PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY Comments on the Companies Bill August 2008 Ignatius S Sehoole Executive President – SAICA

General comment We commend the dti on the latest version of the Companies Bill: Greater consistency with the definitionsGreater consistency with the definitions Tighter wordingTighter wording Purpose and effect of the Bill are, for the most part, clear and unambiguousPurpose and effect of the Bill are, for the most part, clear and unambiguous Although SAICA has a number of suggestions to make in respect of individual sections of the Bill, it has no hesitation in supporting it as an important element in the development of the South African economy

Major comments Proposals regarding the Financial Reporting Standards Council’s authority to issue standards in consultation with the Minister rather than the reverse position as set out in the Bill Define “financial statements” per IFRSDefine “financial statements” per IFRS Council to control standards to avoid timing issues, notably for JSE listed companiesCouncil to control standards to avoid timing issues, notably for JSE listed companies Time consuming, specialist functionTime consuming, specialist function Differential standardsDifferential standards Promote South Africa as international investment destinationPromote South Africa as international investment destination Standards must include interpretations issuedStandards must include interpretations issued

Major comments The need for establishment of the Financial Reporting Investigations Panel Monitoring compliance with reporting standards essentialMonitoring compliance with reporting standards essential Highly skilled function requiring dedicated focus separate from CouncilHighly skilled function requiring dedicated focus separate from Council Access to specialist skills requiredAccess to specialist skills required

Major comments The exemption from preparing financial statements should only extend to owner-managed businesses owned by natural persons and not having a significant public interest element Wholly-owned subsidiaries of companies must reportWholly-owned subsidiaries of companies must report Define accounting records as in S284 of current ActDefine accounting records as in S284 of current Act Fair presentation i.t.o. financial reporting standardsFair presentation i.t.o. financial reporting standards Publish financial statementsPublish financial statements Board of directors must accept responsibility for reportsBoard of directors must accept responsibility for reports

Major comments The definition of a group should be constrained Apply only one degree of consanguinityApply only one degree of consanguinity Remove or define “affinity”Remove or define “affinity” Group should be defined with reference holding company and subsidiaries onlyGroup should be defined with reference holding company and subsidiaries only The solvency and liquidity tests should be refined and applied at company level only, not group level Assets > liabilitiesAssets > liabilities Insolvent subsidiary may be part of solvent groupInsolvent subsidiary may be part of solvent group Remove requirement for an outside shareholderRemove requirement for an outside shareholder

Major comments Minimum criteria for audit committee members should be set, including independence and appropriate skills All Board committee members must be directorsAll Board committee members must be directors Independence of Audit Committee members essentialIndependence of Audit Committee members essential Financial literacy essential, coupled with industry knowledgeFinancial literacy essential, coupled with industry knowledge Board may determine additional functions, but oversight functions onlyBoard may determine additional functions, but oversight functions only Board, not shareholders, to appoint Audit CommitteeBoard, not shareholders, to appoint Audit Committee

Major comments All major regulations should be issued well in advance of the effective date of the Bill and entities supporting the objectives of the Bill similarly be formed prior to commencement of the Act Allow adequate, well-informed preparation timeAllow adequate, well-informed preparation time Establish FRSC and issue standardsEstablish FRSC and issue standards Publish differential reporting standardsPublish differential reporting standards Determine “public interest” companies required to reportDetermine “public interest” companies required to report Define officersDefine officers Clarify review requirementsClarify review requirements Set out transitional arrangementsSet out transitional arrangements

Secondary comments Numerous sections have been commented on under “Secondary comments” These comments are in many instances related to the Major Comments and are significant in their own right These have not been addressed today in the interests of time

Closing remarks SAICA is committed to ensuring the highest quality corporate governance, Which requires high quality reporting standards and the promotion of public disclosure and transparency We encourage the Portfolio Committee of Trade and Industry to grant serious consideration and full deliberation of comments made by us and other interested parties A high quality Companies Act is imperative to promote South Africa as a trusted international player in the business arena and to promote a vibrant economy

Thank You