capacity, only take limited responsibility, albeit financial or otherwise. For this privilege, the limited liability entity must 'pay' by making information available to its stakeholders in a responsible, transparent and unbiased manner. The Triple Bottomline Gone are the days when a company or close corporation could think it was only accountable to its shareholders or members. No company is an island; it is part of a complex infrastructure and, as a corporate citizen, it is accountable to the community, employees and others. Good governance requires a balance between economic, environmental and social interests, often referred to as the triple bottom line. Public protection With this in mind, the broad objectives of corporate law can be evaluated and only then can all of the related questions be answered. The first such objective refers to protection for investors and other stakeholders. As an economy dependent upon foreign investment, South African corporate law should give all investors the peace of mind that financial reporting standards of the highest quality are applicable. South African corporate law should be in line with international best practice and the requirements should be familiar and understandable for a prospective foreign investor. Furthermore, mechanisms should be built into law to ensure that external stakeholders such as shareholders, minorities, employees, creditors, suppliers, consumers and the public at large are protected. This can be done by spelling out the duties and obligations of directors, financial reporting requirements, good governance principles, civil litigation processes and capital maintenance mechanisms. Impact on smaller businesses The objective of public protection must be balanced by the importance of small business within our economy. If South African corporate law does not encourage entrepreneurs to establish small and medium sized businesses, our socio-economic problems such as the need for job creation and skills development will never be adequately addressed. HÄGAR the Horrible by Dik Browne
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IFRS - there's nowhere to hide - Grant Thornton

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