Volume 1. May 2005
...is our regular bulletin featuring news and
developments that affect your bottom line.
In this issue
1 Whistleblowing - is it the right thing or the only thing to do?
4 Putting a value on valuations
6 Tax management is risk management
8 the Guestline: PAAB details onerous new audit standards
10 Internal audit: is your provider in or out?
11 IBOS highlights
12 the Chat line
‘Whistleblowing’ – is it
the right thing or the
only thing to do?
By Advocate Dion Hucker, Principal, East London
Most people are brought up in an environment where the The victimisation or vilification of
concepts of loyalty and peer or team spirit were taught
whistleblowers is particularly topical
and engendered from an early age. A fundamental
when it comes to the detection of fraud or corruption
principle of this ‘loyalty’ is never to inform on another
within an organisation. Tip-offs received from employees,
member of your group no matter what they might have
customers, outsiders or anonymous sources account for
done. This is regarded as betrayal of the group as a
whole and as an indication of low moral fibre on the the detection of a significantly higher number of fraudulent
part of the informant. schemes than other more conventional control measures.
Small wonder then that a person who witnesses or bears The Association of Certified Fraud Examiners’ Report to
knowledge of unlawful or irregular conduct within an the Nation in 2002 reports: "The most common method
organisation is somewhat reluctant to share their for detecting occupational fraud is by a tip from an
knowledge with outsiders at times. employee, customer, vendor or anonymous source."
2 Volume 1. May 2005
In a South African context, the informant or
"impimpi" has been particularly reviled and,
if identified, often singled out for particularly
brutal forms of community or peer group
victimisation and retribution.
This report also reflects that organisations with fraud Recent legislation has imposed criminal sanctions and
‘hotlines’ in place cut their fraud losses by approximately penalties on people who refuse, or fail to report a wide
50% per fraud scheme. variety of unlawful or even suspicious activities or
transactions. Two significant pieces of legislation
The South African Institute of Government Auditors imposing such a duty to report unlawful or suspicious
emphasised the importance of whistleblowers in their activities are: the Financial Intelligence Centre Act (FICA);
Public Sector Fraud Survey by stating: "Apart from and the Prevention and Combating of Corrupt Activities
whistleblowers (number one position) internal control and Act (PCCAA).
internal audit are also seen as the major tools in detecting
fraud." Clearly then, despite popular perception and the The failure to report
Section 29 of FICA imposes a reporting duty upon any
threat of being subjected to various forms of retribution,
person, who carries on, manages or is in charge of, or is
vilification and ostracism, whistleblowers are still finding
employed by a business and who knows or suspects that
that their personal values, ethics and consciences will not
certain unlawful activities pertaining to money laundering
tolerate the perpetuation of fraud and corruption.
or tax evasion has, or is about to, take place. Refusal or
failure to report any unlawful or suspicious transactions is
The legal requirement to report
a criminal offence carrying a possible sentence of up to
Whilst statutory measures are in place to provide
fifteen years’ imprisonment or a fine of up to R10 million!
whistleblowers with some measure of protection Whilst FICA is specifically aimed at money laundering
(the Protected Disclosures Act 26 of 2000 and the and tax evasion in this regard, the PCCAA is much wider
provisions of other existing laws that provide a measure in its scope regarding the imposition of a reporting duty.
of confidentiality or protection to informants), there has
been little in the way of legislation compelling persons Section 34 of the PCCAA provides that any person
to provide information or report unlawful activities on holding a position of authority (this includes the head
pain of criminal prosecution. This situation is changing of a government department, CEO of a company and
fast as more legislation is being promulgated to not only member of a close corporation), who knows, or ought
punish direct criminal offenders themselves, but also to reasonably to have suspected, that any other person has
punish those who are aware (or who suspect or should committed one of these specified offences (relating to
reasonably be aware) of their activities and ‘turn a blind corrupt activities), involving an amount of R100 000,
eye’ to them. must report this to any police official.
