Companies face heavy downgrades as BEE verification space sees major shake up

6 Sep 2016

“Sanas interprets and applies the broad-based BEE codes in a stringent manner, which could affect the BEE levels of companies previously rated by IRBA agents.”

Ujuh Reporter

The Black Economic Empowerment (BEE) verification space is set for a major shake-up that might deliver heavy downgrades of BEE scores for many companies. This is a result of the withdrawal of the Independent Regulatory Board for Auditors (IRBA) as the regulatory body for agencies issuing black economic empowerment (BEE) verification certificates.

Gideon Gerber, founding director of BEE consulting firm Serr Synergy has pointed major gaps that came with the IRBA BEE certification regime.

IRBA is thought to have overseen a lighter BEE certification regime as compared to the original criteria applied by the South African National Accreditation System (Sanas). IRBA was anointed as the second BEE certificate issuer regulator in 2011 that regulated the B-BBEE Approved Registered Auditors (BARs) space.

IRBA will withdraw from the BEE certification space on the 30th of September 2016. This leaves only the South African National Accreditation System (SANAS) as the only BBBEE certification regulatory body.

Gerber said “Several IRBA agents have indicated that they would not apply for accreditation with Sanas, which has much more onerous regulatory requirements for accreditation,” wrote Gerber in an opinion piece published by Business Day.

He continued “Several auditors cited possible suspension by Sanas for any non-conformance issues as posing too big a risk to their practices.”

He noted that IRBA allowed auditors to issue BEE certificates to their clients, while Sanas deems this a potential conflict of interest and does not allow it.

In addition “Sanas interprets and applies the broad-based BEE codes in a stringent manner, which could affect the BEE levels of companies previously rated by IRBA agents.”

Using international accounting standards IRBA allows companies to exclude from their annual turnovers those revenues that do not form part of their equity, said Gerber. “This applies to petroleum companies that may exclude fuel levies from revenue; importers and exporters that may exclude taxes and duties; and auctioneers, market agents, estate agents, and car dealers who have revenue of a consignment nature flowing through their accounts.

“The reduced turnover placed these companies in more beneficial BEE categories, such as qualifying small enterprises and exempted micro enterprises.”

He added that “Given that net profit after tax is used to determine the amount to be spent on social, enterprise, and supplier development contributions, a company’s net profit after tax must fall within industry norms (an average announced quarterly by Statistics SA). This is expressed as a percentage of annual turnover.

“Companies that used the adjusted turnover under IRBA rules would not be able to do so under a Sanas audit, which could place them in a different category of enterprise, with an accompanying effect on the amount to be spent on socioeconomic, supplier, and enterprise development.”

Gerber said IRBA allowed companies to make donations towards socio-economic and enterprise development outside the financial year, as long as it was before the measurement date.

“This was based on their interpretation of measurement period and date of measurement, and served as a practical arrangement, as no company would know on the last day of its financial year what the exact net profit after tax would be. This is normally known only months later when a financial audit is concluded.

“Under an IRBA measurement, companies that underspent during a financial year could make a last-minute top-up correction before measurement, whereas Sanas does not allow “out-of-period top-ups”, so all such contributions are limited to the financial year being measured.

Gerber said some IRBA agents allowed points for training concluded outside of the financial year or measurement period on condition that expenditure for such training was incurred within the financial year. “In the case of Sanas, however, the skills transfer, as well as the expenditure, must be concluded within the financial year.

“Longer training programmes, such as learnerships, internships, and apprenticeships, must at least start within the financial year.”

Leave a Reply

Your email address will not be published. Required fields are marked *