Accountant Official journal of the
South African Institute of
honour for SAIPA
Rare honour bestowed upon SAIPA chairperson 2
Official journal of
the South African
Q & A with new SAIPA Deputy chairperson & Institute of
Board Member Joseph M. Tshiwilowilo 4 Professional
A case of irrational exuberance? 8
Pushing the art of management accounting 10
Revoking an irrevocable power of attorney 15
International honour for SAIPA THE PROFESSIONAL
Emerging Markets – chinese Markets Evolve 19 chairperson – See page 2
Plain language starts with the reader 21
EDITORIAL BOARD SAIPA NATIONAL OFFIcE
The current Law on Restraints Of Trade 22 S Daniels SAIPA House Howick Close,
M Enslin Waterfall Park, Vorna Valley
A Proudlock Midrand
can shareholders, aggrieved at the way the directors are P Sinamane PO Box 2407
Prof. D Venter Halfway House 1685
running the company, ask the court to intervene? 24 Tel 011 207 7840
ADvERTISING ENQUIRIES Fax 011 805 0105
Vanessa Benjamin www.saipa.co.za
Who will guard the trustees? 26 011 440 7841/ 082 440 1878
Yvonne Sinclair The Professional Accountant
011 325 2920/ 082 451 6237 is published by The Eagle
IFAc: 30 Years of Progress 28 Publishing Co (Pty) Ltd,
DESIGN AND LAYOUT PO Box 41928,
The Eagle Publishing Company Craighall, 2024
Encouraging Quality and Building Trust 28 Phone: 011 325 2920
The views expressed by the contributors do not necessarily reflect those of The Institute
The reading of this magazine qualifies for unstructured CPE hours as required by The Institute
Rare honour bestowed upon
Shahied Daniels | chief Executive, South African Institute of Professional Accountants
SAIPA is proud to announce that the His appointment affords South Africa and the African
Chairperson of the South African Institute of continent well deserved recognition for contributions
Professional Accountants (SAIPA), Mr. Saleem made to the advancement of accounting in developing
Kharwa, has been appointed by the Public and developed countries.
Interest Oversight Board of the International
Federation of Accountants (IFAC) to serve on Saleem Kharwa is an esteemed academic and
the IFAC International Accounting Education practicing accountant who has made a major
Standards Board for the period 1 January 2008 contribution to the advancement of accounting in
to 31 December 2010. Southern Africa, diligently devoting much of his time
and expertise towards inculcating an accountancy
This is a very rare honour that is preserved for culture in historically disadvantaged communities. He
eminent persons in the accounting industry that play an is Head of the Department of Financial Accounting at
important role in the advancement of the profession. the Durban University of Technology (DUT), a member
of the Council of the DUT, a member of
the Senate of the DUT, Chairperson of the
Saleem Kharwa Examinations Audit Committee, and an
Assessor of New Programmes for the Council
on Higher Education. Furthermore, he is
the Chairperson of SAIPA, and an Executive
member of the Board of the Eastern
Central and Southern African Federation of
During his time as Chairperson of SAIPA
he has radically restructured the Institute,
placing it on a course where it is increasingly
well equipped and positioned to eradicate the
inequalities that still exist in the accountancy
profession. Through his principled leadership
and guidance, the Institute has re-established
itself as a very important player in the overall
Within his community he consistently
and unreservedly contributes time, energy
and financial resources to improve the
livelihood of those who have suffered the
ravages of apartheid’s disastrous attempts
at social engineering, and to mitigate the
consequences of natural or manmade
disasters. As a member of the Board of the Al
Ansaar Foundation, he has been instrumental
in setting up one of the most viable and
successful community organisations, and
establishing a highly influential community
radio station, Radio Al Ansaar.
On behalf of the South African accountancy
profession, and accounting education in
particular, the Institute extends its heartiest
congratulations to Mr Kharwa on his
appointment to the IAESB. n
2 The Professional Accountant
When opportunity knocks,
open the door!
Fasset is the Sector Education and Training Authority for Finance, Accounting, Management Consulting and other Financial Services. Fasset
encourages and drives skills development in the sector through various initiatives, including the vitally important aspect of learnerships.
A learnership is a work-based education and training programme that relates to an occupation. It combines structured institutional learning
(theory) and structured workplace experience (practical) and culminates in a NQF registered competence, which is nationally recognised.
The learnerships that fall within Fasset`s sectors are listed and further information regarding participation in any one of these learnerships
can be obtained from the relevant contact person. However, respondees should not direct job applications to the learnership ofﬁces as these
cannot be dealt with.
Learnership NLRD No NQF Learnership Code Contact Person
1 Professional Qualiﬁcation Chartered 20399 7 01/Q010005/00/780/7 Association of Chartered Certiﬁed Accountants
Certiﬁed Accountant (ACCA )
2 Certiﬁcate: Accounting Technician 20397 5 01/Q01001300/390/5 Ms Tonia Couloubis
(011) 459 1900
3 Professional Qualiﬁcation: Chartered 20400 7 01/Q010012/00/930/7 Chartered Institute of Management Accountants
Management Accountant (CIMA )
4 National Diploma: Management 24406 6 01/Q010017/00/240/6
Accounting Ms Charleen Davids
5 National Certiﬁcate: Business Accounting 24418 5 01/Q010016/00/120/5 (011) 268 2555
6 Post Graduate Professional Qualiﬁcation: 20392 7 01/Q010007/00/480/7 South African Institute of Professional Accountants
Professional Accountant in Business (SAIPA)
7 Post Graduate Diploma: Professional 20391 7 01/Q010008/00/480/7 Mr Moin Khan
Accountant in Practice (011) 207 7840
8 Certiﬁcate: Accounting Technician 20402 5 01/Q010018/00/241/5 FASSET
Ms Susan Harper
9 Certiﬁcate for Registered Accounting Clerk 20362 3 01/Q010014/00/120/3
10 Certiﬁcate for Registered Bookkeeper 20363 4 01/Q010015/00/120/4
11 National Diploma: Technical Financial 36213 5 01/Q010022/28/251/5 Institute of Certiﬁed Bookkeepers (ICB)
12 National Certiﬁcate: Small Business 48736 4 01/Q010023/24/120/4 Wedaad Shira
(021) 421 1110
13 Certiﬁcate: Ofﬁce Administration 23618 5 01/Q010021/00/120/5 email@example.com
14 Certiﬁcate: Public Sector Accounting 20352 4 01/Q010019/00/120/4 IPFA
Ms Karen Prinsloo
(012) 470 9450
15 Diploma: Public Sector Accounting 20353 5 01/Q010020/00/240/5
16 Chartered Accountant: Auditing 48913 7 01/Q010001/00/480/7 South African Institute of Chartered Accountants
Mr Gerald Ndlovu
17 Chartered Accountant: 48912 7 01/Q010002/00/480/7 (011) 621 6600
Financial Management firstname.lastname@example.org
18 FET Certiﬁcate: Debt Recovery 49021 4 01/Q010024/26/149/4 FASSET
Mr Aboo Amod
(011) 476 8570
19 Certiﬁcate: General Internal Auditing 20359 7 01/Q010025/00/120/7 Institute of Internal Auditors (IIA)
Mr Lawrence Chetty
(011) 450 1040
F A S S E T
www.fasset.org.za | tel: 0861010001
The Professional Accountant 3
Q & A with new SAIPA Deputy chairperson
& Board Member Joseph M. Tshiwilowilo
The Professional Accountant speaks to Joseph M. I do not remember studying without a casual job
Tshiwilowilo about his life, his career, SAIPA, and or part-time work throughout my primary, high
other issues... school and university life.. I have washed cars, sold
fruit, caddied at a number of golf courses, worked
Q: Your resume tells an amazing story of your path to as a gardener, driven a Taxi and enjoyed amateur
an accounting career. Please tell us about it? photography. I bought my first car from the proceeds
of my photography business while I was still at
A: It is indeed a very long story, but I will make it brief. school.
I was born 51 years ago in Alexandra Township, the
fourth child in a family of eight children. During the Due to the disruptions that followed the 1976 riots,
forced removals in the early sixties, my parents were I was unable to write my matric examination in 1977
moved to Diepkloof zone 2 where I grew up. At the age at Madibane High School. In 1979 I, however, went
of five my parents sent me to Venda for four years to back to school at Orlando West High to complete my
learn Tshivenda. matric. Thanks to the Principal, Mr. Mzaidume, who
accepted me despite the fact that the school did not
Neither of my parents were well educated, my father have a Venda teacher, I succeeded.
worked as a labourer for a tyre manufacturing company,
and my mom was a domestic worker. As a norm during Q: Why did you eventually choose accounting as a
that time, my elder brother and I did various odd jobs career?
to supplement our parent’s income.
A: For this I owe my sincere thanks and gratitude to the
principal at Madibane High School, Mr. Phillip Mehlape,
Joseph Tshiwilowilo who knew the importance of studying Mathematics
and Accounting. The importance of these two subjects
was impressed upon us; we understood that whether
you were a lawyer, a doctor or a business person, a
basic knowledge of these two subjects was essential.
Our principal was a History teacher, instilling a love
for History with his pupils. As the study of history
studies has always been associated with the legal
profession, it inspired my interest in studying law. I
was very excited, thinking that I was cut out to be a
After completing matric at Matseke (Orlando West
High), I met Deborah, our school secretary at Madibane
High in Diepkloof where I completed my form three
(grade 10) and form four (grade 11). She asked me
to visit the Institute of Race Relations in Braamfontein
where I was interviewed for placement. I received two
placement possibilities, one to Caltex Oil (SA) as a
Computer Operator at the Caltex Depot in Industria,
and another for a Code 10 delivery truck driver at
Tedelex in Booysens.
The computer job was intimidating, as I did not know
what a computer looked like or how it worked. I
therefore went for the driving job. On my arrival the
interviewer was away at lunch. As he was still not back
thirty minutes after lunch, I decided to rather go for the
Caltex possibility. I was initially employed as a Junior
Clerk, butin the same year I was promoted to Senior
Clerk and Relief Accountant.
4 The Professional Accountant
Q: Has this accounting career been personally Q: Why did you choose private practice instead of public
A: Yes, very much so. In 1988, after nine years at Caltex, A: By 2000, I had already spent two decades in the public
I joined the company that had looked after me during accounting arena, and I was now getting bored and
1978 when I worked there before returning to school frustrated, as there were no new challenges. I saw
to complete ny Matric. private practice as a remedy for my routine life.
The nine years of experience I gained at Caltex Oil Q: What have the best aspects of your career path
came in handy, as I was subsequently appointed been?
as an Accountant for two manufacturing entities.
In 1992, I was appointed as Assistant Head Office A: To see no less than fifteen bookkeepers and accountant
Accountant at Swift Engineering, a former Murray that I have trained taking up very senior positions in
& Roberts subsidiary that is now owned by Henred the private and the public sector.
Fruehauf, a subsidiary of a JSE listed entity, Trencor.
Thereafter, in 1996, I was appointed Group Head To be one of the thirteen companies appointed to
Office Accountant at Henred Fruehauf Trailers, implement and manage the Financial Management
responsible for eight subsidiaries and four associate Controls at Gauteng Schools.
My involvement in various NGOs’ as Trustee, Treasurer,
In 1998 I completed my accountancy degree, and in Board Member and Director.
1999 I registered as an Associate General Accountant
(SA) with the South African Institute of Chartered My appointment as a Board Member of Natalspruit
Accountant. Hospital, a Board Member of SAIPA, a SAIPA EXCO
member, SAIPA Deputy Chairperson, serving on the
In June 2000 I established JMT Executive Tax & SAIPA Investigations Committee, and serving in the
Accounting Services CC in Vosloorus, a Township in AGA (SA) Committee at SAICA.