Supervisors or persons in managerial positions who Any person who fails or refuses to report the afore-
have turned a ‘blind eye’ to theft or similar acts of mentioned offences, in the prescribed format, to a police
dishonesty committed by their subordinates or colleagues official is guilty of a criminal offence and (depending
have been considered guilty of gross dishonesty upon the court before which he or she is charged)
themselves, and have been subject to the appropriate could face a fine or imprisonment of up to 10 years.
sanctions (usually dismissal) in misconduct proceedings
conducted in terms of prevailing labour law for some Do you know?
time now. Misconduct based on gross dishonesty usually The specific inclusion of terms such as ‘suspects’ or
results in dismissal, but is this enough of an incentive to ‘reasonably ought to have known or suspected’ in this
blow the whistle on unlawful activities? legislation, provides a clear indication that any court
Volume 1. May 2005 3
hearing criminal charges brought under this legislation In your attempt to detect and eliminate fraud
will not just be bound to adjudicate on any case based in your business, have you considered the
solely upon the individual actions or subjective personal implementation of a fraud hotline?
knowledge (or lack thereof) of any person charged with
ScamStop is an employee friendly toll-free crime
failing to report the proscribed activities. The presiding
reporting line which enables and encourages
judge or magistrate will have to look at the your employees to contribute to reporting and
circumstances in which any failure to report arose, and preventing planned or existing internal fraud
determine whether or not a reasonable person in the or theft.
position of the accused should have suspected or ought
to have known that the relevant criminal activity was This fraud hotline is administered by Grant
taking place and reported it. Determining Thornton in association with Corporate
reasonableness in criminal proceedings involves the Confidential Solutions (Pty) Ltd. The ScamStop
fraud hotline operates independently of your
application of an objective test (the so-called ‘reasonable
company, ensuring objectivity, impartiality and
man’ test) which can make life difficult for any person absolute fairness. All information is strictly
relying on an ‘ignorance of the law’ or lack of subjective confidential and the caller is ensured anonymity
knowledge defence scenario. at all times. The control centre employs a
complement of specialised and multilingual
The wide ambit of the afore-mentioned legislation and advisors who are trained to respond to calls
the express application thereof to just about every 24 hours a day, 365 days a year.
conceivable participant in both the public and private
The types of incidents that are typically reported
sectors has serious implications for a wide cross-section
of South African society. The underlying message • theft of company assets, small or substantial
generated by the promulgation of such legislation is • the contravention of company safety an security
clear - the criminal element can no longer rely on the procedures
silence of the general public, colleagues or their • the contravention of company norms e.g. drug
superiors. Criminal activities will have to be reported and alcohol abuse in the workplace
to the authorities. • serious or sensitive occurrences such as sexual
harassment or discrimination
• telephone abuse
Cultural, moral, religious and ethical grounds aside, it is
becoming very clear that the reporting of unlawful
activities is no longer just the "right thing to do" but, The fraud hotline classifies all calls into high,
when facing the alternative of criminal prosecution and medium or low risk and the reports are filtered to
the imposition of severe penal sanctions, it may also be a client appointed risk advisor who consults with
the only thing to do! the client. The need for further investigation is
then evaluated towards an eventual outcome of
disciplinary action or criminal prosecution.
For more information on implementing ScamStop
in your business, contact Pieter Muller, Director,
Forensic Services Grant Thornton Johannesburg
on (011) 322 4703 or firstname.lastname@example.org
4 Volume 1. May 2005
Putting a value on valuations
By Yaron Zimbler, Senior Manager, Corporate • buying another shareholder’s shares
Finance, Johannesburg • planning a listing and/or public offering
• negotiating a merger or an acquisition
Most business owners have some idea of the value of • balance sheet restructuring
their business. This is however often less than objective • raising debt funding
and influenced by the emotional attachment to the
At the core of any such corporate finance transaction,
business. Having a clear understanding of what a
determination of value is no doubt the most important
business is worth and what the drivers to that value are,
and contentious issue. The success of any deal and
gives owners and managers a unique insight which can whether or not the parties involved are able to reach
assist them in planning the strategy of their business an agreement, will in almost all cases, focus on issues
and maximising its worth. of value.
