The Tax Administration Act recently introduced has far reaching implications for accountants – leaving the unexpected accountant vulnerable to criminal sanction if they don’t take immediate steps to ensure they review their engagement and relationship with their taxpayer clients.
Stiaan Klue, CEO of the South African Institute for Tax Practitioners (SAIT) believes that “thus far only the tax accountant has received accountability sanctions for their advice to the public as a registered tax practitioner”.
“The Tax Administration Act requires that any person providing advice on the application of a tax act, or that completes or assists with completing a tax return should register with SARS and a controlling body – failure to register is a criminal offence”, continues Klue.
However according to Nicolaas van Wyk, CEO of the Southern African Institute for Business Accountants (SAIBA) “the Tax Administration Act 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 that are affected by the Tax Administration Act. Generally tax practitioners rely on the work performed by the bookkeeper, accountant, and auditor to determine a business’ tax liability” states van Wyk
“By way of example, a senior SARS official is empowered to lay a complaint against a tax practitioner with the tax practitioners’ professional body. However this power is extended to include the conduct of the accountant that merely assist 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, says Klue.
According to van Wyk “SARS can also demand a new “statement of account” from the accountant that prepared the financial statements for a business or taxpayer. In this statement the accountant will have to explain how the financial statements was 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”.
Van Wyk therefore cautions that 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 are prepared recklessly, incorrect, incomplete, inconsistent or prepared without the required diligence, they have a statutory duty to rectify the non-compliance or resign as the client’s accountant.
Van Wyk concludes “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,
- update their knowledge of accounting standards”
The TAA has changed the relationship between the accountant and his client. In order to protect themselves accountants will be forced to remove any emotional attachment to their clients and adopt a much more formalistic and legalistic approach” says van Wyk.