CORPORATE LAWS AMENDMENT ACT

FACT 1:
You need to consider whether your company is widely held or limited interest company
New definition – widely held company

A company is a widely held company if its articles provide for an unrestricted transfer of its shares; it is permitted by its articles to offer shares to the public; it decides by special resolution to be a widely held company; or it is a subsidiary of a widely held company.
If a company is not a widely held company, it is a limited interest company.
Note that the private/public company split has not been withdrawn and is therefore still applicable.

FACT 2:
Implication for a widely held company - establish an audit committee

The audit committee must have at least 2 members and consist only of non-executive directors who act independently. The audit committee of the holding company can perform the functions in term of the act for a subsidiary.

The functions of the audit committee are to nominate an auditor for appointment, determine the audit fees, determine the nature and extent of any non-audit services which the auditor may provide to the company and pre-approve any proposed contract for the provisions of non-audit services.

The audit committee must also insert a report in the financial statements to describe how the audit committee carried out its functions and stating whether the audit committee is satisfied that the auditor was independent.

Refer to the decision tree for further implications of a widely held versus a limited interest company

FACT 3:
Other implications for a widely held company

In addition to a firm being appointed as an auditor of a widely held company, a designated auditor must also be specified.  This must be an individual that is a registered auditor.  The designated auditor of a widely held company must rotate at least every 5 years.

The designated auditor of a widely held company must also attend the annual general meeting of the company.

The financial reporting standards applicable to widely held companies have to be in accordance with International Financial Reporting Standards (IFRS).  It will thus be law in future for these companies to comply with IFRS.

FACT 4:
Implications for limited interest companies
Reporting relief

Separate reporting standards will be developed by the Financial Reporting Standards Council (still to be established) for limited interest companies. 

The financial statements of a limited interest company must still “fairly present” the state of affairs and an audit is still required.

Until such time as accounting standards have been developed, a transitional provision is applicable, that requires that limited interest company must prepare its financial statements in accordance with a set of accounting practices adopted by that company, which must comply with the framework for the preparation and presentation of financial statements included in financial reporting standards.

In order to give more specific guidance and allow and audit opinion to be expressed in terms of the “fairly present” requirement (ISA 700), the Accounting Practices Board has early adopted IFRS for SMEs as the standards to be applied by limited interest companies.  However, limited interest companies can still choose to comply with full IFRS.

FACT 5:
Implications for all - making false or misleading reports

A person who is party to the preparation, approval, publication or supply of any financial report of a company that is false or misleading in a material aspect, is guilty of an offence.  This requirement goes beyond managers and directors to also include financial, tax, legal and other advisors.