New standards and interpretations effective 1 January 2019 – Are you ready?


There has been a number of new standards and amendments issued by the IASB that will become effective from 1 January 2019.

Standard or Interpretation and Details


IFRS 16 ‘Leases’ was issued by the IASB on 13 January 2016 and is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15 ‘Revenue from Contracts with Customers’ has also been applied.

IFRS 16 will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for almost all lease contracts. The accounting by lessors, however, will not significantly change.

The changes under IFRS 16 are significant and will have a pervasive impact, particularly for lessees with operating leases.

AMENDMENT: IFRS 9: Financial Instruments (Prepayment features)

On 12 October 2017, the IASB published Prepayment Features with Negative Compensation (Amendments to IFRS 9) to address the concerns about how IFRS 9 Financial Instruments classifies particular prepayable financial assets. In addition, the IASB clarified an aspect of the accounting for financial liabilities following a modification.

These amendments are: 

  1. Changes regarding symmetric prepayment options: Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. Under the amendments, the sign of the prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also be made in favour of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.
  2. Clarification regarding the modification of financial liabilities: It clarifies that an entity recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortised cost amount.

 The amendments are to be applied retrospectively for financial years beginning on or after 1 January 2019.

AMENDMENT: IAS 28: Investments in Associates and Joint Ventures (Long term Interests)

The amendments in Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) are:

  • Paragraph 14A has been added to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
  • Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.

The amendments are to be applied retrospectively for financial years beginning on or after 1 January 2019.

AMENDMENT: IAS 19: Employee benefits (Plan Amendment, Curtailment or Settlement)

On 7 February 2018, the IASB published Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) to harmonise accounting practices and to provide more relevant information for decision-making. An entity applies the amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019.

The amendments in Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) are:

  • If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.
  • In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

NEW INTERPRETATION: IFRIC 23: Uncertainty over Income Tax Treatments

The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12.

IFRIC 23 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted.

Annual Improvements to IFRS Standards 2015-2017 Cycle

The IASB has issued ‘Annual Improvements to IFRS Standards 2015–2017 Cycle’. The pronouncement contains amendments to four International Financial Reporting Standards (IFRSs) as result of the IASB’s annual improvements project. These amendments are effective for annual periods beginning on or after 1 January 2019.

The amendments made during the 2015–2017 cycle are as follows:

Amended Standard The amendments clarify that:

IFRS 3 Business Combinations

A company remeasures its previously held interest in a joint operation when it obtains control of the business.

IFRS 11 Joint Arrangements

A company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business.

IAS 12 Income Taxes

A company accounts for all income tax consequences of dividend payments in the same way.

IAS 23 Borrowing Costs

A company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale.

Companies Amendment Bill 2018 – Proposed changes

On Friday, 21 September 2018 the Department of Trade and Industry published the draft Companies Amendment Bill 2018 for comment and comments closed on 20 November 2018. The following is a summary of the more significant changes proposed by the Bill.

Proposed Amendment and Details

Memorandum of Incorporation (section 16)
The Bill proposes that amendments will take effect 10 business days after receipt of the notice of amendment, if the Companies Commission, after the expiry of the 10 business days, has not endorsed the notice of amendment sooner or has failed to reject the amendment with reasons. The notice of rejection also needs to be supplemented with reasons.

Disclosure of Remuneration and Benefits (section 30)
The requirement to disclose the remuneration and benefits received by a director would apply to prescribed officers, and it would be a requirement that each individual is named

A ‘prescribed officer’ is typically an executive who is in a position to influence the management of the company or one of its significant divisions.

Remuneration Report (section 30A)
In line with King IV, public companies would be required to prepare a remuneration report with details of the remuneration and benefits awarded to individual directors, for approval by the Board and presentation at the AGM.

Annual Returns (section 33) (i) A company would have to submit a copy of its Annual Financial Statements (“AFS”) where it is required to have its AFS audited; and (ii) A company would be required to file a copy of its securities register with the CIPC each year along with its Annual Return.