Obtaining an objective, independent and professionally It is the goal of any shareholder or business owner to
prepared valuation is something which can prove maximise the value of their asset and a deal which does
invaluable to any business owner. Although valuations not achieve this is probably not in their best interests.
are usually obtained for the process of conducting a Where a company’s shares are not publicly traded, the
deal, the business environment is a rapidly changing
holders of those shares remain very much in the dark as
and dynamic one and owners should have that sort
to the true value of their asset.
of information readily available during the process
of managing their day-to-day strategy.
In the case of listed companies, although market
information is at hand to give an indication of the value
The concept of value
of those securities, this is limited particularly in the case
The valuation process sets out to assign a monetary
of small capitalisation stocks that are traded in limited
value to a business or asset. Value is generally defined
volumes. Also, the market price represents the value of
as being the price at which a willing buyer and a willing
a minority interest and does not take account of aspects
seller are prepared to exchange ownership of an asset.
The majority of business owners have never set about of value such as control premiums.
valuing their business properly or getting an expert to
do it for them. Instead, their value estimation has been Financial statements add no value
based on emotions or rules of thumb that tend to be Shareholders and business owners give too much
overly optimistic. Since a deal can only be reached once attention to the financial statements of a company.
the estimation of value is mutually agreed upon by the These only reflect the past performance of a business
parties concerned, it is important to have a valuation and although this is useful in determining the value of
done properly by an independent source. that business, they are limited in that value is determined
largely by the business’s future performance, an aspect
Before a business can be valued, the purpose of the which financial statements don’t and for that matter
valuation needs to be established. Some of the situations cannot be expected to pay much attention to.
in which a valuation may be needed, include:
• buying or selling a business Methods of valuation
• structuring a BEE transaction There are numerous methods of valuing a business or
• selling a stake in the business to a private equity the shares therein. The most accepted method of
funder or a strategic investor valuation is, therefore, the Discounted Cash Flow or
• management buy-outs and buy-ins "DCF" approach. The DCF methodology projects the free
• family business selling on to the next generation cash flows of a business going forward. Free cash flow is
Volume 1. May 2005 5
At the core of any corporate finance
transaction, determination of value
is no doubt the most important and
the cash available to shareholders from the business’ with great care as they often have flaws and limitations
operations after funding its capital investment depending on the context in which they are applied.
requirements. Free cash flows are discounted back to
the present to determine the value of the business. Benefits of a professional appraiser
Obtaining an objective, independent and professionally
The value of the shares in a company is determined by prepared valuation is something which will prove very
subtracting the value of debt from the value placed on useful to a business owner entering into any business
the business. The discount rate applied is determined transaction. A valuation by an independent party will:
using the Capital Asset Pricing Model which approximates • ignore rules of thumb and make a value estimate
the rate of return which an investor would require on an based on the facts presented
investment in the business given that particular business’ • provide a useful baseline to establish a price for a
risk profile. This is done by referring to the return business or help to increase a company’s value and
required on risk-free government bonds and taking into attract capital
account the risk premiums investors require over and • provide insight into what the value drivers are in the
above that rate by looking at the stock market. business and assist in strategic planning
• provide ongoing valuations preferable at the end
Various other methodologies can also be applied, of every business operating cycle or at least every
such as: three years
• Price / earning multiples • give an owner sophisticated insight that will be hard
• Revenue / earnings multiples to dispute by a 3rd party and will hold up in court
• Net asset value if necessary
None of these is as theoretically sound as the DCF There is no question that having accurate and objective
approach and they should in most cases only be used valuation information readily available will enable every
as benchmarks against which to evaluate the value business owner to make more accurate decisions
arrived at using a DCF model. If, however, one of regarding the immediate, medium and long-term future
these methodologies has been used, it should be applied of your business.
