The Constitution and Financial Statements
One may wonder how the RSA Constitution may be connected to the manner in which financial statements are prepared. Apart from its far-reaching consequences on the law and society in general, the RSA Constitution created a change in respect of statutory interpretation. No area of South African law can be analysed or interpreted without recourse to the Constitution, which is the supreme law of the country. Section 39 (2) obliges a court, tribunal, or forum when interpreting any legislation to promote the spirit, purport, and objects of the Bill of Rights. Section 32 (1) (a) of the Bill of Rights provides that everyone has the right of access to any information that is held by another person that is required for the exercise of protection of any rights of any person. Section 32 (2) creates a legal obligation of government to enact legislation to give effect to these rights. It is submitted that the Companies Act 2008 (2008Act) is one such piece of legislation. Section 7 (a) of the 2008Act provides that “The purposes of this Act are to-promote compliance with the Bill of Rights as provided for in the Constitution, in the application of company law”.
A financial statement is the central regulatory device in the 2008Act that provides the apparatus for companies to disseminate the information to those who have right of access to such information. The 2008Act also sets out what information, as a minimum should be included in these financial statements (IFRS of course]. It must be emphasized that information included in such financial statements is governed by s 32 (1) (a) of the Constitution which creates an obligation by those preparing and publishing financial statements to include any information that is required for exercise of protection of any rights of any person in compliance with the Constitution.
The question arises as to what would be sufficient and appropriate information that would enable those who have a right to such information to facilitate the protection of their rights. In other words is IFRS sufficient and appropriate to ensure compliance with the Bill of Rights? One cannot determine which rights need protection without knowing whose rights are being protected. It is clichéd to suggest that there are an extremely wide-variety of persons who may rely on the information contained in financial statements. Despite the provisions of IFRS - it would be incumbent on the company and its directors to take all reasonable steps to ensure such persons are identified, their rights defined, and the resultant relevant information provided. IFRS is the first step directors must take in ensuring compliance with the Constitution but only the first step. Fair presentation is the second step and represents the provision included in the 2008Act to ensure compliance with the Constitution. IFRS is the means and fair presentation is the end – the end being compliance with the Constitution. Fair presentation represents a constitutional override - its not just a term invented by accountants – its has primary place in our law. By maintaining the fair presentation standard in addition to the application of financial reporting standards the government has enacted the necessary legislation that ensures the RSA Constitution is law over and above all else.
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