The Financial Reporting Standards Council and its role in terms of the Companies Act 61 of 1973 and the Companies Act 71 of 2008*

Abstract

Both the Companies Act 61 of 1973 (hereinafter “the Companies Act 1973”) and the Companies Act 71 of 2008 (hereinafter “the Companies Act 2008”) provide for the Financial Standards Reporting Council (hereinafter “the Council”). However, its composition, function and legal form is different under each Act. While the Council was established statutorily as a juristic person under the Companies Act 1973, it will only be established by the Minister of Trade and Industry under the Companies Act 2008. Furthermore, it seems that whether the Council will be granted the status of a juristic person or not is at the Minister’s discretion. In contrast with the Companies Act 1973, the Council is thus no longer as autonomous. The Council’s role in standard setting has been diminished. It is to be a mere advisory forum to the Minister with nothing but non-binding drafting powers. Both the Companies Act 1973 and the Companies Act 2008 contain provisions regarding Financial Reporting Standards (hereinafter “FRSs”). In contrast to the vague provision in the Companies Act 1973, the Companies Act 2008 clearly sets out the legal status of FRSs. They will be regulations (in the form of Government Notices) and will thus be law (delegated legislation). The Council is an organ of state, however in drafting FRSs it does not perform “administrative action” in terms of section 1 of the Promotion of Administrative Justice Act 3 of 2000. The wording of the Acts “in accordance with the International Financial Accounting Standards” (section 440S(2) of the Companies Act 1973) and “consistent with the International Financial Accounting Standards” (section 29(5)(b) of the Companies Act 2008) allows for some discretion to be exercised in the drafting of South African FRSs. The current practice of the Accounting Practices Board to precisely replicate IFRSs is clearly not required by law. It is thus submitted that this practice seems too timid. Contrary to the wording “may” in section 29(4) of the Companies Act 2008, the Minister has no discretion as to whether or not to issue FRSs at all. Nor will an overly long delay in issuing FRSs be acceptable. This emanates from a purposive interpretation of section 29(4), read with sections 5 and 7 of the Companies Act 2008.