Hagar the Horrible
6 Volume 1. May 2005
Volume 1. May 2005
Tax management is risk management
By Justin Liebenberg, Senior Tax Manager, Johannesburg SARS collection capacity
The second major impact taxpayers are facing is a
Risk management is fast becoming the number one significant transformation in the South African Revenue
business strategy in the drive to ensure that a business is Service (SARS) which has enabled the revenue authority
not hindered in achieving its objectives. This buzzword has to improve their collection capabilities. In the recent past
connotations of a safe working environment and maintained SARS has greatly enhanced its capacity to collect taxes by
reputation but seldom is tax considered a business risk. broadening the overall tax base and ensuring that all
taxpayers pay the taxes that are due.
Financial loss due to improper tax risk
management can easily be one of the largest SARS also now employs highly skilled professionals and
losses to a company. In addition, there could be has introduced targeted audits in areas where there has
a material mis-statement in financial statements. been widespread non-compliance with the tax legislation.
The management of tax risk should, therefore, be The new SARS Large Business Centre has also organised
a crucial element of the overall enterprise risk assessors along industry lines in order for SARS to better
management strategy. understand the industries in which they audit and
consequently places them in a stronger position to detect
The reason for tax risk reaching the non-compliance. In addition, SARS has also focussed on
top of the business agenda is due to those industries such as the financial services and mining
the rapidly changing tax environment industries that traditionally have low effective tax rates
in which South African businesses compared to other industries .
Volume of legislation
With tax returns becoming more onerous, taxpayers are
The first major change facing
now more likely to inadvertantly omit information when
businesses today is the sheer
volume of complex legislation that submitting their tax returns to SARS. With the enhanced
has been introduced in recent years. capabilities of SARS it is more likely that these instances
In South Africa there has been a of non-compliance will be detected. SARS is also no
massive shift in the way in which longer sympathetic to taxpayers who claim that their
taxpayers are taxed. The change misrepresentation was unintentional.
from a source basis of tax to a
residence basis of tax brought It is no wonder, therefore, that tax has become a major
about fundamental changes to the risk factor for all businesses. As with all business risks,
tax system, as did the introduction the mismanagement or even non-management of tax
of capital gains tax. And, as if this can severely hamper a company’s ability to achieve its
is not enough, the legislation is profit objectives.
constantly changing to combat
avoidance of taxes, whether actual One aspect of tax risk is the so-called "compliance" risk.
or perceived, as well as to take This is the risk associated with incorrect disclosures to
account of changing business practices. SARS which could result in penalties, interest and
even criminal prosecution.
Another tax risk is that a business’ tax expense is
incorrectly recognised and disclosed in the annual
Justin Liebenberg, financial statements. This could then lead to unwanted
Senior Tax Manager, Johannesburg and often embarrassing adjustments in subsequent years.
Volume 1. May 2005 7
A company must also consider the risk of overpaying the current tax legislation is being properly complied with.
taxes and should take every precaution to ensure that Non-routine transactions on the other hand do not take
taxes are paid accurately and timeously. place very often. Although generally infrequent, these
transactions can be significantly more complex and also
Beyond the financial impact of tax management, a material in size. For example, the acquisition or sale of
company’s reputation can be severely tarnished where businesses may not take place every day, but would
non-compliance with the tax legislation is made public have a material impact on the entity’s tax liability.
by SARS or through the media.
Due to the nature of these transactions, detailed tax
It is imperative, therefore, for all businesses to seriously planning must take place. The lead-time in such
consider improving the management of their tax risk. transactions gives the company an opportunity to
We have developed a simple strategy to assist businesses properly assess the tax consequences of the transaction,
in better managing their tax systems and consequently enabling it to minimise that tax.
minimising the risks posed by incorrect tax management.
Because a non-routine transaction can be complex, it is
Making tax management manageable advisable that a tax professional is involved in all tax
Formulate a tax risk policy document planning. Once advice has been provided, detailed
This document should contain an assessment of the attention must be given to its implementation because
company’s overall tax risk and an analysis of whether slight differences could have severe tax consequences.
these risks are in line with the entity’s overall risk profile.
