Small Business Owners: Don’t Overlook Your New Compliance Requirements!

Now we are faced with new accounting reporting standards. We’ll focus on one particularly important one, the “Revenue from Contracts with Customers” requirement.

Another crucial development is a recent CIPC warning about non-compliance with disclosure requirements relating to remuneration of directors and prescribed officers.  

Small business has limited resources and optimising these resources is a balancing act. Part of this balancing act includes the role of compliance. These requirements have increased as new laws are rolled out along with other regulations, such as BEE and FICA, which also need to be considered.

One needs to carefully weigh up the consequences of not complying with laws or regulations. It is no excuse to say “I was not aware of that requirement” – the onus is on the business to take the time to understand what it needs to know.

The new accounting reporting standards and how they impact on you

If your business compiles financial statements using International Financial Reporting Standards (IFRS) as its accounting framework, be aware that new standards have become effective for years beginning on or after 1 January 2018.

IFRS 15 “Revenue from Contracts with Customers”, which replaces IAS 18 “Revenue”, could have a significant impact. It could, depending on your business, fundamentally alter the way your company recognises revenue (particularly, for example, in the construction and telecommunication industries) and even if it does not, disclosure requirements in the notes to your Annual Financial Statements (AFS) may change. IFRS 15 requires disclosure of disaggregated revenue. These notes will have knock-on effects, for example, on bonus schemes tied to sales which may need to be altered.

This is only one of several new standards, so speak to your accountant to assess the effect on your business.

Banks and other financial institutions rely on your AFS to determine the health of your business. Not complying with these standards could result in an audit qualification, in turn resulting in a negative perception of your business by key stakeholders.

Disclosing directors’ and prescribed officers’ remuneration

The Companies and Intellectual Property Commission (CIPC) recently released a Notice warning that the Companies Act disclosure requirements of remuneration to directors and prescribed officers are not always being correctly complied with. The CIPC is referring to companies’ AFS (remember that you are required to lodge your AFS with the CIPC).

The Notice warns businesses that this is a significant area of governance and transparency - failure to comply could trigger an investigation into your company. This is something any business can do without as the CIPC is empowered to instruct entities, subject to the Companies Act, to correct contraventions. Or it may apply to the Courts to issue an administrative penalty or refer the matter to the prosecuting authorities.

Disclosure of directors’ and prescribed officers’ remuneration as prescribed by the Companies Act applies irrespective of whether IFRS or the IFRS for Small and Medium Entities is used as the accounting framework.

Extensive disclosure of directors and prescribed officers remuneration is required as set out in the Companies Act– so again, consult your accountant!      

This article was authored by and courtesy of CA(SA)DotNews.