The CIPC won a High Court order empowering them to impose a 10% of annual revenue penalty on companies that fail to prepare their annual financial statements within 6 months of year-end.
Failure to submit annual financial statements to the CIPC contravenes Act, 71 of 2008. Continuous non-compliance may lead to a formal investigation by the CIPC. The outcome of such an investigation may lead to the issuance of a Compliance Notice and possibly further actions which may be imposed by other regulators too.
CIPC’s role to promote compliance with Companies Act 71
The CIPCs main objective is to promote compliance with Companies Act 71. The CIPC’s primary function is to promote the reliability of financial statements. This includes monitoring contraventions of financial reporting standards.
Each year a company must prepare annual financial statements within six months after the end of its financial year. In principle, a company must have its annual financial statements audited. The company must file its annual return, which is to include a copy of its audited statements. — For more in-depth details click here.
A company that is not required to file annual financial statements must file a financial accountability supplement to its annual return.
Note too that the CIPC is required to establish a system to select and review a sample of financial accountability supplements, audited annual financial statements or independently reviewed annual financial statements that have been filed. The CIPC may also issue compliance notices to companies, setting out changes that are required to the company’s practices to best comply with the financial record-keeping and financial reporting provisions of the Act.
Public companies, state-owned enterprises and any company that falls within certain categories are required to have its financial statements audited. These types of companies must file a copy of its approved financial statements together with its annual return, within 20 business days after approval of the financial statements by the Board. — For more in-depth details click here.
In relation to the Auditing Profession Act, the CIPC also receives notices of reportable irregularities submitted to the Independent Regulatory Board for Auditors (IRBA).
Within 3 to 6 months from receipt of the IRBA notification, the CIPC will issue the company with a compliance notification. Companies that fail to respond to the compliance notification may be issued with an administrative fine.
Grounds for the issue of compliance notices
A Compliance Notice may be issued if a company or person has contravened the Act. Typical contraventions that attract the issue of a compliance notice include:
When a company fails to file annual financial statements within 6 months after the end of its financial year end;
When a company carries out its business activities recklessly, with gross negligence, intent to defraud any person or for any fraudulent purpose;
When financial was given to directors without following due diligence and requirements of the Act;
On irregular matters relating to the composition of the Board;
On matters relating to a director’s conduct is not consistent with the ethos of the Act.
Cold case register
The CIPC established a “cold case register” which is made up of cases where a Compliance Notice has been is issued, but has not been adhered to. By failing to comply with the Compliance Notice, the CIPC may apply to the court of the imposition of an administrative fine, or refer the matter to the National Prosecuting Authority for prosecution.
For more details which cites case 9503/18, CIPC v Citiconnect, click here.
Contact our office
Please do not hesitate to contact us as soon as possible should you require assistance.
Sources: Compiled/researched from various sources—kind permissions attributed to original sources