Subject to Section 214(2) of the Companies Act 2008, it is an offence under Section 29(6) for the board of a company to approve its AFS, knowing that they fail in a material way to comply with the provisions of Section 29(1) or that they are materially false or misleading, as contemplated in Section 29(2).
Section 1 defines “knowing”, “knowingly” or “knows” as meaning that the person had actual knowledge of the matter, or was in a position in which he reasonably ought to have had actual knowledge and should have investigated the matter …. or taken other measures ….
No prosecution under these sections have occurred as yet in South Africa. However, a recent Australian Federal Court case dealing with offences under their Corporations Act, is of great relevance to all directors and senior executives in South Africa.
The case concerned the role and responsibilities of directors in relation to financial reporting.
Judge Middleton J found that in approving the financial statements each director failed to take all reasonable steps required of them and failed to exercise the degree of care and diligence the law requires of them.
Middleton J observed that, while there are many matters a director must focus upon, the financial statements must be regarded as one of the most important. Failure by directors to have or to acquire a sufficient level of financial literacy or familiarity with the company’s affairs may of itself amount to a breach of the duty of care and diligence.
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