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Over the last few years there have been numerous changes for preparers to adapt to, change and be aware of. 2024 is no different.

In South Africa, our economy all but shut down as we waited with bated breath to see what would happen at the polls this year. We’ve seen a marked increase in emigrations from and “semigrations” across the country - as people find and/or create their “new normal”. The NHI bill was passed. Mayors have come and gone due to political manoeuvrings; some massive economies have moved towards hyperinflation; and politicians “utilising” AI in their mission to win votes.

While all of this is happening, there have been many changes to our reporting frameworks that can, and will, have a significant impact on reporting. The changes have been from the regulators to the reporting frameworks. Some of what is mentioned below will only be effective in future years, some effective immediately, all are critical to know about and understand.

Reporting frameworks

1. “IFRS” as we know it no longer exists

The IFRS Foundation® has now registered trademarks on the accounting standards to include certain naming conventions. They have issued guidelines for the use of their terms and standards that are very specific and must be adhered to when referring to anything from the Foundation.    

When using “IFRS” before terms such as the “IFRS® Accounting Standards” or the “IFRS® Sustainability Disclosure Standards”, the ® must be used the first time it is included in a report such as the annual financial statements or an annual report. The standards may not be referred to as “IFRS”, “IASs” or “IFRSs”, or even spelled out, they may now only be referred to as “IFRS Accounting Standards”. No ® symbol is required when mentioning a specific Standard like IFRS 9, IFRS 16, or IAS 16.

The “IFRS for SMEs® Accounting Standard” may be referred to as such (in the singular form) and not just “IFRS for SMEs”. The full term “International Financial Reporting Accounting Standard for Small and Medium-sized Entities” may not be used.

Click: Trade Mark Guidelines (ifrs.org) for the full requirements.

2. Presentation and Disclosure in Financial Statements

IAS 1 has been amended a number of times over the years and each time they change the name for the income statement. This year the IFRS Foundation issued a whole new Standard, IFRS 18… and once again we see a name change! For years beginning on or after 1 January 2027 it will be a “statement of financial performance”.

Although the application date for this standard is still over 2 years away, it is important to understand some of the changes that will be coming through. These are the main changes that have been brought into IFRS 18.

• Statement of financial performance

The statement is to be split into three well-defined and explained categories, operating, investing and financing, these may be the same as those for the cash flows, but the two statements are not aligned.

New mandatory categories, totals and subtotals have been introduced… a notable one is that operating profit is now an IFRS Accounting Standard-defined concept.

• Management Defined Performance Measures (MPMs)

MPMs are subtotals of income and expenses reflecting management’s view of an aspect of the entity’s financial performance that are communicated outside of the financial statements and not specified by the IFRS Accounting Standards.

Entities that use MPMs must include details in a note in the financial statements with definitions, calculations and reconciliations to the closest profit or loss item.

• New principles for aggregating and disaggregating information in financial statements and

The primary financial statements must provide a useful structured summary of the information, with the notes providing the detail of the material information. Entities are required to label their line items in the annual financial statements as precisely as possible, items can only be grouped together in the same line item when they share at least one common characteristic, but a single dissimilar characteristic is enough to disaggregate information if material.

• Changes to the statement of cash flows

The main changes to the statement of cash flows are:

• The starting point for the statement using the indirect method must be “operating profit” instead of the current “profit or loss”.
• Dividends paid are to be included within financing activities, but interest and dividends received as well as interest received depend on whether the entity has specified main activities.

3. Cutting down on disclosures

Companies, within a group where its parent, or ultimate parent, produces publicly available consolidated financial statement in accordance with the IFRS Accounting Standards, can now opt to present their financial statements in accordance with IFRS 19… and still claim compliance with the IFRS Accounting Standards. One of the main provisos is in the name…The IFRS Foundation has finally issued IFRS 19 Subsidiaries without Public Accountability: Disclosure.

Companies who elect to apply these reduced disclosures will apply all the recognition and measurement requirements of the applicable IFRS Accounting Standards but only apply the disclosures as detailed or referenced in IFRS 19. The new standard, effective for years beginning on or after 1 January 2027, can be early adopted. Entities will also be able to jump between application of IFRS 19 year-on-year for those with differing disclosure needs and/or expectations.

Wanting to cut down on disclosures and probably considerable time, effort and cost? This new accounting standard could be worth looking into.

4.     IFRS for SMEs Accounting Standard

The IFRS for SMEs Accounting Standard is in the process of being revised, with many changes proposed to align it to the IFRS Accounting Standards. Some of the important changes are:

• the requirements to apply materiality in preparing financial statements
• aligning the definition of control
• the accounting of financial instruments
• revenue and business combinations.

There are changes proposed to almost every section within the SME Standard.

There has been a sigh of relief from some preparers that the accounting for leases remains unchanged for now, and the IASB decided recently not to require entities applying this standard to apply the expected credit loss method to financial asset impairment assessments.

The revised IFRS for SME Accounting Standard is expected to be released towards the end of 2024, effective at a later date. If you prepare financial statements in accordance with this Standard, it could have a big impact, you want to keep an eye on that.

