SAIBA members that have obtained the designation Business Accountant in Practice are recognised as accounting officers. But what qualifies you to hold this title? An accounting officer is someone who meets the qualification requirements as detailed in section 60 of the Close Corporations Act, 1984 and as a result, may issue accounting and other reports on financial statements and information of close corporations and other entities.
Broadly speaking, to qualify as an accounting officer, a person should be a member of a recognised professional body which requires relevant subjects in accounting, enforces a code of conduct, and requires its members to maintain CPD hours.
SAIBA issued a comprehensive guide to its members that perform accounting officer work. This guide is available at www.saiba.org.za.
Below we have highlighted the 10 most important things SAIBA members should do when accepting an accounting officer engagement:
1. Accounting officers are not bookkeepers or accountants. It is important to stress this. Bookkeepers do the books, accountants prepare financial statements, and accounting officers issue accounting officer reports.
2. Accounting officers must report to their clients in terms of a statutory requirement. This requirement is final. It would therefore be a mistake to report on the internal controls of the entity or not to consider the accounting policies. Do not verify the existence of assets – this is not a requirement of the Close Corporation Act. Instead state whether the financial statements agree with the accounting records, conclude whether the accounting policies are appropriate and report a contravention of the Act should you become aware of this. These are your requirements.
3. Always interview the client beforehand.The interview is one of the four pillars on which you will base your final report. (Continue reading to learn about the rest.) This interview will reveal the type of client you are working for and will tell you whether the client has a formal bookkeeping system in place, whether it is reliable, whether they have an on-going concern, whether you need to refer to source documents or need only to rely on the prepared trial balance and ledgers.
4. It is important for you and the client to agree on which procedures to follow to issue an accounting officer report. You must also agree on the extent of these procedures. Due to limitation, these procedures will not allow you to issue an audit or review an opinion. They are also not prescribed in any statute or standard. Accounting officers usually agree to do the following:
- Read the financial statements and trial balance to identify obvious mistakes.
- Settle the trial balance, ledgers, and financial statement.
- Settle various reconciliations or balances with the ledgers. These may include the bank recon, VAT returns and recons, and PAYE and other tax recons.
- Balance the various registers with the ledgers. These include the assets, inventory, debtors and creditors register.
- Settle the largest debtor and creditor invoice to confirm inclusion in the registers.
- Balance the calculation of the lease payments and interest with the contract amounts and the ledger amounts.
- Consider the appropriateness of the accounting policies by keeping the client’s public interest score in mind and whether a financial reporting standard is prescribed by the Companies Act. In addition consider who will use the financial statements as this may require the use of a specific financial reporting standard and consider going concern as this impact disclosure.
- Review the work that you performed and consider if anything indicates that the client contravened the Act. If this occurred, report the fact to the client and be sure to include this in your report.
5. An accounting officer does not have to be independent of the client. They can be the client’s bookkeeper, accountant and accounting officer too.
6. Not all statutes that require the appointment of an accounting officer require you to do the same thing that you would do for a close corporation. For example the Non-Profit Organisation Act requires you to assess compliance to the said Act. This is a unique process that requires knowledge of International Standard on Assurance Engagements (ISAE) 3000 and/or International Standard on Related Services (ISRS) 4400.
7. Keep records of the evidence that you gather while performing the agreed upon procedures. The evidence is used to form your conclusion on which you base your report. Without evidence you will not be able to defend your conclusion. Evidence is gathered in working papers – papers that document the procedures that you performed, the evidence gathered and the conclusion you reached. Documentation is the second pillar of a successful accounting officer engagement.
8. Obtain a representation letter from your client. This letter confirms that the client has disclosed all necessary information to you. It states that he / she is responsible for the bookkeeping system, the selection of the accounting policies and the preparation of financial statements. The client also confirms and verifies all the assets and liabilities and taxes paid as represented in the financial statements. Obtaining a representation letter is the third pillar of a successful accounting officer engagement.
9. Review your work and decide on the type of report that you will issue. Accounting officers cannot qualify their reports, as they do not give opinions. Their reports are based on factual findings. This process is also agreed upon with the client. The accounting officer does not do any substantive testing, risk assessments or materiality calculations. Either the financial statements agree with the records, the accounting policies are appropriate, or they are not. If there is no agreement or the policy is not appropriate, a contravention of the Act is usually implied. List the relevant section of the Act that was contravened in your report. Issuing a correct report is the fourth pillar of a successful accounting officer engagement.
10. Ensure that your engagement letter, your working papers, the representation letter and the final report are in agreement. You have to show that you have followed the procedures as agreed upon in the engagement letter.