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Will SARS hone in on accountants?

Monday, 03 March 2014   (0 Comments)
Posted by: Nicolaas van Wyk
In the UK the taxman is scrutinising financial statements. Will SARS follow suit?

The UK taxman, HMRC, is reviewing financial statements of companies to identify if the correct accounting standards was followed. If found wanting they will face huge penalties. A UK law firm have speculated that misapplication if accounting standards could have costed the UK taxman £442 million in tax. 

South Africa is likely to follow the UK example as is illustrated by an analysis of the Tax Administration Act (TAA).

The TAA does more than just regulate the conduct of tax practitioners. A careful reading of the TAA will reveal that SARS is empowered to monitor and control the complete financial reporting supply chain. Criminal liability is allocated to a wide range of areas, and is not limited to only the information reflected on a tax return and submitted by a tax practitioner.

The bookkeeper, accountant, accounting officer, independent reviewer and auditor are all involved in the financial reporting supply chain of any business.

If they are found to assist a business to unduly avoid, postpone or evade taxes, they may be held criminally liable. It is therefore not only tax practitioners who are affected by the Tax Administration Act. The fact is that generally, tax practitioners rely on the work performed by the bookkeeper, accountant, and auditor to determine a business’s tax liability.

A senior SARS official is empowered to lay a complaint against a tax practitioner with the tax practitioner's professional body. However, this power is extended to include the conduct of the accountant who merely assists the business in preparing financial statements. A complaint can be laid against the accountant if he intentionally or by way of negligence assists a business to avoid paying tax or unduly postpones the payment of a tax. Late filing of financial statements or applying an incorrect accounting method may see the accountant fall foul of this requirement.

SARS can also demand a new "statement of account” from the accountant who prepared the financial statements for a business or taxpayer. In this statement the accountant will have to explain how the financial statements were prepared and whether the financial statements disclose the true nature of any transaction, receipt, accrual, payment or debit. If a false or misleading statement is made, the accountant and not the tax practitioner, will be criminally liable.

Accountants must apply the correct accounting framework when preparing financial statements for clients and that the reports that they issue on the financial statements are prepared within acceptable standards. Failure to comply will result in criminal sanctions.

Accountants can no longer use a "don’t ask, don’t tell” approach when preparing financial statements. If they know or have reason to believe that the financial information presented to them by their clients is prepared recklessly, incorrectly, incompletely, inconsistently or prepared without the required diligence, they have a statutory duty to rectify the non-compliance or resign as the client’s accountant.

All accountants should therefore ensure that they:

  • Inform their clients of the accountants’ new Tax Administration Act imposed duties,
  • Implement engagement procedures to mitigate the potential risks, and
  • Update their knowledge of accounting standards.
If there is still any doubt as to whether SARS will use their new powers to inspect and review financial statements one just needs to consider what the taxman in the UK is currently doing. 

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