Transfer of information to the preparers of the
The document should specify the relevant tax risks tax returns
and allocate responsibility for the management thereof to Once controls have been established over the calculation
specific persons. There should also be provision made of the taxes arising from routine and non-routine
for communication lines between those persons transactions, it must be ensured that there is a proper
responsible for tax management and the board of transfer of such information to the preparers of the tax
directors. All internal controls over the tax function return. Controls must be established to ensure the
should be documented. completeness, accuracy and validity of the information
that gets passed on to such persons. These controls must
Classify transactions also ensure that the persons involved with transactions
Company transactions should be classified into routine on an operational level pass on all relevant information
and non-routine transactions. to ensure proper disclosure in the tax return.
Routine transactions are those transactions which take
Transfer of information to the preparers of the
place on an everyday basis and are usually similar in
annual financial statements
nature. Because these transactions take place on a
There also needs to be proper communication between
frequent and repetitive basis, the incorrect processing
the persons involved in calculating the tax, and those
thereof can have a compounding effect. It is important
persons involved in preparing the annual financial
for the company to identify such routine transactions and
ensure that the tax legislation relating thereto is correctly statements. The incorrect disclosure or inaccurate
interpreted and applied. The company must ensure that recognition of tax in the financial statements could lead
all staff who are involved in the processing of these to amendments in subsequent years. Once again, it is
transactions fully understand the relevant tax implications. important to ensure the complete, accurate and valid
transfer of information to the preparers of the financial
Due to the ever-changing nature of tax, it is essential statements. In addition there needs to be proper
to keep staff up to date with legislative tax amendments. communication channels between the board of directors
It is also advisable to have periodic independent reviews, and the persons responsible for managing tax to ensure
such as PAYE and VAT, of these functions to ensure that that proper decisions are be made in this regard.
8 Volume 1. May 2005
the Guest line:
New audit standards often onerous for audit
profession and business, says the PAAB
By Bernard Agulhas, Director of Auditing Standards, Industry consultation
Public Accountants’ and Auditors’ Board (PAAB) For these reasons, in 2004, the Auditing and Assurance
Standards Board (AASB), a Committee of the PAAB,
Although many people remain cynical about whether invited representatives of the business community,
corporate governance has resulted a true change in government and other constituent groups affected
corporate behaviour or just a heightened sensitivity to by auditing standards to join a Consultative Advisory
addressing public perception, I can say with confidence Group (CAG).
that in the world of auditing much more than perception
The CAG is an independent advisory and oversight body
established to have as many non-auditors as possible
providing input and feedback on auditing standards and
Many of the principles of good corporate governance their impact on business.
are no longer simply an option. Increasingly, they are
enshrined in legislation and regulation - with complex and Stakeholders represented on CAG currently include the
essential, though often onerous, implications for both the Reserve Bank, the Financial Services Board, the JSE,
auditing profession and business. STRATE, the Institute for Public Finance and Auditing,
National Treasury, the Actuarial Society, The Office of the
It is not surprising, therefore, that there is increasing Auditor-General, the Institute of Internal Auditors and the
pressure for business to be accountable for good Institute of Directors.
governance, as highlighted in many of the comments
received by the National Treasury on the Draft Auditing Together they will help us proactively identify matters
Profession Bill and Corporate Law Reforms. In the global which need to be addressed through audit standards and
arena, the Sarbanes–Oxley Act requires management to regulation and provide valuable feedback on the activities
certify their responsibility for establishing and maintaining of the AASB, thereby enhancing the transparency and
internal controls and requires the annual report to accountability to business and the general community of
include management’s assessment of internal controls. our auditing standard-setting function.
The CAG forum represents a unique platform for open
Another interesting development is that auditing
dialogue, communication and education between the
standards increasingly include management
regulator and business.
responsibilities. The new international reporting
standard has expanded substantially on management’s
Convergence with international standards
responsibility for financial statements and the standards
However, the fact that the world of business increasingly
of the Public Company Accounting Oversight Board operates beyond national borders has additional
established in terms of the Sarbanes–Oxley Act implications for regulators such as the PAAB. In our
re-emphasises management’s responsibility for internal globalised world, institutional shareholders look for
controls over financial reporting. investments both at home and abroad as a means of
spreading their exposure to particular markets and
In drafting and issuing new auditing pronouncements emerging economies.
for auditing South African business the PAAB cannot,
and does not, operate in isolation. We must be Whilst that trend provides South African business with
cogniscent of international standards, as well as great opportunities to attract overseas capital, to take
responsive to the needs of business, bearing in mind full advantage of those opportunities we have had to
the potential impact of regulation on the efficiency implement some changes in the way we do business
and profitability of business. here in South Africa.