Share capital structure – Court Order (section 38A)
Currently the Companies Act does not allow for a company to fix its share capital structure where it contains errors.

The proposed new amendments is to include the power of the court, upon application by an interested person or by the company, to order that shares that were created, allotted or issued invalidly or in an unauthorised manner, to be validly created, allotted or issued if it is “just and equitable” to do so.

Financial Assistance (section 45)
Presently, any financial assistance granted by a company to its subsidiary must be authorised by the board and the shareholders by way of a special resolution.

The Bill proposes to limit the net of financial assistance transactions that fall within section 45 by excluding “the giving by a company of financial assistance to, or for the benefit of, its own subsidiary.”

The restrictions on financial assistance would therefore not apply to the giving by a company of financial assistance to or for the benefit of its subsidiary.

Share Buy Backs (section 48) A Board decision for a company to acquire its own shares would require approval by a shareholder special resolution:
(i) where the shares are to be acquired by a director, prescribed officer or person related to either a director or a prescribed officer;
(ii) but not where the acquisition is by way of:
– a pro rata offer to all shareholders; or – a transaction in the ordinary course on a recognised stock exchange.

Social and Ethics Committee (sections 61 & 62)
In addition to the requirements in the current Regulations, all public and state-owned companies would be required to appoint a Social and Ethics Committee at each annual general meeting, which must meet specified composition criteria. The Social and Ethics Committee would be required to prepare a formal report which must be externally assured, for presentation to the shareholders at a shareholders meeting.

It also allows companies to apply to the Companies Tribunal for an exemption from these requirements if the company has another mechanism within its structures to perform the functions of the committee or if it is not necessary in the public interest to require the company to have a committee, having regard to the nature and extent of the activities of the company.

Auditor Requirements (section 90)
(i) A company which is required to have its Annual Financial Statements audited, would have to appoint an auditor annually, at a shareholders meeting (not necessarily the AGM); and
(ii) The disqualification period for auditors would be reduced from five years to two years.

Limitation of the takeover provisions to private companies (section 118)
The current section 118(1)(c)(i) of the Companies Act mainly regards private companies as regulated companies if more than 10% of its issued securities had been transferred, other than between related or inter-related persons, within a 24-month period prior to the date of the affected transaction.

The amendment proposes to only regard private companies as regulated companies if the private company is required by the Companies Act or the regulations to have its annual financial statements audited every year.

Business rescue and the treatment of landlords (sections 135 & 145)
The Bill provides that any amounts due by a company under business rescue to a landlord for rent or services will be regarded as ‘post commencement financing’ and the landlord will have a voting interest in the business rescue proceedings to the extent of its claim. Post commencement finance, whether secured or unsecured, enjoys preference over unsecured creditors.

Disputes concerning company names (section 160)
In terms of the Companies Act, the Companies Tribunal may deal with disputes regarding company names.

It is proposed that where a company has been ordered to change its name, and it fails to do so, the Companies Commission may substitute its registration number as the name of the company in question.

Black economic empowerment (section 195)
The Bill seeks to give the Companies Tribunal the power to adjudicate cases referred to it by the B-BBEE Commission.

IFRS 9: Financial Instruments – Restatement of Comparative Periods

The International Accounting Standards Board (IASB) have introduced a new accounting standard IFRS 9: Financial Instruments to replace IAS 39: Financial Instruments Recognition and Measurement. The standard is effective for annual periods beginning on or after 1 January 2018. The following are the principles behind the restatement of financial statements after adopting IFRS 9.

IFRS 9 does not require restatement of comparative period financial statements except in limited circumstances related to hedge accounting; however, entities may choose to restate.

