The Independence of the Accounting Officer

The Independence of the Accounting Officer

There has been much discussion in the press and the academic literature regarding the independence of the external auditor and the independent reviewer. In respect of these independent accounting professionals any issues surrounding their independence has been generally accepted as sacrosanct. What has been totally overlooked is the independence of the accounting officer. The reason for this that there is on the face of it nothing in the Close Corporations Act 1984 (CCAct) that requires the accounting officer to be independent. The very reason is that the CCAct permits the accounting officer to be a member of the close corporation thereby defeating the concept of independence.

I submit that this is not a correct view. While the CCAct permits a member of a close corporation to be an accounting officer; this cannot be translated into a view where the accounting officer does not have to be independent in other ways of the close corporation. When one closely looks at the language contained in the CCAct the duties of the accounting officer are stated very clearly.  It is only those duties that an accounting officer does not have to be and obviously cannot be independent. This as stated later is a problem area.

The most important question is whether the accounting officer can prepare the financial statements. The CCAct is silent on such a matter. I am of the opinion that there can be no separate engagement where the accounting officer can prepare the annual financial statements and then perform the duties of the accounting officer. I would also submit that the accounting officer who is also a member of a close corporation would find it very difficult to perform the duties of accounting officer as required by s 62 (1) (b).

Section 62 (1) (b) of the close corporations acts states:

The accounting officer of a corporation shall…review the appropriateness of the accounting policies represented to the accounting officer as having been applied in the preparation of the annual financial statements.

The accounting officer must review the accounting policies that have been represented to the accounting officer. The accounting officer cannot present to him or herself the accounting policies for review. There can be no doubt that the language as contained in s 62 (1) (b) has someone in mind [the members] else other than the accounting officer presenting the accounting policies to the accounting officer. If one reads s 62 (1) (b) that the accounting officer in his or her capacity as a member of the close corporation can present the accounting policies to the member in his her capacity as the accounting officer; in my opinion spurns the principles of independence the corner stone of the accounting profession. I am in agreement that it is the members who must prepare the annual financial statements but it is those members other than the accounting officer who must then make the presentation; if the accounting officer is also a member. The presentation of accounting policies to the non-member accounting officer is not a problem. This places the question of whether any accounting officer who is separately engaged to prepare the annual financial statements can perform such a task when this is equivalent in substance to the accounting officer presenting the accounting policies to him or herself. Thus in my opinion breaching the very core of accounting profession – independence.

I do not believe the close corporation act was enacted so that such a principle maybe discarded. The principle of independence is one that the corporate reform process in South Africa has been taken to heart has realised that the issues I have raised above can only be dealt with in new legislation which clearly reflects the bone mores of the community - that independence is the cornerstone of the accounting profession. It has taken more precise legislation to ensure that this principle is enshrined in our law. The language in the close corporation act is in my opinion very clear. The accounting officer cannot present the accounting policies to him or herself. That is self-evident. That means based on the practical circumstances above where the members hire an accounting officer to also prepare the annual financial statements or where the accounting officer is also a member prepares the annual financial statements – may very well find themselves on the wrong end of the law when the annual financial statements contain material misstatements. Not only may the accounting officer be sued in a civil claim but I submit may be held liable for a contravention of s 62 (1) (b) by presenting the accounting policies to him or herself which has led to a lack of independence which has a causal link to a material misstatement.