In the event that a measured entity does not have audited financial statements available for the measurement period being assessed, a measured entity does have the opportunity to submit a set of management accounts. The management accounts can therefore be used as the required financial pack of data to issue the B-BBEE Certificate.
In saying the above, Government Gazette 31255, B-BBEE Verification Manual of 2008, has a set of requirements which the BEE Rating Agency would need to follow to ensure Accuracy, Completeness and Occurrence. It is important to note that not all of the below is needing to be followed. The BEE Rating Agency will determine the areas of risk and then identify the relevant documents needed to potentially reduce the risk as far as possible. Reference is made to the below extracts from the 2008 Verification Manual.
"The management accounts can be used as the required financial pack of data to issue the B-BBEE Certificate. "
10.1.3 In order to determine if the measured entity is classified correctly the Verification Agency shall obtain the audited financial statements and agree the amount recognized as revenue to the thresholds set by the Codes. When the measured entity is not audited the Verification Agency shall perform some or all of the following procedures as a minimum to verify the accuracy, completeness, occurrence and cut-off of revenue as shown in the financial statements:
10.1.3.1 Extract a schedule of monthly revenue and compare with prior years and budgets.
10.1.3.2 Calculate and analyze the gross profit percentage and obtain explanations from management for unusual fluctuations from previous years or from budgets.
10.1.3.3 Obtain a list of numerical sales invoices and inspect the list for missing numbers.
10.1.3.4 Follow missing numbers through to the physical invoice per invoice book and investigate the reason for omissions (or valid cancellation of the invoice).
10.1.3.5 Agree the total sales as per the general ledger with the totals as per the sales journal.
10.1.3.6 Agree the sales income for the year per the general ledger with the total sales income per the trial balance and the financial statements.
10.1.3.7 Select sales income transactions from invoices and:
a. Confirm that prices are obtained from price lists or are authorized by management.
b. Confirm that calculations and additions on the invoice are correct.
c. Confirm that the invoices were posted to the correct general ledger and control accounts.
d. Re-perform the castings and calculations of the sales journal (or in respect of cash sales, the sales column in the cash book and general ledger accounts).
e. Agree the postings from the sales journal (or in respect of cash sales from the cashbook) to the general ledger account.
f. Select invoices before and after year end and confirm that the revenue is accounted for in the correct accounting period.
g. Inspect the monthly revenue declared on the VAT 201 returns to determine the reasonableness of the amount of revenue.
h. Inspect the measured entity's income tax return to determine the amount of revenue declared.
i. Obtain management representation that the amount declared is accurate and complete.
j. In case of startup enterprises, obtain registration documents and review them to ensure that the entity has been in operation for less than 12 months.
Based on the above, it is crucial that the measured entities' responsible person for compiling the above information, is competent in the preparation thereof. This will ensure that the values are accurate and not misstated. Referencing is crucial in this event to ensure that the relevant invoices reconcile with the relevant ledgers, which then also need to reconcile with the relevant data sheets submitted by the Measured Entity.
Furthermore, by using Management Account data, it naturally will increase the amount of information which will be needed to be submitted to the BEE Rating Agency and can also increase the amount of time it will take to prepare and complete the verification procedure. Communication and sufficient preparation is vital in order to prevent any delays in receiving of the BEE Certificate.