The following decision tree outlines the IFRS 9 requirements related to restatement and required disclosures on transition:

  • If an entity elects not to restate comparative periods, then it is important to remember that the quantification of adjustments is still necessary in order to determine the transition adjustment in opening retained earnings or other components of equity, as appropriate.
  • If comparative periods are not restated, the difference between the previous carrying amounts and the new carrying amounts at the Date of Initial Adoption is recorded in opening retained earnings or other components of equity, as appropriate, of the annual period that includes the Date of Initial Adoption (DIA).
  • If an entity restates comparative periods, then it will also need to apply, IAS 1, Presentation of Financial Statements. IAS 1 requires a third balance sheet to be presented when an accounting policy is applied retrospectively and there is a material effect as a result of the change. As an example, if an entity restated comparative periods and the DIA is November 1, 2017, the following balance sheets may be required:
    – October 31, 2018
    – October 31, 2017
    – November 1, 2016
  • The needs and expectations of shareholders and other financial statement users should be considered in arriving at the decision. Without restatement, users may find it difficult to analyze the entity’s financial statements results; however, given that not all of the standard’s principles
    are applied retrospectively and IAS 39 continues to be applied for financial assets derecognized prior to DIA, results will not be comparable even if restated.
  • An entity could consider providing pro forma comparative results to enhance comparability. If an entity decides to restate comparative periods, the use of hindsight is prohibited. Regardless of whether an entity chooses to restate prior periods, there are transitional financial statement disclosures that are required; however, these do differ depending on the approach taken.

External Auditor’s Responsibility to consider Cybersecurity

Scope of auditor’s responsibility

The auditor is required to:

  • Understand how the business uses IT and the impact of IT on the financial statements,
  • Understand the extent of the company’s automated controls as they relate to financial reporting (including IT general controls that are important to the effective operation of automated controls and the reliability of company-produced data and reports used in the audit), and
  • Use his or her understanding of the business’s IT systems and controls in assessing the risks of material misstatement of financial statements, including IT risks resulting from unauthorized access.

The immediate conclusion may be that cybersecurity risk is not an area that requires special audit attention, but auditors would consider, as part of the risk assessment process, an entity’s business risks in the audit of financial statements. Cyber incidents can result in financial consequences and therefore, have an effect on the financial statements.

Cybersecurity risk should therefore be considered in every financial statement audit. Auditors should consider and assess the impact of such risk to the financial statements and, where necessary, the extent of the audit response required to address the risk.

It is important to note that the auditor’s role is limited to the audit of the financial statements and does not encompass an evaluation of cybersecurity risks of the company’s entire IT platform but only focusses on systems and controls affecting information used in the compilation of these financial statements.

Risk consideration and assessment

Risk assessment is part of the financial statements audit process and is a key fundamental process which must be performed during the planning phase of every audit. The auditor is required to identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment, including the entity’s internal control. With an in-depth understanding of the entity’s business and environment (this includes an entity’s IT
and cyber environment), it enables the auditor to identify the risks, and to design and implement appropriate audit responses to address those identified risks. The auditor should obtain an understanding of the IT general controls, evaluate their design and determine whether the controls that are relevant to the audit have been implemented.

The auditor should determine whether any of the risks identified (which could include cybersecurity risks) are, in the auditor’s judgement, significant risks that require special audit consideration. If information about a material breach is identified, the auditor would need to consider the impact on financial reporting, including disclosures, and any reporting obligation.

Re-Assessing Cybersecurity Risk Every Year

Changes in the risk environment and the ways in which businesses operate mean that business risks do not remain constant. In one year, cybersecurity risk may not have been identified as a key business risk that may result in risks of material misstatement, but this does not mean that the same will apply for the next year. Significant and rapid changes in information systems, incorporation of new technologies into production processes, or expansion of operations can bring about new cybersecurity risk.

Audit responses to risks identified

Where cybersecurity risks may result in risks of material misstatement at the financial statement level, the auditor should take appropriate steps to address these risks. This may include assigning more experienced staff or those with special skills such as IT specialists to the engagement, incorporating additional elements of unpredictability in the selection of further audit procedures to be performed and modifying the nature of audit procedures to obtain more persuasive and corroborative audit evidence.