Ekurhuleni, vacating my positionat Henred Fruehauf in
December 2000 to devote all my attention to JMT Exec, I derive fulfillment from the various roles that I have
the entity that I am still running today. played in numerous companies within the buoyant
economy in our country.
Q: What has the biggest challenge in your career been?
What more can I ask for? This is a rewarding profession
A: Two things have been very challenging, completing my for those who work hard! I am fulfilled, andsincerely
Junior Degree at the time my employer entrusted me believe that God has been very good to me.
with the huge responsibility of Group Accountant. The
second, having to look after my wife and three kids Q: What steps does your practice take to help struggling
amidst these responsibilities. I joined study groups, students find their feet in the accounting profession?
and read my Unisa study guides in the taxi whilst
beingboth driver and passenger. A: JMT is an Approved Training Centre (ATC), approved by
SAIPA, Pastel, ICB and City Guilds. It is also registered
After completing my degree, I believed the upward with Fasset as a levy payer, and for the purpose of
mobility will now be easy, as I was one of a small group Learnerships.
of senior black employees in our company. I was,
however, very mistaken. Although the buzz words in In 2004 JMT established a Training Centre in Vosloorus
the then five year old new South Africa were Affirmative to provide computer literacy and computer skills
Action, Employment Equity and Black Empowerment, training.. Trainee bookkeepers and accountant are
the management proved to be very intrasegent when it given theoretical and practical experience, and are
came to transformation. mentored until they are confident to move out on their
own. We believe in on the job learning. Our learners
Q: How did you come to own and manage your accounting are encouraged to enrol at professional bodies.
Q: What route led to your becoming a Board Member
A: In June of 2000, while still employed, I registered of SAIPA?
JMT Executive Tax & Accounting Services CC, and in
December 2000, I resigned from HFT to join my two A: As a member of Association for the Advancement
employees at JMT. This move was motivated by the of Black Accountants of South Africa (ABASA), a key
need for my services in the area, as there were only two role player in the Accounting Profession tasked with
established bookkeepers. advancing the cause of black Accountants and bridging
The Professional Accountant 5
the historical gap, I was given the responsibility of the SAIPA is an International Accountancy body gives its
Accountancy Charter. members the legitimacy to take advantage of the many
opprtunities to also work in other parts of the globe.
SAIPA, in its quest to transform the profession and to be
transparent in its own transformation, invited ABASA to Q: Are the professional standards of the South African
enter into a strategic alliance to tackle transformation. accounting profession as high as they shoud be,
The ABASA Leadership saw this as a value-add for and do they match up to the standards in other
ABASA and the Profession. countries?
The ABASA leadership approached me to assist in A: Yes, our standards are high in terms of International
finding a suitable candidate for this rask. I immediately Standards, and are respected in the global accountancy
grabbed at this opportunity, as I saw it as a way of village. At SAIPA we have recognised the need to
moving closer to my organisation, and contributing to constantly improve our standards, hence our affiliations
the transformation and development of the accounting with the International Federation of Accountants (IFAC),
profession in the new South Africa. I did not hesitate and the Eastern Central and South African Federation
to make myself available, and both organisations of Accountants (ECSAFA).
fortunately endorsed my appointment.
A number of South Africans are working overseas with
I am proud and thrilled to be part of this fast transforming South African qualifications, and are in most cases
organisation. I strongly believe that my association accepted without the need to write entry examinations
with, and my involvement in SAIPA at board level will in countries such as Australia and Canada, to name but
open new doors for those previously excluded due to two.
lack of funding and various other social reasons.
Q: How does an organisation like SAIPA contribute to
Q: What does your role as a Board Member of SAIPA transformation of the accounting profession in
entail? South Africa?
A: SAIPA, and its board members are committed, and are A: The recent endeavours to work with all stakeholders
very serious about transformation the organisation from the accountancy profession is proof of the
to address the disparities caused by the educational organisation’s coomitment to transformation.
system of the past.
Then there is also SAIPA’s empowerment Flagship, the
Apart from my appointment to the Investigations Accountancy Olympiad, which targets students at high
Committee, I see my role as that of advocacy, and of schools by encouraging them to participate.
acting as a bridge between SAIPA and those previously
excluded from the profession. There is also SAIPA’s intent to work very closely with
ABASA; an intention that needs to be known in the
I intend attracting more new previously disadvantaged business community and the accounting fraternity.
entrants from the PDI’s to the accounting profession,
and acting as the link between black business and Q: How can we as an institute improve and speed up
Q: What, in your opinion, are the advantages of belonging A: The Board and the various committees of the Institute are
to an institute such as SAIPA? addressing the issue of speeding up transformation. We
have merged some of the regions, and have amended
A: The benefits of being a SAIPA member are innumerable, our constitution to bridge the divides concerning
especially the advantage of receiving instant PDI’s/HDI’s. An audit of the current situation has been
professional support in accounting, legal and taxation completed,and based on that outcome, we have set
matters. ourselves certain goals and objectives. Our targets are
reasonable, achievable, and measurable, and deadlines
Subscribing to the Continued Professional Development or timeframes are in place.
(CPD) seminars offrred by SAIPA affords members the
opportunity of keeping abreast of new developments There are also clusters have that been formed and are
in the profession. regularly monitored and evaluated.
Furthermore, the are also the structured training and Various other interventions have been planned and will
development programmes where professionals address be implemented as and when the need arises, such
members on topical topics. as bridging courses for students from disadvantaged
6 The Professional Accountant
As redressing disparities is a process, not an event, No, with regard to some of our students from
it is crucial to periodically monitor and evaluate predominantly black high schools and universities.
progress. It is clear that they are from institutions that lack
the necessary resources. It is imperative that we
SAIPA also fully supports the initiatives of Guarantee narrow the gap by engaging with those from these
Trust and FASSET. backgrounds.
Sadly, we still see only a few jobs that are advertised Q: could you sum up your vision for SAIPA for the years
requesting SAIPA qualifications. This has to change. ahead?
Both the private and public sector need to know about
SAIPA, its approach, and the positive initiatives it has A: Yes, but not my vision, but the vision of SAIPA’s members
embarked upon. and prospective members, and of the global community.
Transformation requires collective leadership.
The issue of women playing a more significant role
in the profession is also receiving due attention. Our slogan should be: To be a Globally Professional
Transformation without addressing the question of Accountancy Institute of Choice. That says it all.
women in the new South Africa is incomplete.
Our Professionalism dirrentiates us from the rest.
Our youth, particularly those from township schools, Our goal must be to provide a Premium Accountancy
must be targeted if we are to create a critical mass. The Qualification (PAQSA).
ABASA leadership is geared and ready to assist in this
regard. We have clearly identified our niche. Our values
bring real comfort to our members, clients, aspirant
Q: Is South Africa attracting quality students to the Accountants, local Associates, International Associates
profession, and, if we are, are we training them well and the Authorities.
AWARDS: Joseph was the 2001 Winner of the Sowetan
A: Yes and No. Yes, in the case of those from a model C and Hollard Super Achiever Category for outstanding
backgrounds, and the former white universities. achievement as an entrepreneur. n
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The Professional Accountant 7
A case of irrational exuberance?
By Matthew Lester | Tax Professor, Rhodes University
It may well be, says Rhodes University Tax
Professor and well-known columnist Matthew Matthew Lester
Lester. Here’s how to play it smart and safe in
It’s not easy being an emerging economy, what with
interest rates that change direction depending on US
consumers’ appetite for shopping and the apparently
unquenchable thirst of the oil-guzzling-fire-breathing
dragon that is China. As we prepare to welcome the
New Year, it appears the only certainty is economic
uncertainty, and those who wish to enter 2009 smiling
will need to read the signs of the times and tread very
How high will they fly?
South Africa’s interest rates are on the up and up again,
although according to Rhodes University Tax Professor
Matthew Lester, we’re unlikely to see the super-high rates
of the late 1990s.
“The past few years have seen generally lower interest
rates under the watch of Reserve Bank Governor Tito
Mboweni,” says Lester. “But he’s fast running out of
options and regrettably the only way forward for the
foreseeable future is up.”
The boom in US consumerism since 2001 has been
one of the greatest contributors to our lower rates,
although now American spending appears to be slowing
down, reducing the demand for raw materials from South It’s not just oil that’s the problem, however. Massive
Africa. expenditure on capital equipment, cheap overseas cars
- and basically, cheap everything - is putting a lot of
“This, however, is not the main reason that Mboweni is pressure on the Reserve Bank Governor.
being forced into a corner,” says Lester.
“The volume of imports is overwhelming and the cost
His real problem is thick and sticky…and we’re not of oil, coupled with a downward trend in South African
talking about any presidential candidates. consumer spend, is just making things worse,” says
Lester. “And with the presidential debate coming up and
Black Gold the accompanying uncertainty, chances are that Mboweni
will have to raise interest rates even more. He really
In 2002 oil cost around $20 per barrel. Now it’s close doesn’t appear to have a choice.”
to the $95 mark and it’s showing no sign of slowing
down. But, according to Lester, the particularly disturbing Is property still a sure thing?
development is that where oil prices usually drop back
at the beginning of winter once the northern hemisphere It depends on who you speak to and which graph they’re
has stocked up on oil ahead of the cold weather, this year waving in front of your nose, says Lester.
the price has not dropped.
“The ubiquitous ABSA property index, used by every
“Oil is dissolving our foreign exchange, leading to a estate agent who wishes to add a little pressure to a sale,
situation where Mboweni is forced to raise interest rates is misleading because it doesn’t show the volume of
in order to attract more forex into South Africa,” says transactions,” says Lester. “But if you dig a little deeper
Lester. you’ll find that the 18 month property boom which started
8 The Professional Accountant
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around 2003 has been over for quite some time. The appears that the financial flows that have been benefiting
property market is well and truly overcooked.” us up to now are beginning to swing away from emerging
markets, says Lester.
According to Lester, if you’re serious about making a
decent return on your property investments, you should “We seem to be entering a time that’s reminiscent of
forget about trying to make a quick buck off the back of 2010 the 1980s, the only difference being that the Cold War has
and investigate commercial property where you’re likely to been replaced by the war in Iraq.”
make real money over the long term - say 20 years.
The US has been dropping interest rates to encourage
Equity anyone? spending, but the turnaround is not happening fast
enough. Also, US consumers have continued to borrow on
As with investing in the property market, investing in their properties, but now that property prices are slowing
the equity market carries the same health warning – don’t down, they’re forced to curb their spending with the result
do it unless you’re happy to avert your eyes while the that US orders for imported goods from China and India
market dives and wait patiently for it to rise, as it always have dropped too.
does, over the long term (10-20) years.
As an emerging economy, South Africa is vulnerable to
“If you want a return in under three years, stick with catch Asian flu when the US sneezes:
cash products; if you want to be a bit more adventurous
with bonds or shares, it’s going to be closer to 10 years “Reduced orders spell trouble for South Africa because
before you get a good return.” basically, we dig for China and India, and if we’re exporting
less, our forex levels drop too, again placing pressure on
“When it comes to investing in the equity market, South interest rates,” says Lester.
Africans need to stop switching so darn much and learn
that patience reaps the greatest rewards,” adds Lester. And And with no control over an oil price that’s likely to
if you really want to make 25% return or more, you had keep on rising as Asian growth increases (there aren’t
better start getting lucky with the horses, he advises. enough refineries to supply oil demand), the government
has little choice but to adjust interest rates as the primary
Uncertain Times tool for keeping a lid on inflation…leaving Tito with one
very earnest request for Santa Claus this Christmas – a
As Finance Minister Trevor Manuel predicted in 2006, it super-sized festive shopping spree for America. n
The Professional Accountant 9
Pushing the art of
By Alexander Mersereau | cMA, FcMA, D.Sc., professor, HEc Montreal.
