The scenario is as follows:
I accepted the position as AO to a CC, which was purchased by my client, from a third party during a financial/tax year. The client only approached me after the fact, so I was unable to suggest to her, rather to purchase the "business" seperate from the legal entity.
The previous accounting officer drew up YTD AFS as at ownership transfer date, but I have yet to see a signed-off copy of such.
What are my duties with respect to the period of my review?
May I place reliance on the AFS issued by the previous AO (if I can obtain such), and only review the remainder of the year, or will I have to obtain the accounting records prior to transfer date and complete the full year?
Is there an Income Tax issue, for the CC, with regards to the transfer?
It is important to bear the basic principles of the Act in mind when determining appropriate action in cases of this nature. It is the members' duty to make out or cause to be made out AFS for the CC (S 58). The Accounting Officer's duty is then to determine whether the AFS are in agreement with the accounting records and to review the appropriateness of the accounting policies applied in the preparation of the AFS and to report thereon to the corporation (S 61).
The Act is silent on any specific or general duties where there is a change of Accounting Officer during a financial year or where membership of the CC so changes and refers constantly to any duties relating to AFS for the (full) financial year concerned. The only conclusion that can be drawn is that at the end of the financial year the then Accounting Officer must perform his duties under S 61 iro the AFS for the full financial year. The AFS may, however, at the discretion of the member/s on whom the duty to prepare them rests, consist of either a single set of statements or more that one set of statements (the interim statements plus a further set dealing with the balance of the financial year) for the financial year concerned.
Two other aspects also need to be mentioned. The first is the ethical rule that the incoming Accounting Officer should consult with the outgoing one if at all possible, which in itself could clarify some grey areas. The second is the client's needs, which could also play a determining role in what the Accounting Officer eventually should do (of course within the ambit of the abovementioned requirements of the Act).
The tax implications are difficult to determine with the information at hand. As a tax payer, the CC would be liable for income tax for the full year but the sale agreement would normally also contain provisions relating to liability in this regard. Liability for CGT, if any, should rest with the seller and if the CC owned fixed property liability for transfer duty should also rest with the seller but if not paid by him SARS might be looking at the public officer of the CC after the transfer to make good the default.