The auditor would have to determine whether continued reliance can be placed on the IT dependencies/automated controls; consider the need to revise the initial risk assessment, and the impact to the nature, timing and extent of other planned audit procedures. The auditor would have to respond to the ineffective IT control environment by obtaining more extensive audit evidence from substantive procedures.

Audit responses to cyber attacks

Companies that fall victim to successful cyber-attacks may incur substantial costs and suffer significant damage. The auditor should:

  • Understand the nature and cause of the incident, carefully consider the costs and any adverse consequences arising from the cyber incident, and evaluate the impact it may have on the financial statements.
  • Assess the impact of the attack on the entity’s future revenue, potential litigation expenses, cybersecurity protection costs, etc and future cash flows, which may affect impairment assessments.
  • Examine whether the breach may indicate going concern issues for the entity.
  • Evaluate whether appropriate disclosures are included in the financial statements.
  • Consider any other requirements to notify the appropriate authorities in case management has not made appropriate disclosures or considered the auditor’s recommendations.

October 2018 edition

In this Issue

Your tax deadlines for October

The due date for non-provisional taxpayers who submit their income tax via eFiling or electronically at a SARS branch is 31 October.

Time is running out and SARS is cracking down on late lodgements and failure to submit returns.

The penalty amount that will be charged for late lodgement depends on your taxable income and, says SARS, “can range from R250 up to R16,000 a month for each month that the non-compliance continues.”

Treat this deadline seriously!

Will the 21st century really be Africa’s time to flourish?

“We really need to have a third wave, and it needs to happen in sub-Saharan Africa” (Bill Gates)

Two factors often cited as to why “Africa’s time is coming” are:

  • Demographics – the huge populations of India and China are cited as a key factor in their rapid growth. Currently Africa is the fastest growing continent and its population is set to double by 2050.
  • Leapfrogging technology – for example, developing countries have set up banking in remote areas of East Africa by using cell phones powered by small solar panels. They have thus bypassed the whole process of setting up banking and electrical infrastructure.

Is it likely that these predictions will materialise and if so what impact will all this have on South Africa?

Demographics – the unseen flaw

It is accepted that large populations create a large potential market as has happened in Brazil for example. However to reap this benefit, populations need to start declining once development begins to take off. The reason for this is what is known as the “dependency ratio”.

In 1960, in developing countries in Asia, Africa and South America women had an average of six children. Since then the number has declined in Asia to 2.2 children and to 3 children in South America. However Africa has remained high at just under 5 children per woman.

Having fewer dependents allows parents to focus on their careers, grow their wealth and afford to spend more on things like education and health care on smaller families. As these smaller families rapidly join the middle class, this helps to provide the momentum for infrastructure development and rapid economic growth. As long as Africa has a high care dependency ratio, it will be extremely difficult to mirror China and India.

In South Africa our average number of births is 2.4 per woman which puts us in between Asia and South America. If we can get some basics right, like education, we could start to rapidly develop.


Mobile phones have been used for more than developing banking in Africa but smart phones are also used, for example, to help rural farmers. Satellites scan a farm and can tell the farmers which of their fruit trees have rot and need to be pulled out before the disease spreads to other trees. They can get advice on what crops to plant and how much fertiliser to use etc. Technology thus is enabling some African countries to progress at a rapid rate.

African countries still need infrastructure. There is no point in doubling your farming yield if you cannot get your product quickly and cost effectively to market. Without decent roads, ports, an effective legal system and no bottlenecks at border posts, Africa will struggle to fulfil its potential.

Many breakthroughs can be made with technology but without a decent foundation, leapfrogging will only have a limited impact.

We in South Africa have reasonable infrastructure but very high inequality and still need to focus on uplifting the poorer sections of the country and creating a more enabling environment to attract investment.