Despite the many strides the profession has made Review in 1990,2 declared that “the most exciting and
over the years, some still believe that management innovative work in management today is found in
accounting practices haven’t taken as strong a accounting.”
hold in organizations as they should. The author
describes the challenges that are slowing the Fifteen years later, it’s a good idea to ask ourselves what
adoption of critical management accounting tools has happened to this reform. On one hand, the new tools
in broader business that came from that period are evidently in use. Advanced
management accounting practices such as ABC and non-
Management accounting practice has developed financial performance measures are included in all major
substantially over the past century, but recent studies management textbooks. Studies of activity-based cost
suggest that the practice is no longer making the strides that management (ABC) have reported generally positive user
it once did. Unless management accountants take a hard perceptions of benefits. Most of the larger companies
look at the effectiveness of current practice, this situation appear to have experimented with Balanced Scorecard (BSC)
isn’t likely to improve. In some companies, radical changes techniques and studies have linked elements of scorecard
are needed to the structure of the finance function, the use to higher profitability. Economic value added (EVA)
nature of the interactions management accountants have research has reported positive results. On the other hand,
with other managers and the performance metrics used to despite these positive results it would appear that the
guide the function itself. adoption of advanced management accounting practices
once again has slowed.
The good news
The early part of the 20 century was a period of rapid
development for the field, when scientific management Studies estimate that the use of ABC has fallen and is
sought to identify what costs should be and economic now below 20%, and the percentage of those considering
organizations began to use budgets and relate returns to implementing ABC has also fallen. Of companies that have
levels of investment. However little development occurred introduced activity-based techniques, only a minority claim
in the following years and, by the early 1980s, management that it is embedded in their organization. Strategic cost
accounting had reached a point of stagnation. H. Thomas management techniques, such as attribute costing, seem
Johnson and Robert S. Kaplan,writing in 1987, declared: little known outside academia. The majority of firms adopting
EVA measures apparently don’t use them significantly.
Today’s management accounting information, driven Balanced Scorecard researchers have concluded that
by the procedures and the cycle of the organization’s most users make little attempt to link their non-financial
financial reporting system, is too late, too aggregated and performance to strategy and that only a small minority
too distorted to be relevant for managers’ planning and attempt to validate the cause and effect linkages included in
control decisions... Management accounting reports are of their models. Moreover, Balanced Scorecard practice seems
little help to operating managers as they attempt to reduce to have developed an independent momentum, excluding
costs and improve productivity.1 the finance function altogether in some organizations.
There is even pressure for management accountants to do
This call for renewal was widely heeded. Their book less. In his autobiography, Jack Welch complained: “The
Relevance Lost: The Rise and Fall of Management Accounting budget is the bane of corporate America (and) never should
became a best seller for the editor of Harvard Business have existed” and research that would enable organizations
School Press and set off a wave of innovation and interest to move beyond budgeting is underway.
in the management accounting profession worldwide.
Among the numerous technical innovations that came Therefore, it isn’t surprising that despite the wave of
from this period were activity-based cost management, innovation in management accounting in the late 1980s
the Balanced Scorecard, benchmarking, life cycle costing, and early 1990s, a recent study by IBM consulting reported
target costing, economic value added measures and that less than half of managers received role-specific
strategic cost management. Management accounting was information to support ad hoc decisions. Fewer still
also able to build upon innovation in other fields such as received frequent operational metrics related to processes
Total Quality Management, Six Sigma, Kaizen and Business under their control and very few could obtain information
Process Reengineering. The development was rapid and across functions, processes and geographies. A similar
interest spread well beyond the management accounting study by Accenture/Economist Intelligence Unit reported a
community. Peter Drucker, writing in the Harvard Business significant gap between potential and actual practice.3
10 The Professional Accountant
These indications of a slowing pace of management The management accounting communications process
accounting change may be due to a range of factors. In begins with a set of inputs to the accounting information
some cases, new management accounting tools aren’t system. This data is then encoded into information using a
adapted to organizational strategy or structure and can’t language (accounting) and transmitted to a recipient. Here
be used. And in some cases, innovation has failed due to is our first monkey, the speaking one. The management
implementation-related factors. accountant can’t possibly observe, measure and report
on everything. She must select from a wide field what to
However, the main problems aren’t technical or report, how to report it and when. To do this well, she must
structural; they lie in the need for a better management of anticipate how this information ought to be used, have a
the management accounting process itself. language at her disposal that succinctly codifies the key
data observed, and have a communication medium that
Getting involved reaches the intended audience efficiently and effectively.
At the heart of the management accounting process The next leg of the communications process is the
is a communications system, or a set of communications receipt of the information.
systems, that provide information to managers. The ability of
management accountants to improve the scope, timeliness Here we confront the second monkey, the hearing one.
or quality of the information they provide depends on how Managers must be able to correctly decode the reports they
well they understand and manage these systems. There receive. They must therefore be familiar with the concepts
are three main areas in management accounting systems used in the accounting models that are used to prepare the
in which communication problems can occur, which are reports and understand what the variances in the numbers
illustrated here using the tale of The Three Monkeys. signify.
The three monkeys that most people know are Speak No Finally, managers act on the information received. How
Evil, Hear No Evil and See No Evil. In this medieval Japanese they will act depends on how they interpret the message.
illustration, a trio of monkeys is depicted with one having This is a separate challenge and introduces the third
his hands over his mouth, another covering his ears and monkey, the seeing one. Individuals interpret and act on
a third his eyes. The original use of this image seems to information using personal decision rules that they have
have been to illustrate wisdom. The three wise monkeys, as learned over time. A large part of any manager’s decision
they were referred to, counselled the disciplined avoidance strategy will be guided by how he views his organization
of evil. Conversely in modern times the image of the and his role in it, and personal and corporate objectives are
three monkeys has been used to emphasize stupidity and never completely aligned.
negligence, or the unwillingness of people to get involved.
Here they are used in the latter sense to illustrate the need The actions that a manager takes as a result of receiving
for management accountants to become more involved in information (including actions taken in anticipation) and the
this communications process. consequences of these actions should be of great interest
The Professional Accountant 11
to the management accountant. These consequences with the least mental flexibility, the most closed minds and
become part of the world she must observe. This is the first the least willingness to take risks.
monkey all over again, and so the cycle continues.
While some of the blame for this impression can be
Big picture providers attributed to poor public relations, the selection and training
of accountants remains a significant issue. Management
How do some organizations meet the challenges accounting requires practitioners with a “big picture” point
illustrated by the three monkeys? Let’s look again at the of view who are able to challenge operating managers
first monkey, the speaking one. To be able to communicate as peers. Formal education may actually have a negative
to managers, accountants must have a clear picture of the effect on recruitment. Several studies have suggested that
strategic importance of the phenomena they observe, and accountants may follow a training regime that is too highly
they must have a clear idea of how operating decisions are oriented to the financial aspects of their work and not
made. Some of this can be learned in university but most sufficiently directed to the behavioural side.
of it comes from day-today experiences within operations.
This requires frequent contact between management Others have observed that the financial bias to the
accountants and other managers. educational component has the regrettable consequence
of attracting candidates to the profession who are more
However, the cycles of monthly, quarterly and annual comfortable with a formula-based approach to decision
planning and reporting are punishing and accountants making and less at ease with the ambiguities that
regularly work overtime during these periods. To overcome characterise managerial work.
these barriers, some organizations encourage contact by
physically locating accountants with other managers. Some Educating others
deliberately place accountants on interfunctional working
groups and many ensure that management accountants Let’s turn now to the hearing monkey, which refers
have either dotted or solid line accountability to operating to the ability of managers to understand the accounting
managers. Some organizations have adopted a structure in reports they receive. When financial accounts are prepared
which some management accountants don’t have routine and distributed externally, accountants are permitted to
reporting responsibilities. assume that the reader is trained in accounting. This isn’t
the case inside the organization, where a vast majority
A complicating factor is how management accountants of managers haven’t completed any significant formal
are themselves received when dealing with operations accounting training, and those who have will have forgotten
personnel. Over the years in some quarters accountants much of what they learned.
have earned a reputation for bringing an unbalanced and
overly financial point of view to problem solving, which has Some organizations are attempting to overcome this
diminished their position in the hierarchy. Some managers problem by supplementing or replacing financial reports
have characterized financial managers as among those with symbols or colours (green for OK, yellow to signal
12 The Professional Accountant
issues and red to announce a real problem). While such communications will fail to achieve their objectives and
systems have the advantage of simplicity, questions that management accounting system change will be further
need to be asked about the overall content of such delayed.
communications. What does yellow or green really mean?
What about the grey areas in between? And in the political The way forward
context of organizations, how might these ambiguities be
exploited for personal benefit? Improving management accounting begins with a
commitment to change. For many organizations, this is a
Rather than reducing the content of accounting messages huge step. Accountants have been found to be the first to
to one of three possible states, accountants need to help resist accounting change, and the failure of various ABC and
end users become more proficient in reading accounting scorecard projects has been linked to the unwillingness of
reports. Some organizations have built accounting training accountants themselves to see the project through. Many
modules for their managers that help them understand accountants are afraid that radical change might endanger
the specific reports they receive. Management accountants existing systems and processes.
have an important role to play in preparing and delivering
training materials. In today’s complex managerial To ensure that change is permanent, commitment to
environment technical functions, especially accounting, change must come from the top and must be sustained.
need to become more than suppliers of information. They
must become a kind of a school where managers can As the previous examples illustrate, improving
receive training. Yet in many organizations, accountants the management accounting function often requires
are too busy to become trainers and internal reward structural reorganization. If everyone is consumed by
systems likely discourage such activities. Here the training the routine reporting cycles, there will be no one left to
activity itself needs to be repositioned to make it attractive assume emerging roles in areas such as management
to accountants. training. In some organizations bringing in new people
will be necessary. Management accounting is more than
As the scope of management accounting messages just accounting, it requires people who understand the
widens to include non- financial performance indicators, behavioural consequences of numbers and who can link
management accountants acquire an additional challenge. controls to strategy.
Many managers have difficulties visualizing the cause
and effect relationships that link value drivers to financial Last, but not least, the management accounting
returns. Yet this is the key knowledge needed to manage process requires new metrics. Most accounting functions
value, and training is often required to help managers measure timeliness, in terms of the delay between the end
understand better the cause and effect relationships that of the reporting cycle and the issuing of the report, and
underlie shareholder value. many measure the cost of the finance function relative
to revenues. Few organizations measure the use or the
The third monkey, the seeing one, refers also to the usefulness of the management accounting information
manager, this time to the conflict that exists between provided. The absence of such measures guarantees that
shareholder values and the interests of individual things will remain the same.
managers. Increasing functional specialization means that
managers are increasingly disconnected from shareholder Diagnostic
values. Many managers are strongly committed to the
organization without being committed to the financial Management accountants should conduct frequent
goals that drive it. Management accountants have a role analyses of their communications processes. Such a
to play in instilling financial discipline and conveying diagnosis would include the following questions:
financial values to non- financial managers. One method is
to require operating managers (rather than accountants) to What changes to management accounting practice have
systematically prepare and present the financial analysis you initiated in the last two years?
of their business unit. Shareholder value training is also
important. l How many people are committed to real change?