Volume 1. May 2005 9
This is not new – the corporate governance chain
consists of many cogs, auditors and directors merely
accounting for two of the many role players.
This is why, for the past few years, the PAAB has Also, as part of our role as regulator of the standards
concentrated on converging South African auditing and conduct of members of the profession, the PAAB
standards with international standards, with full adoption conducts regular practice reviews to ensure registered
of International Standards on Auditing coming into effect auditors are carrying out their role appropriately,
in January this year. including that all auditing standards are being
Convergence means that an auditor’s report on a set of
financial statements for a South African based business The auditing profession is unique in conducting these
can be interpreted and understood in the same way ongoing reviews of all members every three years.
anywhere in the world because a common set of If a member’s work is found wanting they will be called
to account as the PAAB Practice Review Committee has
principles can be applied.
the authority to require the member to undergo
additional training. If the practice is continually found
Previously, potential investors would have needed to
to be substandard the member will face disciplinary
have an understanding of the national standards used
action which can result in them being reprimanded,
in the country where the audit report was issued.
fined, suspended or even deregistered.
So while South African auditing standards have always It can certainly not be said that the
been world class, adoption of global standards effectively auditing profession has tried to hide
removes a perceived barrier to investment as they from realities exposed by the
provide assurance that is familiar to foreign investors and corporate collapses of recent years.
where such assurance is positive, a presumption that our Promoting independence and good
capital markets are operating effectively. corporate governance is a priority
and much time and effort has been
Impact on your auditor spent addressing issues relating to
All these changes are positive for business but the very standards and quality of work.
practical impact on the auditing profession must also be
considered. Every new standard must be learnt, In South Africa we can
understood and applied to every business by every be proud of the
Registered Accountant and Auditor from the date of achievements of the
adoption. profession and find
As outlined already, over recent years the pace and comfort in that the
quantity of new standards have been immense, with the PAAB will continue to
effect that conducting an audit is now significantly more be an independent
complex and challenging, often requiring more time. watchdog on behalf
of business and the
However, business can rest assured that the increase
in workload will not diminish the quality of work
prepared by an auditor. The PAAB is in the process of
finalising new quality control standards and quality
control guidelines. These guidelines will provide
practical direction to auditors and promote best practice Bernard Agulhas,
Director of Auditing Standards,
in applying standards in the audits or reviews of Public Accountants’ and
financial statements. Auditors’ Board (PAAB)
10 Volume 1. May 2005
Internal audit: is your
provider in or out?
By Lisa Labuschagne, Director of Internal Audit, With the onslaught of company failures and corporate
Business Risk Services, Johannesburg governance debacles, however, this practice is beginning
to be questioned.
Recent high profile corporate failures both in South Africa
and abroad have highlighted loopholes in the management Until recently, the only South African guidelines relating
processes and internal control systems of companies. to this issue were in the King Report on Corporate
In an attempt to detect and close these loopholes, Governance. The report recommends that the audit
companies have employed the services of internal auditors committee set the principles for non-audit services that
but now changing legislation will impact on where these are provided by the external auditors. Now, however,
services can be bought. many listed companies have started to follow
international trends and restrict non-audit services that
Internal audit is an independent assessment within an are supplied by their external auditors. In response,
organisation that reviews a wide range of activities in a large auditing firms have also followed suit and sold
company’s management control system. The current their ‘consulting’ arms. Now, proposed amendments to
complex business environment requires internal audit the Companies Act will prevent external auditors from
departments to be staffed with highly skilled and providing internal audit services to the same company.