In a nutshell, South Africa is potentially well placed to move rapidly ahead. Things are unfortunately less certain for the bulk of our continent.

Surviving a business crisis: Consider your turnaround options

“Turnarounds seldom turn”
(Warren Buffett)

In the life cycle of any business, it will almost inevitably experience a crisis. This is always a very difficult time and it will be a test of judgment and experience how senior management respond. Usually, it will be some issue that is solvable and the business will continue to operate.

Sometimes however it is an existential threat and this will need careful thought and planning.

Stress drains your energy

Deciding whether to try and turn around a business or put it into liquidation is enormously stressful. Many careers and the family of staff and key stakeholders could suffer depending on the outcome.

It is unlikely there will be a second chance if the first decision made by management turns out to be incorrect.

What is the problem?

So the first thing to do is identify the core problem. There are many things to look at:

  • Is your business in a mature to old stage?
  • Are there disruptors like Uber in the industry?
  • Is there still demand for the product or service your business provides?
  • What sort of shape is your business in? Are systems and infrastructure creaking or worse?

Money, planning and analysis

Once the problem and a solution have been identified, don’t forget that turning around a business will take resources. Plan your cash flow carefully.

Business turnarounds are also high risk – remember they will often not work out. But careful planning and analysis will improve the odds of success – ask your accountants for their specialist help and advice at this crucial time.

Directors Beware! You could be held personally liable for data breaches

Hacking into computers has become common place. In the United States it grew by 45% in 2017. Yahoo, one of America’s largest Internet search engines, was recently the victim of cyber crime and disgruntled shareholders are suing the directors for dereliction of their fiduciary duties.

Hacking is a reality in South Africa also, which raises the issue of your personal liability as a director in the event of your company being exposed to cyber crime.

What do the Companies Act and King IV expect of directors?

Directors need to have “taken reasonably diligent steps to become informed about the matter” – in other words directors would be expected to know cyber crime has become commonplace and to take steps to ensure the company takes all the necessary actions to prevent outsiders getting access to company information. King IV specifically charges directors to “identify and respond to incidents, including cyber attacks…”.

Your risk is that as a director you are personally liable for any costs, losses or damages resulting from a breach of your duties.

How to protect yourself from liability

If a company suffers loss from a hacking incident, then directors need to show they have addressed the issue to the best of their ability if they want to avoid attracting such liability.

Whilst many of us may feel lost when it comes to technology, it is clearly an issue that exposes a company to significant risk. Make sure you and your board of directors gain an understanding of how to protect your business. You need also to ensure that in need you can show documentation to a court to prove that you acted with diligence to counter the risk of being hacked.

Importing from Amazon: You could be forced to register as an importer

“Forewarned is forearmed”
(Wise old proverb)

Picture this: Gavin brings in books and DVDs from Amazon (to take just one example – this applies to anything sourced from foreign online retailers like eBay, Alibaba etc). He pays VAT and Customs Duty on the products and is frustrated when his couriers don’t deliver his purchases. He gets even more frustrated after phoning them as they tell him that his products have not been released from Customs because he is not a registered importer.

When must you register?

If you bring in more than three shipments (or if your imports cumulatively are more than R50,000) per calendar year, then you are required to register as an importer with SARS. This has been a requirement since 2013, but SARS have only been enforcing it this year. This is in spite of the fact that VAT and Customs duty is already being recovered.

That’s bad news…

Registering as an importer is not easy. You have to:

  • Complete a DA185 and a DA185.4A1
  • Show proof of address
  • Have a tax clearance certificate
  • Have a certified ID copy
  • Lodge a bank statement
  • Lodge an affidavit stating that all the above information is correct.

The Customs Act and Regulations pertaining to importers are more than 6,000 pages long! Be warned, if you want to import a lot of books, DVDs or other goods, your life will get a whole lot more complicated. Don’t take chances here; ask your accountant for help if you fall into the net.