At the same time that the management accounting l Do accounting personnel regard themselves as members
function must pay greater attention to the effectiveness of of the operating team?
its internal communications processes, other demands are
arising. There is increasing pressure to reduce the overall l How much time do management accountants spend with
cost of the finance function as a percentage of revenues. nonfinancial personnel?
There are increasingly time consuming demands for more
detailed external reporting. While these latter goals are l Are management accounting personnel physically
important and must be achieved, putting the priority located in such a way as to bring them in regular contact
there only increases the risk that internal accounting with nonfinancial managers?
The Professional Accountant 13
l Do management accountants have a reporting l Do performance measures other than cost and timeliness
responsibility to operational managers? exist for the management accounting function?
l Do reports to individual managers/units contain a l What priority is given to these metrics and how are they
maximum amount of information about that specific used?
The more management accountants can respond
l Are accountants given responsibilities that can only be positively to these questions, the better organizations will
discharged by working with operational people? become at managing the communications processes that
underlie management accounting.
l Do the accountants who have these responsibilities have
sufficient status to maintain working relationships on This will create a better understanding of the role that
the basis of mutual respect? management accountants can play in achieving success and
it is in this context that significant management accounting
l How many accounting personnel do not have significant change will occur. n
routine reporting responsibilities?
l How much financial training is provided for operating
management? 1 Johnson, H. & Kaplan, R. (1987), Relevance Lost: The Rise
and Fall of Management Accounting, Boston, Harvard
l Does this training explain the links between financial Business School Press, p 269.
and operational events?
2 Drucker, Peter (1990) The Emerging Theory of Manufacturing
l Does this training explain why financial goals are Harvard Business Review May/June pp. 94-102
3 Accenture Finance Solutions (2004) Best in Class How
l Are operating managers required to systematically prepare Finance Business Process Outsourcing Can Help Create
and present the financial analysis of their unit? a High Performance Finance Function.
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14 The Professional Accountant
Revoking an irrevocable
power of attorney
By Mark costa, candidate attorney, Routledge Modise.
1. Introduction Mark costa
A power of attorney is a document which sets out the powers
conferred on an agent (or grantee) by his principal (or grantor)
and may be either special or general.
This article relates to the legal issues concerning the
question of whether a power of attorney given irrevocably is
in fact irrevocable.
For the purposes of this article we will use the following facts
as an example: X borrows R1 000 000 from Y (“the creditor”),
a financial institution. As security, X registers a mortgage bond
in favour of Y over his immovable property. Some time later
X falls into arrears with his payments. Y issues summons. X
approaches Y and requests an indulgence. Y agrees to this
indulgence subject to X signing an irrevocable power of attorney
in Y’s favour, entitling Y to sell X’s immovable property in the
event that X defaults again. When X again defaults, Y attempts
to enforce the irrevocable power of attorney while X attempts
to revoke it.
This example is not simply a case of X (“the borrower”)
employing a conveyancer to pass a bond over his immovable
property; it refers to an entirely different transaction. The possibility that a prospective creditor may exploit the weak
object of the transaction is for the borrower to give security to financial position of a borrower, coupled with the borrower’s
Y (“the creditor”). often misplaced optimism about his prospects which may result
in the creditor, by way of a pactum commissorium, obtaining a
The principles enunciated below would apply to any money windfall disproportionate to the extent of the indebtedness of
debt and not just to a loan. the borrower to the creditor.
2. The issues Paratie executie is a provision in an agreement which entitles
the creditor to execute, without recourse to the borrower and
It is suggested that there are three issues to be looked at the court, and selling the borrower’s property privately. This
when dealing with the example, namely: clause is invalid insofar as immovable property is concerned.
It is valid in respect of movables but this is under attack at
1) pactum commissorium; present.
2) paratie executie; The aforegoing extend to agreements which, whatever their
form, are of a similar purpose and effect.
3) the legal effect of the term “irrevocable”.
In the case of Mardin Agency (Pty) Ltd v Rand Townships
3. Pactum commissorium and paratie executie Registrar 1978 (3) SA 947 (W) Viljoen J held that in principle,
the irrevocable power of attorney in rem suam (which is dealt
A pactum commissorium is an agreement which provides with later) is no different from a paratie executie provision and
that, upon default by the borrower, the creditor will be entitled has for reasons similar to those relating to paratie executie and
to keep and acquire ownership of the property (movable or pactum commissorium, been characterised as invalid.
immovable) which has been pledged or mortgaged regardless
of the amount of the debt or the value of the property. As a result, the crucial issue is to ascertain whether the
purpose and effect of the document constitutes a pactum
This type of an agreement is illegal and consequently void in commissorium or permits paratie executie. This of course will
South African law. The reason for the prohibition is the inherent depend on the facts of the case.
The Professional Accountant 15
This issue arose in the Supreme Court of Appeal case of when the borrower is in default and proceedings have been
Citibank NA v Thandroyen Fruit Wholesalers CC & Others instituted against him.
 SCA 61 RSA in which judgment was delivered at the
end of May 2007. If a power of attorney is signed by the borrower at the
time of advancing the loan and before he was in default,
In this case the bank and the respondents concluded then it is submitted that the purpose and effect of the
a written agreement of settlement of claims the bank power would constitute a pactum commissorium or permit
had against them. The agreement, inter alia, authorised paratie executie. This is because a borrower cannot, before
the bank to sell certain immovable property belonging to defaulting, authorise the creditor to sell the immovable
the respondents if they defaulted. The bank had to find property on his behalf without recourse to the courts as
a purchaser, was responsible for marketing costs and for this would amount to the creditor taking the law into its
all rates, taxes and other levies imposed on the property own hands.
prior to sale. If the selling price was less than the agreed
amount, the bank would have borne the loss but if a greater However, the position is different where, once the
amount was realised, the bank would be entitled to retain borrower is in default, he signs the power of attorney
the excess. authorising the creditor to alienate his immovable property.
One could argue that the purpose and effect of this would
The respondents argued that this settlement agreement be similar to a sale of the property to the creditor as stated
was unenforceable in that although it did not, strictly by the Supreme Court of Appeal in the Citibank NA case. In
speaking, constitute a pactum commissorium or permit this respect, the creditor, by instituting legal proceedings,
a paratie executie, its similarity to both was sufficient to would already have had recourse to the law, but before
categorise it as contrary to public policy. completion of the action, a type of settlement is reached
with the borrower.
The Supreme Court of Appeal disagreed with the
respondents’ argument and decided that none of the Another argument could be that the creditor would not
features of a pactum commissorium or a paratie executie be acting on the basis of the original loan agreement, but
could be found in the provisions of the settlement on the basis of a new agreement which was concluded after
agreement. The court stated that although the agreement the borrower was in default.
was not one of sale of the property by the respondents to
the bank, its effect was similar. 4. The legal effect of the term “irrevocable”
Applying the above principles to the example, it is There is a profusion of uncertainty surrounding the
suggested that one must distinguish between the period question of whether authority can be given irrevocably.
when the loan is advanced to the borrower and the period This is mainly due to our courts adopting the proposition
of English law that authority is irrevocable if it is coupled
with an interest or forms part of a security. Some of our
courts have said that this proposition has a parallel in
Roman-Dutch law in the procuratio in rem suam which was
mentioned by one of the Roman-Dutch writers, Johannes
Voet, who lived during the period 1673-1743.
4.1 Procuratio in rem suam
The words procuratio in rem suam refer to the situation
where an agent is authorised to do an act for his (i.e.
the agent’s) own advantage and not for the principal’s
advantage. A power of attorney generally requires the
agent to act for the benefit of the principal.
Although this article can by no means be seen as creating
order out of the chaos that currently exists on this subject, an
analysis of the case law analogous to the power of attorney
given in the above example can be used as a guide.
As a starting point, a power of attorney which purports
to be irrevocable is not necessarily irrevocable. This would
depend upon an interpretation of the transaction concluded
between the parties. There is no particular magic in the use
of the term “irrevocable”.
16 The Professional Accountant
4.2 Revocation of authority The court reiterated the general rule of law that a
grantor of a power of attorney can revoke it and stated
4.2.1 Historical background that that rule applies where a power has been granted to
an agent authorising him to transact certain business on
In Roman-Dutch law irrevocability of authority was behalf of the principal (i.e. as in the case of a contract of
regarded as being in conflict with the very nature of authority. mandate referred to in paragraph 4.2.4 below). But the
This was because it was believed that an irrevocable power court went on to state that the power of attorney in that
of attorney could lead to abuse. Voet made an exception case was not an instance where the general rule applied as
to this rule, namely the procuratio in rem suam coupled the authority given to the bank enabled it to do something
with a cession of a right of action. However, it has been on its own account and for its own benefit; it enabled the
contended that in Voet’s day a procuratio in rem suam was bank to secure itself; it was given for the benefit of the
regarded as nothing more than a cession. bank and not for that of the grantee. Consequently, the
Registrar was ordered to treat the power of attorney as
Early classical Roman law did not provide for the valid notwithstanding the revocation.
cession of a right of action. This lacuna was overcome by
a procedural device in which the person who wanted to De Villiers C.J., in Van Niekerk v Van Noorden 1900 17 SC
transfer a right of action to another appointed the latter as 63, was faced with a similar irrevocable power of attorney
his procurator to institute action against the debtor. and was of the opinion that it could be revoked at any time
by means of the borrower paying the whole amount of the
By the time the exchange of pleadings in the action was debt due, but so long as the debt remained, so too did the
completed, the procurator became dominus litis (literally power remain irrevocable.
translated as master of the suit) and judgment was given in his
name. The procurator would then be bound to restore to the In Hunt, Leuchars & Hepburn Ltd: In re Jeansson 1911 NPD
principal what he had recovered from the debtor. In contrast, 493 X borrowed money from Y and gave him an irrevocable
in the case of a procuratio in rem suam, the procurator did power of attorney “to let, sell, acquire, mortgage, manage,
not have to restore to the principal what he had recovered. and generally to administer a certain piece of land”. After X’s
death Y approached the court for leave to act upon the power
However, in Roman law the procuratio, even in a of attorney. The court granted leave on the ground that the
procuratio in rem suam, was revocable and fell away with power, having been given as security, was irrevocable and
the death of either the principal or the procurator. did not lapse on the death of the principal.
It has been contended that when cession of a right of 4.2.3 Procuratio in rem suam nothing but a cession
action was recognised, the procedural device of procuratio
in rem suam became an empty shell. However, if one has regard to the historical origin and
development of the procuratio in rem suam it is difficult to
4.2.2 The English proposition support these decisions. A better view is that an authority
coupled with an interest or forming part of a security
In a number of decisions Voet’s exception was used is nothing but a cession. The hallmark of a mandate
to justify the adoption in South African law of the English amounting to a cession is that it should give the agent an
proposition that whenever there is vested in a person an interest not merely in the exercise of his authority but in
authority and an interest, the authority is irrevocable. the very thing vested in or entrusted to him by his principal.