qualified personnel who bring a diversity of skills to the
organisation. Some larger companies have their own Proposed amendments
internal audit departments but the function is often The draft Auditing Profession Bill was issued for
outsourced to an external firm for various reasons, such as: comment in 2004. Its purpose is ‘to regulate the auditing
• the company may be too small to sustain its own profession, to make provision for an Independent
internal audit department Regulatory Board for Auditors, a Standard-Setting Board
• outsourcing allows management to focus on for Auditors Ethics and Auditing, to replace the Public
core competencies Accountant’ and Auditor’ Act (1991) and to provide for
• access to best practice, technology and incidental matters. In order to achieve the objectives of
international support the Bill, certain amendments to the Companies Act (1973)
• specialised skills will also be required. One of the proposed amendments
• independence to the Act is reflected under the heading ‘Certain non-
audit services not open to current auditor of public
In the past, when a company has decided to outsource interest company’ and states that an auditor of a public
or co-source its internal audit function its executives interest company may not perform any of the following
have often turned to their external auditors for help. for that company:
A public interest company is defined as • internal auditing
a company that is not a ‘limited purpose company’.
A ‘limited purpose company’ is defined as a private The Companies Amendment Bill is in line with
company that does not:
international trends and in particular the Sarbanes-Oxley
• take deposits or loans from the public,
• offer its shares to the public, Act of 2002. This act applies to all American public
• act as a holding company in respect of companies and all foreign companies that have listed
a public interest company, and their securities on a US public stock exchange.
• is not a subsidiary or associate of, or joint
venture with a public interest company,
Section 201 of the act makes it unlawful for a registered
that is authorised by unanimous consent
of its members to operate as a limited purpose public accounting firm to simultaneously perform both
company for the purposes of the Companies Act. audit and certain non-audit services.
Volume 1. May 2005 11
“SA story is one of hope,
thanks to Grant Thornton
survey”, says Mbeki
The prohibited non-audit services include the following: Grant Thornton hosted five successful Owners’ Day
• bookkeeping or other services related to the events throughout the country on 18 May.
accounting records or financial statements of the The events were the culmination of our International
audit client Business Owners Survey (IBOS) that investigates the
• financial information systems design and issues pertinent to business owners globally, and
implementation provide a platform to showcase the South African-
• internal audit outsourcing services specific findings.
• management functions or human resources
Now in its third year, the survey tracks the
Ultimately, it is anticipated that South Africa will align trends and opinions of 6 300 business owners
itself to international standards and identify internal audit in 24 countries including 300 in South Africa. In his
as a service that an external auditing firm cannot offer weekly online newsletter, President Thabo Mbeki
to the same firm. has lauded the positive IBOS results. These are some
of the findings from the business owner’s mouth…
Various other new pieces of legislation such as the
"I am very positive, my business is young and there
Financial Intelligence Centre Act (FICA), Prevention
are lots of opportunities for me"
and Combating of Corrupt Activities Act, Financial
Advisory and Intermediary Services Act (FAIS) and the
"For a medium sized business red tape is very time
requirements of other regulators such as the JSE, place
consuming and not really cost effective. You have to
enormous responsibility on companies to maintain good
fill in forms and employ people to do it."
systems of internal control.
There are only a limited number of auditing firms that "There are fluctuations with employee numbers, but
offer specialised services such as internal audit and at the moment we are in an expansion phase and
companies using their external auditors for these services are taking on more people."
may soon have to look elsewhere for this service. In the
case of some large listed companies, the problem is "HIV/AIDS impact on my business has been small"
exacerbated when they have two external audit firms
performing the statutory audit. "Everything about business causes stress and yes,
my stress levels are definitely increasing."
Business as usual
Grant Thornton does provide a wide range of specialist "I think we are all in favour of BEE. Unless there is
services, including internal audit. This issue of upliftment of the masses there is going to be
Bottomline focuses on several of these services. insurrection. In addition, BEE is going to be good
for the economy."
Increasingly, restrictions are being placed on public
interest entities in South Africa to purchase non-audit
services from external auditors. Instead of restricting the
growth of our firm, these changes provide opportunities
for us to grow our service offerings.
