ACCOUNTING

Accountancy SA, Jul 2008

GAAP MONITORING PANEL FEEDBACK

The GAAP Monitoring Panel (GMP) is a joint initiative between the South African Institute of Chartered Accountants (SAICA) and the JSE Limited (JSE). It was created in 2002 as an oversight body to enhance compliance with accounting standards.

A total of six companies listed on the JSE were referred to the GMP during 2007. Of the six companies, five were required to re-publish their financial results and one company was required to correct its disclosure in its subsequent annual financial statements. The six companies referred to the GMP last year brings to 34 the number of companies thus referred since the GMP was launched in September 2002.

Prof. Harvey Wainer, GMP chairman, has identified a common theme running through most of the 2007 GMP cases as an erroneous accounting for acquisitions and a lack of appreciation of the disclosure requirements of IFRS. This was especially relevant where one company acquired another and the acquisition agreement recorded a contractual effective date far earlier than the date upon which the acquisition was concluded. The company accounted for this acquisition using the date in the contract despite the fact that it did not control the acquired company at that date. This accounting results in the erroneous inclusion of the acquired subsidiary's results in the group financial statements, thereby artificially boosting the reported group profits and generating a misleading result.

Prof. Harvey Wainer identified a lack of appreciation of the detailed disclosure requirements for interim and provisional reports as other common problems in 2007.

With the changes to, and complexity of, accounting standards it is essential that persons involved in the preparation and presentation of financial statements keep abreast of all the current accounting requirements.

Jan Dijkman, SAICA's Project Director: Ethics and Discipline, reports that five disciplinary cases against company directors and/or auditors had been finalised during the past calendar year, the most serious of which had resulted in a fine of R100 000 being imposed on the financial director of the company in question, R75 000 of which was suspended by SAICA's disciplinary committee. The auditors, who had given a clean audit opinion on its financial statements, were referred to a full disciplinary hearing by the IRBA.

For more detailed information on all the matters dealt with by the GMP, please refer to the GAAP Monitoring Panel section on our website.