This would apply to cases where the authority is given No particular form of words is necessary to constitute a
as a part of security; not to cases where the authority is cession, provided the intention to cede is clear.
given independently, and the interest of the creditor arises
afterwards and only incidentally. This was illustrated by the case of Pick v Estate Neylan
and Others 1910 CPD 100 where X inter alia agreed to lend
Those who support this view contend that Voet’s exception £300 to Y. In return, Y undertook to grant X or to any person
referred only to cases where a power has been given to an agent nominated by him an irrevocable power of attorney to draw
to bring an action and where cession of the action has also been and receive, month by month as it should fall due, a monthly
given to him for that purpose. It does not apply to instances pension. In pursuance of this agreement, Y executed a power of
where no action is contemplated, like in the example. attorney authorising X’s nominee, Z, to receive the pension and
irrevocably authorised Z to exercise these powers for a period
This is what happened in the old case of Natal Bank of eight years. Subsequently, Y’s estate was sequestrated and
Ltd v Natorp and Registrar of Deeds 1908 TS 1016. The it was contended that the power of attorney had consequently
respondent gave the applicant an “irrevocable” power of lapsed. The court disagreed and decided that a valid cession
attorney to register a bond on the respondent’s land to had been effected.
secure an overdraft. Before the bond was registered the
respondent revoked the power by giving notice to the Greenberg J stated in Lawrie v Lawrie N.O. and Others 1934
applicant and Registrar of Deeds. W.L.D. 51 that:
The Professional Accountant 17
“…an irrevocable authority coupled with an interest is However, the crucial part of the judgment is where the
often, if not always, equivalent to a cession of rights and court stated that the respondent’s case was not that its
certainly is in this case”. authority was irrevocable in the strict sense of the word
(i.e. that it could not be revoked by the appellant if the
In Ward v Barrett NO & Another 1962 (4) SA 732 (N) the appellant no longer wished to sell), but merely in the
court decided that a power of attorney given by a principal sense that the premature termination thereof constituted
as security for recovery of what is owing to the grantee is a breach of contract which entitled the respondent to claim
irrevocable, but to make it effective as against the principal’s damages from the appellant in lieu of the commission it
creditors requires a cession of the rights to the agent. The would have earned, but for such breach.
court went on to state that where the security has been
perfected by a cession, the power of attorney in conjunction The general rule regarding the contract of mandate is
with which the cession is given, is the true case of a power that the principal has the power and the right to revoke
coupled with an interest. it without incurring liability for damages to the agent.
However, the terms and circumstances of a particular
In such a case the power of attorney is entirely irrelevant. mandate may show that such a revocation is a breach of
The cessionary does not need a power of attorney or contract.
authority, irrevocable or not, to exercise his rights. He does
so by virtue of being vested with a right of action by reason It is clear from the above, that the power in the example
of the cession. (being a revocation of authority) is very different to a
contract of mandate and the two should not be confused.
In Kotsopoulos v Bilardi 1970 (2) SA 391 (C) the
appointment of a person “irrevocably and in rem suam” to 5. conclusion
receive and collect moneys payable to the person making
the appointment was held to be a cession. The court pointed In the light of the above, insofar as paratie executie
out that a person who gives another an irrevocable power and pactum commissorium are concerned, it is suggested
of attorney to receive money does not, in the absence of a that the power in the example would be invalid and
cession of his right of action, divest himself of the power to unenforceable if granted by the borrower at the time
claim the money from the debtor. of the loan being advanced. However, if granted by the
borrower after proceedings have been instituted and
4.2.4 Contract of mandate after he has defaulted, it would probably be enforceable
although, as stated below, depending on which view
Another reason for the uncertainty surrounding the one subscribes to, it would either be revocable or
question of whether authority can be given irrevocably is the irrevocable.
failure of our courts to distinguish between authority on the
one hand and the termination of relationships arising out of Insofar as the legal effect of the term “irrevocable” is
a contract of mandate on the other hand. Once again, it is concerned, there can be no doubt what the intention of
necessary to have a brief look at the case law. the parties in the example was. The borrower’s intention
when he gave the power to the creditor was that it should
In the case of The Firs Investment Ltd v Levy Bros remain in force until the creditor had acted upon it or until
Estates (Pty) Ltd 1984 (2) SA 881 (A) the appellant gave the the borrower had discharged his debt.
respondent (a firm of estate agents) “the sole irrevocable
authority expiring on 20 June 1980 to effect the sale” of The question is whether one wishes to follow the view
a shopping centre on certain terms and conditions. Within incorporating the English proposition or whether one
the period of its mandate the respondent found a purchaser wishes to place a greater reliance upon the language used
who was prepared to buy the property on the terms and by Voet.
conditions laid down by the appellant. Before a deed of sale
was drawn up, the appellant decided not to sell and withdrew This is an issue which has not yet been resolved by our
the respondent’s mandate. The respondent argued that the courts and ultimately the Supreme Court of Appeal will
words “sole and irrevocable authority” gave it the sole right have to examine whether those wide generalisations about
or power to dispose of the property even if the appellant no the revocability of powers are really applicable to today’s
longer wished to sell. ordinary commercial transactions, where value has passed
and is given, on the belief that the power of attorney will
The court interpreted this agreement as one in which remain in force.
the appellant granted the respondent an exclusive right or
power to effect the sale of the property on its behalf and, My view is that the Roman-Dutch authorities, in a large
by so doing, the appellant, in effect, deprived itself of the way, speak of the revocability of all powers of attorney.
right to sell the property, except through the respondent, One thing is certain though, holders of irrevocable
or to appoint anyone else to do so during the specified powers should be aware of the uncertainty surrounding
period. this issue. n
18 The Professional Accountant
Emerging markets –
chinese Markets Evolve
By Mark Mobius, Ph.D., Executive chairman, Templeton Asset Management Ltd.
Emerging markets have been posting strong Interest rate cuts by central banks in September were
returns despite high volatility. In 2007 through well received, as they provided extra liquidity to markets.
October 15, the MSCI Emerging Markets Index Money supply is highly correlated to market gains and,
has returned 41.4%, the MSCI Emerging Markets longer term, we might see some excesses.
BRIC Index returned 57%, the MSCI Emerging
Markets Latin America Index returned 48.3%, Most emerging markets are still reasonably priced,
and the All Countries Asia Pacific ex-Japan Index though not necessarily cheap. If markets in general continue
returned 43%. to rise as strongly as recently, we could experience a repeat
of the 2000 dot-com boom and bust.
After this summer’s subprime-related volatility, investors
feared that mortgage problems would spread to emerging However, the only market that we can say with certainty
markets. However, their concerns subsided when they has become a bubble is the domestic A share market in
realized that most emerging market companies had limited China. In the first nine months of the year, the MSCI China
exposure to subprime mortgages. A Index returned 170%, and over the past 12 months,
returned 292%. That is expensive, especially compared to
Curiously, although markets in the U.S. were shaken by other Asian markets.
subprime problems, emerging markets were actually seen
as a safe haven. Hong Kong-listed H shares had been trading at up to
a 70% discount until the Chinese government recently
This makes sense given that currencies in many announced a decision to allow investment in overseas
developing countries are strengthening against the dollar markets. That caused the Hang Seng China Enterprises
due to higher economic growth. Many have healthy current Index, an H-share index, to climb by 42.6% in the third
account surpluses, contrasting sharply with conditions quarter. The gap is narrowing somewhat, but plenty of
during the financial crisis of a decade ago. room still exists for H-share growth.
The Professional Accountant 19
It is also important to put the current sharp rise in Chinese At the same time, several notable state-run industrial
domestic markets in the context of their virtual stagnation conglomerates, which have significant listings in
just a couple of years ago. To revive the local stock market, offshore markets, are shortly due to launch IPOs in
the government resumed approvals of initial public offerings the local China A share market. These IPOs may well
(IPOs) and expedited the expansion of the Qualified Foreign spur the market further. However, some officials might
Institutional Investor (QFII) scheme, allowing selected foreign argue that an increased supply offers the best way to
entities to invest in China A shares. relieve the shortages of investment opportunities for
local investors. Moreover, further privatization should
Although excess liquidity in China is sending the A lift productivity and financial transparency.
market valuations higher and higher, since China’s capital
account is still under control, expensive valuations could last The Chinese government’s implementation of
longer than most would expect. The Chinese government structural, economic and financial reforms, along
has realized the dire risks of an overheated stock market, with efforts to tackle corruption, has been beneficial
and we believe it will introduce more measures to contain for the markets and for investors. We have also seen
the excessiveness. Having said that, we also believe the improvements in corporate governance, and many
Chinese government would not like to see the stock companies are striving to meet international financial
market experience dramatic falls, as this could give rise to standards. n
economic, social and political repercussions
Tel: 0861 707 909 l Fax: 0866 496 874 l E-mail: email@example.com l www.beeinfo.co.za
20 The Professional Accountant
Plain language starts with the reader
A lack of objective standards and benchmarks “To put it simply, plain language programmes must
for plain language pose significant challenges start with the reader. A document that is in plain
for South African companies that are driving language is one that meets the wants and needs of the
the adoption of plain language in their person reading. To comply with the NCA’s definition
communications to meet the demands of new of plain language and the ‘ordinary consumer’ test,
laws and regulations. businesses may have to do reader-testing,” says Burt.
That’s according to Candice Burt, a partner at plain “It is important that the definitions of plain language
language training and consulting firm, Simplified. in the NCA and CPB recognise that vocabulary and usage
Burt is a plain language lawyer and the South African are only two areas that companies must consider when
representative of Clarity, an international organisation writing their documents.
that promotes the use of plain legal language.
“Completeness of information is also important: does
Companies need to be able to demonstrate that the consumer have access to all the information needed
their documents are in plain language to live up to to make an informed decision? During reader-testing,
the demands of new legislation, including the National companies should test whether readers do understand
Credit Act (NCA), which became fully operational this the document, not simply whether they believe that they
year, and the Consumer Protection Bill (CPB), which will do (a common problem with many reader-tests).
come into effect in early 2009.
“Many businesses believe that plain language is simply
While the NCA does offer a broad definition of plain a case of using everyday words instead of acronyms and
language, it does not give objective benchmarks that jargon and crafting short, active voice sentences in their
companies can use to judge whether their documents documents, but the actual content of the document, the
are in plain language or not, says Burt. way it is structured and even the design and layout all
contribute towards its readability,” says Burt.
Instead, the Act demands that the audience the
document is intended for should reasonably be able “Companies need to consider elements such as
to understand it, and leaves the tests of whether this document structure, customer logic, headings, design,
obligation has been meet or not up to the National fonts, justification, the information supplied and
Credit Regulator and the courts. navigability as they try to write contracts, brochures,
and other customer documents in plain language. The
Likewise, the CPB requires that an ordinary consumer needs of different audiences and media also complicate
with ‘minimal experience as a consumer of the the adoption of plain language into a company’s
relevant goods and services’ be able to understand communications.
and appreciate a company’s documents, but does not
outline specific criteria these documents should meet “Many elements of plain language can be measured
in terms of language, style, structure and so on. No using tools and methodologies available from companies
local precedents have yet been set that companies can such as Simplified, but these benchmarks should be
fall back on to shape their criteria forplain language. combined with user-testing to ensure that the people
who a document is intended for can reasonably be
Burt says that companies should look at the intentions expected to understand it.
and spirit of the laws when they start to implement plain
language in their documents. “Companies may be given further certainty about
their plain language obligations if and when regulators
The goal of the NCA and CPB is to correct imbalances formed under the laws (the National Credit Regulator
in negotiating power between consumers and companies and the National Consumer Tribunal for the NCA, and
by ensuring that customers understand the content and National Consumer Commission for CPB) publish plain
purposes of consumer documents such as policies and language guidelines for businesses.
“We believe any guidelines will include various
In other words, consumers must understand why the objective criteria based on international best practice
document is important to them, why they should sign (such as plain words, short sentences, and the active
it, and what the consequences of agreeing to the terms voice) as well as reader-testing,” she says. n
and the conditions are.
The Professional Accountant 21
The current Law on Restraints Of Trade
By verlie Oosthuizen, Shepstone & Wylie, Employment law department
Restraints of trade are always a hot issue for common law is that restraint is enforceable in principle
both employees and business and debates rage and will only be unenforceable, not invalid or void, if it is
about their enforceability. contrary to public policy or the public interest.