It is important to note however, that although we are For a copy of the South African IBOS report and
increasingly providing specialist services to new clients, an opportunity to benchmark your business
we do, at the same time, remain committed to the against peers both locally and internationally,
highest level of audit services to our existing markets. visit our website www.gt.co.za
the You are always welcome to
...features exciting developments at our firm.
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Cape Town, 8001
P O Box 1550, Cape Town, 8000
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Leonard Brehm steps down from Board of Governors Durban
After four years, Leonard Brehm has decided to resign his position as Tony Berman
Chairman of the Grant Thornton International Board of Governors. 2nd Floor, 4 Pencarrow Crescent, Pencarrow Park,
This decision stems from his other onerous responsibilities as National La Lucia Ridge Office Estate, 4019.
Chairman of Grant Thornton’ South Africa and Managing Partner of the P O Box 752, Durban, 4000
T +27 (0) 31 576 5500
Johannesburg office. Leonard will, however, remain South Africa’s F +27 (0) 31 576 5555
representative on the Board. E email@example.com
David McDonnell, Grant Thornton’s Worldwide Chief Executive had this East London
to say about Leonard’s Chairmanship: Tony Balshaw
"Leonard has been an outstanding Chairman and has made a major 26 Vincent Road, Vincent, 5247
P O Box 313, East London, 5200
contribution to the development of our organisation. I am particularly T +27 (0) 43 726 9898
grateful to him for his support during some challenging times." F +27 (0) 43 726 9899
The Chairman-designate is Ed Nausbaum, Chief Executive of Grant
Thornton, US who will take up the position from June 2005. Johannesburg
137 Daisy Street, Cnr Grayston Drive,
Deepak Nager appointed to the PAAB Sandown, 2196
Congratulations to Deepak Nagar, Partner at Grant Thornton Durban on Private Bag X28, Benmore, 2010
his appointment as a member of the Executive Committee of the Public T +27 (0) 11 322 4500
Accountants’ and Auditors’ Board (PAAB). F +27 (0) 11 322 4545
The Executive Committee is responsible for ensuring the continued
compliance of PAAB as well as raising and debating strategic issues for Tony Balshaw
implementation by the Board. 165 Cape Road, Port Elizabeth, 6001
PO Box 35133, Newton Park, 6055
Grant Thornton trainees excel in Qualifying Board Exams T +27 (0) 41 373 4200
Grant Thornton’s trainee accountants have excelled in this year’s F +27 (0) 41 373 4201
Public Practice Examination (PPE). Joseph Komape is the first black, E firstname.lastname@example.org
blind candidate to pass the Public Practice Examination first time while Pretoria/Tshwane
Justin Goldberg from Johannesburg and Vaughan Grandin from Durban Johan Blignaut
were ranked third and eighth respectively. 121 Boshoff Street,
New Muckleneuk, 0181
Grant Thornton’s national pass rate of 85% was well above the national P O Box 1470, Pretoria, 0001
average of 70%. Grant Thornton is the only firm outside the "Big 4" to T +27 (0) 12 346 1430
F +27 (0) 12 346 2502 or 4191
have candidates ranked in the "Top Ten". E email@example.com
Cape Town office supports Margaret’s House Media enquiries
Margaret’s House provides a home for orphaned street children in Jennifer Kann
Lansdowne, Cape Town. Currently 13 boys are cared for at the shelter, T +27 (0) 11 322 4588
predominantly by volunteers. E firstname.lastname@example.org
The Grant Thornton office in Cape Town supports Margaret’s House in a
variety of ways. In addition to a financial investment made by the partners, Editorial Panel: Leonard Brehm, National Chairman;
the staff contributes their time and resources to shopping for food, painting, Pamela Grayman, National Marketing Principal;
Jennifer Kann, Communications Executive;
repairs and organising fund raisers. David Reuben, Partner
Although Margaret’s House does receive a government grant, Grant Thornton’s
contribution is vital to ensure the ongoing running of the home.
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