Regulations

5. Companies Act changes

The Companies Act is finally changing. The president signed the Companies Amendment Acts, 2024 into law towards the end of July 2024 (gazetted but effective date not proclaimed). There are numerous changes that will impact the preparation of financial statements. Some notable ones include:

• Clarification that the names of the directors and prescribed offices must be included when presenting their emoluments.
• Public and state-owned entities must prepare and present a binding remuneration policy to be voted on every three years including total remuneration per director and prescribed officer and pay gap disclosures. Pay gap disclosures include the total remuneration of the highest and lowest paid employee, the average median remuneration of all employees and the gap of the top highest paid and bottom lowest paid employees.
• The financial statements and any disclosures in them including director and officer remuneration as well as the MOI and various registers will become public information for companies.  The information must be available directly from a company unless their financials are internally prepared with a Public Interest score is below 100 and where over 350 and the financials and externally prepared. [This can be very useful in applying the consolidation exemption permitted by IFRS 10 once effective.] The amendments also appear to require all the annual financial statements of companies whose financial statements are audited or reviewed, whether mandatory or voluntarily, to be submitted to the CIPC.

There are a number of other changes that need to be understood and will require companies to start preparing for, including the requirements for the social and ethics committees, these amendments are worth working through.

The Companies Regulations are also being relooked at - with changes expected. An area under scrutiny is the calculation of the Public Interest score, a change that is eagerly awaited.

6. Crack down on the 6-month deadline

All South African companies are required to issue their annual financial statements and submit them to the CIPC within six months of the financial year-end. There are many companies that are not meeting this deadline. The CIPC recently released Notice 33 of 2024 warning that failure to meet the requirement to submit annual financial statements including:

• an independent auditor’s report where audited;
• a directors’ report; and
• approval by the board, signed by an authorised director;

may lead to investigations and possible administrative penalties.

7. Disclosure of fees to auditors

Auditors express an opinion on the annual financial statements right? Well, yes. But sometimes they perform other (permissible) work for their clients too including reports on acquisitions, reports or returns for regulatory or legal requirements, etc. There is now a requirement to communicate the split of these fees to ‘those charged with governance’ of a public interest company.

The Independent Regulatory Board for Auditors has adopted the IESBA® Code requirements for the auditors to communicate this fee-rated information with those charged with governance and to the public for audit clients effective December 2022. The easiest way to achieve this is to include it in the annual financial statements, so preparers may receive this request from your auditors.

It must be publicly available, so if it is not included in your financial statements, it could be included in the audit report, on the audit firm’s website or their transparency report or other elected platform.

8. JSE changes in reporting

The JSE embarked on a project over the last while to ‘cut the clutter,’ simplifying their Listings Requirements and the red tape that issuers must work through in order to take actions. Two of the recent changes that came through from that is the change in reporting requirements and the proposed market segmentation explained briefly below.

Change in reporting requirements

Issuers were often getting confused as to whether they were actually issuing provisional or preliminary results as well as when and if an abridged report should be issued. The JSE has now simplified all those requirements, sticking with the 3- and 4-month reporting period, but offering clearer choices as to what could be issued then. The issuers must also now make use of the JSE Cloudlink to upload their financial reports together with the related audit/review reports.

At 3 months an issuer can now issue:

• a reviewed condensed report if the AFS are not ready yet,
• a summarised report if the AFS are ready and audited, but not available for publishing yet, or
• group AFS.

At 4 months the issuer must issue:

• an annual report (together with, but not necessarily as a single document, the supplementary information required in section 8.64)
• the group AFS (if not published at 3 months)
• the company AFS (for South African companies)
• notice of the AGM

The JSE has also clarified the requirements for change and no-change statements, utilising the JSE Cloudlink to detail any changes.

There are numerous other changes that were applied in Service Issue 31 of the JSE Listings Requirements, if you haven’t already, it is worth working through them.

Market segmentation

The JSE is on a mission to create what they call an ‘enabling environment’ for listed companies. With this in mind, they issued proposed amendments in April 2024 aimed at segmenting the Main Board into the Prime Segment and the General Segment making it easier for smaller listed companies to raise capital and undertake corporate actions. The reforms for the General Segment include proposals for more flexibility to issue and/or buy back shares, removing the requirements for fairness opinions and pro forma financial information, making the percentage ratios larger for category one transactions and small related party transactions with greater emphasis on explanations. Another interesting proposal is that they might remove the requirement for these companies to report their results at 3 months, ad instead only require an annual report within 4 months.

It feels like 2024 has been a year of massive change. As our GNU starts to (hopefully) find its feet and become a bit more stable; as corporate staff figure out how to be back at the office; as countries continue to fight against being hyperinflationary; as the next US president is elected - theatrics can end, and decisions be made. Results will hopefully include the SA president knuckling down for our citizens and completing projects.

Preparers need to keep on top of all the changes and pivot to figure out how to apply them. It’s time to pick up and move forward. Watching for these 8 changes and responding accordingly when preparing financial statements in 2024 is crucial. Knowing what’s changed and what’s coming is important to maintain stability in chaos.

Author:

Justine Combrink, Partner