There are two main forms of restraints: The onus of proving that the restraint is unenforceable
and contrary to the public interest rests on the person
1. A seller of goodwill in a company promises not to carry seeking to avoid the restraint and this onus is not easy
on a similar business in competition with a purchaser; to discharge. The Court will look at geographic area,
and the duration of the restraint and the manner and extent
to which the employee will be restrained to determine
2. An employee agrees with an employer not to compete whether a restraint is reasonable.
against them by setting up rival business or by entering
the service of a rival trader. There are two main considerations that a court will
always bear in mind when dealing with a restraint case are
A third form of restraint, which is quite unusual, occurs the competing interests of the parties. On the one hand,
when business rivals agree not to compete. The prevailing the fact that agreements freely entered should be honoured
and on the other, the principle that everyone should be
allowed to enter business or the professional world and
should be able to practice their trade or profession.
One of the most important legal concepts in a restraint
matter will always be whether there is a “protectable
interest”. This is a concept that was introduced in the case
of Basson v Chilwan 1993 (3) SA 742 (A). In determining
whether there is a protectable interest the court will look
at the following:
l Is there an interest that deserves protection after the
termination of the agreement?
l Is that interest being prejudiced or under threat of
being prejudiced? If the answer is yes, how does that
interest measure up, when weighed qualitatively and
quantitatively against the interests of a person to
remain economically active?
l Is there an aspect of public policy that requires the
restraint to be rejected or maintained?
If there is no legally recognisable interest to protect
and the restraint merely seeks to exclude or eliminate
competition it will be considered to be unreasonable,
contrary to public policy and unenforceable.
In the recent SCA judgment of Automotive Tooling
Systems (Pty) Ltd v Wilkens 28 ILJ 145 (SCA) this concept
was discussed in some detail.
This case noted that there is a very thin dividing line
between an employee using his own skill, knowledge and
experience (which he cannot be restrained from using),
and the use of an employer’s trade secrets or confidential
information or other interest (which he can be restrained
22 The Professional Accountant
The case involved a business which manufactured special It was found that a value judgment is required when
purpose machinery in a highly specialised technological determining whether a restraint is enforceable and one
field. The employees, who were skilled tool makers, were must examine whether the restraint is “reasonable and
restrained in terms of their employment contract. When justifiable in an open and democratic society based on
they left the company they went to work for a major client human dignity, equality and freedom.”
of the employer.
Mr Reddy was a systems engineer with Siemens for 8
The employer approached the Court to enforce the years when he decided that he wanted to go and work
restraint and alleged that its former employees were using for their competitor Ericsson. When he was interdicted
confidential, technological “know-how” that was learnt from taking up employment with Ericsson the judge of the
during their employment with them. The employer alleged court a quo said that it was not necessary for him to find
that that “know-how” constituted a proprietary interest that Reddy would use confidential information and trade
that was worthy of protection. secrets, it was sufficient that he could use it.
The Court pronounced that the interest must be one This was even though Reddy was not going to be
belonging to the employer, rather than the employee. It involved with any of his old Siemens clients and the
must be “proprietary to the employer”. In this case the extensive training that he had received on the Siemens
Court found that the know-how that the employer sought systems would be of no more than academic value as the
to protect was nothing more than machine manufacturing Ericsson systems were completely different.
The Court found that Reddy was in possession of
The skills had been acquired in the process of the confidential information which, when assessed objectively,
respondents developing their trade. They belonged to was at risk of being exposed to a competitor if he commenced
the employees’ general stock of skill and knowledge employment there. “His loyalty will be to his new employers
which they could not be prevented from exploiting. and the opportunity to disclose confidential information at
Another recent case from the Supreme Court of Appeal his disposal, whether deliberately or not, will exist.”
on restraints is Reddy v Siemens  SCA 164 RSA
(2007) 28 ILJ 317 (SCA). In this case the Court asked Reddy’s restraint was found to be enforceable as he was
“Does the restraint go further than necessary to protect clearly in possession of confidential information which
the interest?” constituted a protectable interest. n
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The Professional Accountant 23
can shareholders, aggrieved
at the way the directors are
running the company, ask the
court to intervene?
By Rc (Bob) Williams | BA LLB (cape) LLM (London) H Dip Tax (Wits) PhD (Macquarie) Professor in the Faculty of Law,
University of KwaZulu-Natal, Pietermaritzburg
Many apparently complex factual scenarios An attempt by JcI to recoup its reputation and
involving companies fall into place once profitability
fundamental principles of company law are
applied to them. Conversely, businesspeople and These were the issues underlying the recent case of
their advisers fall into serious error when they Letseng Diamonds Ltd v JCI Ltd and Investec Ltd (High
lose sight of the fundamentals. Court, Witwatersrand Local Division, case 2 1525/06; not
yet reported) which arose out of attempts by JCI to retrieve
Nothing, for example, is more common than for its reputation and its profitability after the chaos left behind
shareholders to be dissatisfied with the way the directors following the death of its erstwhile director, Brett Kebble.
are running the company and with the contracts to which the
directors have committed the company. The shareholders JCI, under the control of Kebble, had suffered great
may even believe that the directors’ conduct in this regard damage to its reputation and, as the judgment recounts,
is so egregious as to amount to a breach of their fiduciary “had lost all credibility in the market place”. The company
duties. was facing ruinous litigation and a writ of execution for
some R60 million had been issued and served on it.
But (assuming that the shareholders are not party to the
agreements they are complaining about) what rights and JCI needed capital to try to trade back into profitability, but
remedies do shareholders have in such a situation? Can no one was willing to provide loan finance until, on 30 August
they, for instance, apply to court for an interdict to prevent 2005, Investec agreed to lend JCI R540 million (referred to as
the company from performing the contract, or for an order the Investec Loan Agreement or ILA). The ILA was subject to
declaring the contracts void or voidable? numerous conditions, inter alia that the board of JCI would
resign and be replaced by a board nominated by Investec.
Locus standi and the rule in Foss v Harbottle The agreement stipulated a raising fee of R50 million.
The first question any would-be litigant must ask Thereafter, JCI entered into a number of further
himself before instituting legal proceedings is – do I have agreements relating to additional loans to the company and
locus standi in relation to my complaint? This issue is no the provision of further security by JCI. The JSE classified the
less important, and considerably more complex, in the ILA and those other agreements as “affected agreements”,
context of the relationship between a company and its in consequence of which shareholder approval of the
shareholders. contracts was required prior to the reinstatement of JCI’s
listing on the exchange. The JSE agreed that such approval
Where a shareholder is complaining about the running could be given by way of a ratifying resolution after the
of a company, the issue of locus standi leads ineluctably to agreements had been concluded.
a fundamental question. Assuming the truth of the wrong,
then the first leg of the rule in Foss v Harbottle declares The fortunes of JCI then lifted substantially, and within
that, if there is to be litigation, then the company is the about a year it had repaid the loan from Investec.
proper plaintiff and indeed the only proper plaintiff.
A shareholder tried to prevent the contract from
It is only where one of the exceptions to the rule in Foss being carried into effect
v Harbottle applies that a shareholder can institute legal
proceedings in respect of that wrong. Also to borne in In September 2006, Letseng Diamonds Ltd (which, as
mind is that section 266 of the Companies Act 1973 now indicated above, was a shareholder in JCI) applied to the
provides for the possibility of a statutory derivative action, High Court for an urgent interdict to prevent a general
which enables a shareholder to set the wheels in motion meeting of JCI from considering two ordinary resolutions
for the company to institute action to vindicate the wrong in which the shareholders were, in accordance with the JSE
done to it. stipulation, being asked to ratify the agreements between
JCI and Investec.
24 The Professional Accountant
articles say so – which is unusual and was not so in the case
The judge went on to say (at par ) that a person cannot
interfere in a contract entered into between two other parties
and that (in terms of the rule in Foss v Harbottle), in the
context of a company, “a shareholder is a stranger to the
company in its dealings with third parties”. Consequently, a
shareholder cannot institute legal proceedings to complain of
an irregularity (as distinct from an illegality) in the conduct of
the company’s internal affairs if the irregularity is one which
can be cured by a vote of the company in general meeting.
Consequently, said the judge (at par ), as was laid
down in Prudential Assurance Co Ltd v Newman Industries
Ltd no 2  1 All ER 354 at 357, the proper plaintiff
in an action in respect of a wrong done to a corporation
is the corporation itself. Moreover (again in terms of the
rule in Foss v Harbottle), where the wrong is of a kind
that is ratifiable by the general meeting, no shareholder
is permitted to institute a legal action in respect of that
wrong, except where what has been done amounts to fraud
and the wrongdoers are in control of the company.
The basis of Letseng’s complaint was that the
circular to shareholders was inadequate and contained Applying these principles to the facts on hand, Blieden J
misrepresentations. An interdict was also sought to prevent held (at ) to be wrong in law the contention advanced
JCI from paying the agreed raising fee to Investec. by the applicants that the actions of the alleged “rogue”
and “supine” board of directors of JCI resulted in a wrong
In the same proceedings, three other companies (which being done to the shareholders, who therefore had a right
the judgment describes collectively as “Trinity”) which held to institute legal action.
shares in JCI sought an order declaring that the ILA was void
for vagueness or impossibility of performance. The true position, said Blieden J, is that if directors,
acting on behalf of the company, enter into a contract that
The core issue in these proceedings was the right of breaches their fiduciary duties, and if the other contracting
shareholders in JCI, namely Letseng and the Trinity group party was aware of that breach, the company and only
of companies, to have a suite of agreements entered into by the company may elect to declare the contract void. A
JCI, including the ILA (to which neither of these shareholders shareholder cannot usurp the functions of the directors and
was a party) declared invalid. exercise that election on behalf of the company.
The locus standi of the applicants Hence, the ILA and other agreements complained of by
Letseng could be impugned only by JCI, the company, and
Letseng and Trinity, as shareholders of JCI, alleged that not by its shareholders.
the directors of JCI were a “rogue board” or a “supine board”
which was “not capable of performing and did not perform Blieden J pointed out (at par ) that it was for the
its fiduciary duties”. Hence – so it was argued – the ILA which general meeting of the shareholders of JCI to decide whether
those directors had caused JCI to enter into was void. or not to ratify the agreements in question. All that JCI was
trying to do was to get the general meeting, not individual
This squarely raised the issue of locus standi. For, shareholders, to ratify the greements that the company had
assuming that Letseng and Trinity’s complaints were entered into with Investec, and this was a business decision
true (and even if there were irregularities in the contracts to be taken by the shareholders.
complained of which involved breaches of fiduciary duty)
did they, as shareholders, have locus standi to institute In short, said that judge (at par ), minority shareholders
legal proceedings to vindicate the wrong? such as the shareholders in the present matter had no locus
standi to interfere in the contractual arrangements arrived
In his judgment, Blieden J began by pointing out (at par at between JCI’s board of directors and Investec. n
[16.1] of the judgment) that the powers which the articles of
a company vest in the board of directors are held exclusively The Corporate Law, Partnerships and Trusts Sibergramme is
by them, and that the general meeting of shareholders does a regular update written by Prof Bob Williams and published
not enjoy concurrent powers with the board, unless the by Siber Ink. Reproduced here by kind permission.
The Professional Accountant 25
Who will guard the trustees?
By Alex Eliott, Director, Knowles Husain Lindsay
Many beneficiaries of large trusts have suffered Moreover, a trust cannot, in its own name own anything
financially as a result of the poor decisions either. Any property it may acquire must be held by the
made or even fraud committed by the trustees. trustees in their representative capacities. The trustees
These losses seem particularly galling when one however do not own the property themselves.
considers the obvious connotations of the words
trust and trustee . Therefore, the underlying assets exist in a kind of legal
This article discusses whether there is still a place for
trusts in our commercial and legal landscape, adding that The basis for the existence of a trust is no less
if there is, the rules of the game must be spelled out. In problematic if one asks how the functions of the
short, in this era of hyper-regulation, trusts are in desperate trust are performed.
need of proper, some, any regulation.
