Juanita Steenekamp says that it is both "onerous and vague" and that "more guidance is required".
On 1 January 2020, The Companies and Intellectual Property Commission (CIPC) Compliance Checklist was implemented.
According to the CIPC, the Checklist aims to ensure compliance with the mandatory requirements of the Companies Act, serve as an educational tool for directors and company secretaries in guiding them with regards to their responsibilities in terms of the Companies Act, and to monitor and regulate proper compliance with the Companies Act.
It consists of 24 questions that ask companies whether they have complied with a particular section of the Companies Act during the previous calendar year.
Juanita Steenekamp, the South African Institute of Chartered Accountants (Saica) project director of governance and non-IFRS reporting, highlighted some concerns regarding the checklist, asking “what the CIPC will do with the information provided and how differences in interpretation of the Companies Act will be dealt with”. Saica members are also concerned about the potential increase in costs to be incurred by clients.
She said that “with regards to the difference of interpretation, Saica recommends that directors and accountants document their interpretations and subsequent answers to the questions”, as they won’t be allowed the opportunity to explain their answers on the checklist.
“As an example, the first question of the Compliance Checklist is: ‘Does the company comply with section 4 of the Companies Act?’,” she pointed out. “However, section 4, in Saica’s view, does not per se contain a compliance obligation. Rather, section 4explains how the solvency and liquidity test should be applied, where this test is mentioned in other sections of the Companies Act, such as sections 45 or 46.”
She also pointed out that the Compliance Checklist does not indicate which sub-sections of section 86 it refers to and does not provide an opportunity to explain the particular facts of a situation. “It makes the appropriate completion of the Compliance Checklist very difficult,” she said.
According to sub-section 4 of section 86, a vacancy of the company secretary position must be filled within 60 days after the vacancy arose. “If the Compliance Checklist is, however, completed during the 60-day period in which the vacancy must be filled (but has not yet been filled), the respondent may be hesitant to affirm compliance with section 86.”
Steenekamp says that section 15 includes too many requirements for compliance to be affirmed in one question. “Section 15 deals with the content of the Memorandum of Incorporation,” she explains. “The section further deals with company rules and provides that the rules must not be inconsistent with the Act. Should the shareholders have a shareholders’ agreement then it should also be consistent with the Act’s requirements.”
She suggests that a question with sub-questions would achieve a more focused and valuable answer to the CIPC for it to achieve its objective in monitoring compliance.
Juanita also added:
“The Checklist requires a response in respect of the past calendar year. Calendar year is not defined in the Companies Act and the annual return must be filed within 30 business days after the anniversary date of the company’s date of incorporation. It is therefore not clear to which period the Checklist refers. The annual financial statements submitted with the annual return normally represents the financial position of the previous financial year. This could lead to a mismatch in financial and compliance reporting periods.”
Juanita went on to say that although Saica supports CIPC in its endeavours to ensure and monitor compliance with the Companies Act, the current format of the Compliance Checklist is both “onerous and vague”.
She encouraged the CIPC to focus the questions in the questionnaire and to provide a reasonable opportunity for explanations for areas of non-compliance or interpretation. “At the very least, more guidance is required,” she said.