A trust cannot do anything at all, except through the
Losses suffered would not be so surprising if one asks trustees in their representative capacities. If all the trustees
the question: What is the legal nature of a trust (not what a were to die in a plane crash, the trust would for all intents
trust can be used for)? and purposes cease to exist. In other words, a trust has no
separate existence apart from its trustees.
The answer is not simple; particularly if one considers
that the commercial foundation of western civilisation is If the trustees are the mind, body and soul of a trust, where
based on the concept of private ownership. do the trustees get their mandate and their powers from?
But, nobody owns a trust. From a written trust deed (although oral trusts are still
legal in this country): The trust deed is essentially a private
Beneficiaries might have at most a “vested interest” in contract between the founder of the trust and the initial
a trust, which means nothing more than that they can be trustees. There are no laws governing the contents of a
taxed. And, since a trust cannot be owned, beneficiaries trust deed; and the terms of the deed cannot be varied by
cannot own their interests in a trust, and accordingly their the trustees except in terms of the deed (or an application
status as beneficiaries cannot be sold. to Court in exceptional circumstances), just as a private
contract cannot be varied except in terms of the contract.
And how then are trustees appointed and
Again, this can only happen in terms of the trust
deed. There are no laws governing qualifications and
disqualifications of trustees; and no laws governing the
appointment and removal of trustees save that in terms of
the Trust Property Control Act no. 57 of 1988, the Master
of the High Court can remove a trustee on the basis of
The Act consists of 27 concise sections. It confers
considerable powers on the Master, but no rights on
beneficiaries (other than, thankfully, the right to go to Court).
It imposes on trustees a general duty to act with care,
diligence and skill, but in its brevity gives virtually no
content to that duty.
A curious counterpoint to the benevolent neglect that
characterises the Act is that a newly appointed trustee
may not act unless and until he/she has received written
consent (called Letters of Authority) from the Master of the
26 The Professional Accountant
Since the existing Letters of Authority must be submitted If one compares trusts to companies, the difference in
to the Master to obtain a new one, the entire group of trustees the level of regulation is staggering.
is hamstrung until the new Letters of Authority is issued. This
draconian provision can leave the trust’s affairs in limbo for There are hundreds, if not thousands, of textbooks on
months or even years if the Master delays in providing; or company law; there is an enormous body of judicial precedent
even refuses to provide new Letters of Authority. on company law; and the Companies Act no. 51 of 1977,
which is already comprehensive, is about to be surpassed by
Here again, the Act does not set out the requirements an even more comprehensive Companies Bill. The reporting
for registration of a new trustee or the circumstances and disclosure obligations of companies, the requirements
under which the Master can refuse to provide Letters of for the appointment and removal of company officers, and the
Authority (save that the Act provides that the Master can obligations of company officers, are all codified. The corporate
require the Trustee to put up security). In practice, the governance of companies is the subject of many codes and
Master’s office has its own set of rules, which are not works of literature. The concept of private ownership is firmly
within the public domain. embedded in the structure of a company.
Further, the Act does not impose any disclosure obligations It should not be surprising therefore, that most business
on the trust, whether this be to report to the Master or to the people have a sound grasp of what the legal nature of a
beneficiaries. There is no law creating an obligation for the company is, how it is structured, what the difference is
trust to appoint an auditor, or even maintain financial records. between shareholders and directors, what the duties of
The Act provides only that the Master may call on a trustee to directors are, and so forth.
account for his administration and disposal of trust property .
In the virtually unregulated environment of a trust,
There is also no law conferring any sort of remedy if it is therefore unsurprising that most business people
beneficiaries feel oppressed by the trustees. (These matters do not understand what the legal nature of a trust is, or
could be dealt with in the trust deed but, if they are not, what trustees are supposed or obliged to do, or what the
there is nothing the beneficiaries can do about it.) remedies are of beneficiaries who are unhappy with the
performance of the trustees. It is but a short step from
Further, there is very little literature or guidelines for that point to disastrous consequences for the beneficiaries,
the corporate governance of trusts; and only a handful of particularly the beneficiaries of a large trust.
textbooks available on the law of trusts. Although there is
a body of case law on the subject. Which is why the need for proper regulation of trusts. n
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The Professional Accountant 27
IFAc: 30 Years of Progress
Encouraging Quality and Building Trust
In many ways, 1977 marked a year of firsts: The academia, collaboration with its member bodies remains
Concorde jet inaugurated regular transatlantic integral to meeting these challenges. So, too, is outreach to
supersonic flight. The first Apple II microcomputers the profession’s many stakeholders. Even more important
went on sale to the general public. The movie today than at the time of IFAC’s founding is its ongoing
“Star Wars” debuted on the big screen. And the dialogue with regulators, standard setters, development
International Federation of Accountants (IFAC), agencies, and governments who share IFAC’s commitment
with 63 founding members representing 51 to strengthening accounting and auditing so that they can
countries, convened for the first time ever in an continue to effectively serve the public interest.
auditorium in Munich, Germany.
Role of Members in IFAc’s Evolution
Three decades later, the Concorde, Apple II
microcomputers and Star Wars are a memory, while IFAC From the start, IFAC provided support for the profession
continues to develop, bolstered by the strength of its in nations struggling to develop the financial, accounting
members and supported by international organizations and market infrastructure that would support domestic
that recognize its value in promoting economic growth and growth and encourage international investment. By 1977,
stability worldwide. the need for a global federation to unite the accountancy
profession around the world and promote consistent,
Some of the challenges for IFAC in 1977 remain today, high quality practice was widely recognized both by
including meeting the needs of increasingly global markets, the profession and those who rely on its work – from
supporting accountants in addressing ever more complex governments, to businesses, to investors. One of IFAC’s
technical and business issues, and providing direction and primary roles was, and continues to be, bringing together
institutional mechanisms to keep accountants worldwide professional accountancy organizations at varying levels of
on the right ethical path. development to share resources, ideas and experiences for
the benefit of the profession as a whole.
While IFAC is now a significant, global organization
of 155 member bodies and associates in 118 countries, IFAC came to life on October 7, 1977 at the 11th World
representing over 2.5 million accountants employed in Congress of Accountants in Munich, Germany when 63
public practice, industry and commerce, government, and national professional accountancy bodies signed the
Constitution establishing the organization. At the first
meeting of the IFAC Assembly in October 1977, a 12-
point work plan was developed to guide IFAC committees
and staff through the first five years of activities. Many
elements of that initial work plan still guide IFAC’s work
today, including developing international standards,
establishing a code of ethics, developing and reporting
on management processes and techniques, and fostering
closer relationships with users of financial statements. In
addition, the plan called for IFAC to communicate with and
facilitate the involvement of its member bodies.
From the beginning, member bodies have been integrally
involved in all aspects of IFAC, including its structure,
governance and boards and committees. Member bodies
actively shape IFAC’s strategy through their participation
in the IFAC Council (previously called the IFAC Assembly).
They also help IFAC in achieving its mission by nominating
individuals for IFAC’s committees and boards, sharing
intellectual capital and resources, and promoting high
quality performance by professional accountants working
in all sectors of society.
Since its founding, IFAC has also worked closely with
regional accountancy organizations, particularly with
respect to promoting the development of the profession and
28 The Professional Accountant
encouraging convergence to international standards. From Kingdom. The current IFAC staff comes from more than 15
the beginning, meetings of the IFAC Council were attended countries and collectively speaks nearly 20 languages.
by three regional organizations then recognized by IFAC: the
Union Européenne des Experts Comptables Economiques One of the primary focuses for IFAC staff is supporting
et Financiers (now the Fédération des Experts Comptables the more than 150 volunteer members of IFAC’s boards
Européens), the Confederation of Asian and Pacific and committees. These volunteers provide knowledge,
Accountants, and the Interamerican Accounting Association. skills, and expertise that greatly contribute to IFAC’s
IFAC continues to work with these organizations today as development of high quality international standards in the
well as with its other recognized regional organization, areas of auditing and assurance, ethics, education, and
the Eastern Central and Southern African Federation of public sector accounting. Volunteers also bring insight
Accountants, and with regional groupings. and experience in specialized areas having worked as
professional accountants in business, in small and medium
IFAc’s Leadership practices, and in developing nations, which better enable
IFAC to serve these constituencies.
Over its 30-year history, IFAC has had 13 Presidents
from 11 countries on five continents, reflecting the Developing International Standards
globally diverse nature of the organization. The President
serves as Chairman of the IFAC Council and the IFAC Board. Even before IFAC’s founding, the need for a single set
Together with the Chief Executive Officer, the President is of international standards was recognized. During the
also a primary spokesperson for the organization. From last few decades, companies have increasingly expanded
its first President, Reinhard Goerdeler of West Germany, to their operations internationally, and investors have looked
the current President, Fermín del Valle of Argentina, IFAC to capital and credit markets in other countries for new
Presidents have always served as a driving force in leading opportunities. The multiplicity of national accounting and
the development of the profession and in uniting the many auditing standards, however, complicated this process by
cultures and backgrounds that make up the profession. (A adding reporting costs for companies and making it more
complete list of IFAC Presidents is provided below.)
Growing Adoption of IFAc Standards
Since its founding, IFAC has had four Chief Executive
Officers/Executive Directors. The first Executive Director, l More than 100 countries have adopted ISAs or are
Robert Sempier, was instrumental in launching the IFAC using them as the basis for national standards.
headquarters, which were originally staffed by two people
and operated on the premises of the American Institute of l The Financial Stability Forum lists ISAs as one of its
Certified Public Accountants. Bob Sempier was succeeded in 12 Key Standards for Sound Financial Systems.
March 1991 by John Gruner, who served as IFAC’s Director
General throughout the 1990s and led the development of l The World Federation of Exchanges has endorsed the
IFAC’s first strategic plan. Peter Johnston of Scotland served IAASB’s standard setting processes and recognizes
as IFAC Chief Executive from July 1999 to March 2002, a the importance of ISAs.
period of great change for the accountancy profession
and for IFAC. IFAC’s current Chief Executive Officer, l More than 50 countries have adopted IPSASs or are
Ian Ball, has served since March 2002 and has led the considering adoption.
organization as it undertook significant reforms designed
to further strengthen the organization’s standard-setting, l The United Nations, the Organisation for Economic
transparency and public interest focus. Co-operation and Development, NATO, the European
Commission, Organization of American States, and
Today, IFAC is an organization of just under 50 other international organizations have adopted IPSASs
professional and administrative staff based primarily in or support them as a global benchmark.
New York City, but also in Canada, Australia, and the United
The Professional Accountant 29
difficult for investors to compare financial statements from and the quality of financial reporting were seen as
companies in different countries. Having a single set of significant problems.
international standards was seen as critical to enhancing
global trade and investment, improving the transparency In response to the crisis and calls for the profession to
of financial reporting, and enabling investors to better focus on its civic responsibility, IFAC increased its outreach
compare the financial statements from other countries. In to and support of developing nations, it established an Anti-
addition, international standards were seen as a means for Corruption Task Force, and it expanded the independence
developing nations to built trust in financial reporting and and other ethical guidance in the Code of Ethics. The
auditing and, thus, increase investment in their countries. crisis also evoked responses from market regulators and
central bankers, leading to the strengthening of several
In the early days of IFAC, three committees were international organizations and the creation of the Financial
established to develop and promote international Stability Forum.
standards in the areas of auditing and assurance, ethics,
and education. These committees became the International Global capital markets continued to grow in the
Auditing and Assurance Standards Board (IAASB), the years leading up to the millennium, but moved sharply
International Ethics Standards Board for Accountants downward in 2001 following the collapse of Enron and
(IESBA), and the International Accounting Education financial reporting scandals at WorldCom and other
Standards Board (IAESB). In 1986, a new IFAC committee companies. A wave of worldwide legislative and regulatory
was created to address issues related to public sector measures followed, lead by the Sarbanes-Oxley (SOX) Act
financial reporting. Later, there was increasing recognition in the United States. This act established new corporate
of the need for international standards for the public governance requirements for publicly listed companies
sector, and the committee was subsequently reconstituted and created a new entity, the Public Company Accounting
as the International Public Sector Accounting Standards Oversight Board, to develop standards for listed entities
Board (IPSASB). The need to improve public sector financial and to conduct inspections of audit firms’ work. The SOX
reporting and financial management was acknowledged Act was a milestone for another reason: its reach extended
by the World Bank and other national and international beyond national borders to include foreign companies
organizations which continue to provide funding for this domiciled outside the United States.
Significant regulatory changes also occurred in a number
The international standards set by IFAC’s independent of other countries as governments explored more external
standard-setting boards are increasingly being recognized regulatory options and looked at how self-regulation and
and used by countries and organizations around the external regulation could more effectively reinforce one
world. The IAASB’s International Standards on Auditing another. At the international level, IFAC too explored how
(ISAs) have been adopted or are being used as a basis for to strengthen regulatory structures for the profession to
national auditing standards in more than 100 countries better protect the public interest.
worldwide. The IPSASB’s International Public Sector
Accounting Standards (IPSASs) are also increasingly used Working with a group of international regulators and
worldwide, with more than 50 countries having adopted organizations – including the International Organization of
IPSASs or considering adoption. In addition, the standards Securities Commissions, the Basel Committee on Banking
are supported by a number of international organizations, Supervision, the Financial Stability Forum, the International
including the United Nations, the Organisation for Economic Association of Insurance Supervisors, and the World Bank
Co-operation and Development, NATO, and others. The – IFAC developed a series of public interest reforms that
International Education Standards, set by IFAC’s Education were unanimously adopted at the IFAC Council meeting
Standards Board, and the Code of Ethics for Professional in November 2003. One of the most significant of these
Accountants, set by IFAC’s Ethics Standards Board, are also reforms was the establishment the Public Interest Oversight
increasingly being adopted by countries around the world. Board (PIOB) in February 2005 to oversee IFAC’s auditing
and assurance, ethics, and education standard-setting
Reforms and Oversight activities as well as its Member Body Compliance Program.
The PIOB’s creation was the result of collaborative effort by
As IFAC achieved a more significant global profile, events the international financial regulatory community, working
in the external environment began to have a greater impact with IFAC, to ensure that auditing and assurance, ethics
on the organization’s role. and educational standards for the accounting profession
are set in a transparent manner that reflects the public
In 1997, the East Asian financial crisis disrupted the interest. Additional reforms implemented by IFAC in the
economies of several Asian nations, demonstrating their past five years include:
interconnectedness to one another and to the wider global
economy. While there were a number of causes attributed The establishment of the IFAC Member Body Compliance
to the East Asian financial crisis, including economic and Program, which requires IFAC members and associates to
financial policies at a national level, a lack of transparency demonstrate their commitment to promote adoption of
30 The Professional Accountant
international standards and establish quality assurance Growth in IFAc Membership (1977 – 2007)
and investigation and discipline programs;
Enhanced transparency of IFAC governance and the
standard-setting process, including holding standard-
setting board meetings open to public observers and
providing more information about IFAC and the work of its
standard-setting boards through its website;
Expanded public interest input to all IFAC standard-
setting boards, including having public members serve on
each of the boards and extending the comment period on
all proposed standards and guidance to at least 90 days;
Establishing or expanding the roles of Consultative (IASB). With the formation of its SMP Committee in 2005,
Advisory Groups to provide the standard-setting boards IFAC has launched new initiatives to support SMPs and
with public interest input from users of their standards; the small and medium entities (SMEs) they serve. These
activities include organizing international forums dedicated
Enhanced nominations process that provides greater to addressing SMP/SME issues, leveraging technology to
access to membership of the Public Interest Activity facilitate the sharing of knowledge ideas and resources, and
Committees from interested parties and a move to 50 developing implementation guidance to support SMPs in
percent of membership from non-practitioners; and effectively performing audits and otherwise serving SMEs.
These initiatives recognized the increasing role of SMEs in
The creation of the IFAC Regulatory Liaison Group to the global economy. SMEs today represent 99 percent of all
work with the Monitoring Group of regulators. enterprises in the European Union, 99 percent of businesses
in the Asia Pacific Economic Cooperation region, and 99.7
These reforms received the unanimous support of percent of all employers in the United States.
member bodies at the IFAC Council in November 2003.
They were also supported by the large accounting firms that As the profession has grown globally so, too, has its impact
participate in IFAC through the Forum of Firms. Established within businesses and organizations. Professional accountants
in 2001, the Forum provides a means for international in business – those working inside business, industry, the
networks of audit firms to have a role in IFAC activities. public sector, the not-for-profit sector, and academia – today
Members of the Forum agree to meet certain significant represent over one-half of the membership of IFAC’s members
requirements, including committing to raising the quality of and associates. This broad and diverse constituency has seen
international audit practice, using international standards a shift in its role and focus from traditional bookkeeping and
and applying relevant sections of the Code of Ethics for financial reporting functions to encompass many new areas,
Professional Accountants. The executive committee of including information technology, management, strategy
the Forum is the Transnational Auditors Committee (TAC), development, risk analysis, and helping to shape the ethical
which develops good practice guidance on topics including tone of the organization.
application of International Financial Reporting Standards.
The TAC also provides nominees for IFAC’s auditing and Reflecting the changing and expanding responsibility of
assurance, ethics and education standard-setting boards. its constituents, IFAC’s Management Accounting Committee,
which was created in 1978, was renamed the Professional
Serving the Diversity of the Profession Accountants in Business (PAIB) Committee in 2004. For
more than a decade, the PAIB Committee has published
The turn of the century also marked a time of expanding its annual collection of Articles of Merit on current issues
focus for IFAC on serving and giving a voice to other facing professional accountants in business. The changing
segments of the profession, including small and medium focus of these articles is indicative of the changing roles of
practices (SMPs) and professional accountants in business. accountants in business. While the winning article of the
To address the needs of these constituencies and to ensure first Articles of Merit competition focused on budgeting,
that it had sufficient professional support to carry out its the 2007 winning article provided new insight into finding
public interest programs, IFAC’s staff expanded to include the proper mix of strategy and management practices in
experienced professionals who can address the broader enhancing company performance. The expanding scope of
range of issues facing IFAC. topics in Articles of Merit is just one sign of the increasing
breadth and depth of issues that are being addressed by
In recent years, IFAC has acted to ensure that the voice of IFAC member bodies around the world.
small and medium practices (SMPs) is heard by its independent
standard setting boards and also by other standard setters, As it looks to the future, the PAIB Committee has started
such as the International Accounting Standards Board to develop good practice guidance on key issues impacting
The Professional Accountant 31
professional accountants in business, including developing Chief Executives of its member bodies in various parts of
corporate codes of conduct, internal control, and enterprise the world to be able to keep a pulse on the profession’s
governance. challenges as well as on national initiatives. To further
strengthen communications, IFAC’s President, Chief
Expanding Markets and Membership Executive Officer, and other leaders regularly visit
member bodies around the world. In the past two years
In its first fifteen years, IFAC’s membership had doubled alone, IFAC’s President and CEO visited nearly 40 member
to include 106 professional accountancy bodies in 78 bodies in 34 countries on six continents.
countries, representing more than one million accountants
worldwide. In 1989, the world witnessed the fall of the Berlin Together with member bodies, IFAC has also developed
Wall. The fall not only symbolized the end of the Cold War tools to make resources and information more widely
between Eastern Europe and the West, but also offered the available to accounting professionals worldwide. In
opportunity for many nations to join the economic mainstream October 2006, IFAC and 13 member bodies launched the
and to begin building capital markets. The development KnowledgeNet for Professional Accountants (IFACnet.com),
of capital markets in these countries required the skills of a global multilingual search engine targeted specifically to
professional accountants and auditors, and a number of professional accountants. Member bodies also played a
formerly Communist countries saw the establishment or key role in the development and launch in August 2007
further development of professional accountancy bodies, of the multilingual IFAC website that features information
many of which joined IFAC in the following years. and news in Arabic, Chinese, French, Russian, Spanish, and
English, IFAC’s official language. IFAC and its members and
Since IFAC’s founding, there has been recognition of the associates are also working together in communicating key
unique needs of the profession in developing and emerging messages, including the attractiveness of the profession,
nations. Over the years, IFAC has grappled with how to its role in economic growth and development, and the
address issues specific to developing countries and how best profession’s shared ethical values, among others.
to serve the professional accountants who contribute to these
economies. Solutions to the unique problems of developing In marking its 30th anniversary, IFAC celebrates Thirty
countries have come about through collaboration with IFAC Years of Progress that have been achieved by working
member bodies in more developed countries, which are with member bodies and associates, regional accountancy
often the most experienced and best equipped to serve as organizations, and the hundreds of professionals who
mentors for less developed professional organizations. serve and have served as volunteers on IFAC boards and
committees. It is ultimately their dedication that has
As IFAC matured, a more comprehensive program to contributed to the evolution of IFAC and that has encouraged
support developing nations was established. With the accountants worldwide to carry out their responsibilities
creation in November 2005 of the Developing Nations with integrity, transparency and expertise, and in so doing,
Committee, IFAC further strengthened its relationships to make positive and lasting contributions to the societies
with governments and others working to develop the in which they work and live. n
profession worldwide. It also began arranging international
forums to raise awareness of the issues affecting Presidents of the International Federation of
developing nations and to bring together individuals and Accountants
organizations that can make a meaningful contribution to 1. Reinhard Goerdeler, Germany (1977 - 1980)
developing the profession in particular regions. To support 2. Gordon Cowperthwaite, Canada (1980 - 1982)
the establishment and development of professional 3. Washington SyCip, Philippines (1982 - 1985)
accountancy bodies, IFAC produced a Developing Nations 4. Robert May, United States (1985 - 1987)
Toolkit. This important guidance has been translated into 5. Richard Wilkes, United Kingdom (1987 - 1990)
Spanish, Russian, and French to make this resource as 6. Bertil Edlund, Sweden (1990 - 1992)
widely available as possible. 7. Peter Agars, Australia (1992 - 1995)
8. Juan Herrera, Dominican Republic (1995 - 1997)
These initiatives have indeed made a difference. By 2007, 9. Frank Harding, United Kingdom (1997 - 2000)
IFAC’s members and associates together represented nearly 10. Tsuguoki Fujinuma, Japan (2000 - 2002)
120 countries and jurisdictions, and the organization had 11. René Ricol, France (2002 - 2004)
advanced closer to its ultimate goal of establishing an IFAC 12. Graham Ward, United Kingdom (2004 - 2006)
member body in every country in the world. 13. Fermín del Valle, Argentina (2006 - 2008)
celebrating 30 Years of Progress
As part of its work to support developing nations
and to facilitate collaboration with its members and
associates, IFAC has made spokesmanship and outreach
a priority. IFAC holds annual meetings with groups of
32 The Professional Accountant
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