Accounting Principles & Auditing Standards

Development of Accounting and Auditing Standards:

The South African Institute of Chartered Accountants draft statements of Generally Accepted Accounting Practice (Statement of GAAP). The Accounting Practices Board (APB) approves statements of GAAP after a brief period of comment. The APB consists of representatives from the accounting profession, commerce and industry.

South Africa’s GAAP statements are categorized as introductory statements, general statements, statements on fieldwork and statements on reporting. When international auditing guidelines are issued, they are compared to existing standards and procedures in South Africa to determine whether there are significant differences between the two. If there are significant differences, steps are taken to seek harmonization of South African practice with the guidelines.

Statements of GAAP must be followed in the preparation of the financial statements of companies subject to the Companies Act. They are also relevant to the financial statements of other entities purporting to achieve fair representation.

Statements on auditing standards are issued by the Auditing Standards Committee (ASC) of South African Institute of Chartered Accountant. Guides are also issued but do not carry the same authority as statements on auditing standards. Auditors are required to demonstrate that significant deviation from the guidance given do not result in failure to comply with generally accepted auditing standards. Statement AU010 sets out the South African generally accepted auditing standards, which are, in principle, the same as the US general standards.

Summary of Significant Accounting Principles in South Africa compared to United States.

Statements of standard accounting practice are drafted by the Accounting Practices Committee (APC) of the South Africa Institute and referred to public companies, members of the accounting societies and other interested parties for comments. The redrafted statements are then submitted to the Accounting Practices Board (APB) for approval. If endorsed by that body, the statements are considered to reflect generally accepted accounting practices as called for by the Companies Act.

Certain powers of discipline over accountants in public practice were granted to the Public Accountants and Auditors’ Board. The provincial societies retain their own powers of discipline parallel with those of the Board, although by mutual agreement these powers are exercised so as to avoid undue overlapping. In addition, the South Africa Institute, with the approval of the societies and in cooperation with the PAAB, has formulated rules of professional conduct for the chartered accountant profession as a whole. These rules are essentially concerned with the maintenance of the dignity, independence and integrity of the profession. Below is a table of comparison between United States accounting principles and those of South Africa.

Accounting Principles

United States of America

Republic of South Africa

Historical cost


Not required but it is the dominant practice

Fixed Asset revaluation

Generally not allowed

Is allowed for building & land and surplus arising from such revaluation be transferred to a nondistributable reserve.

Equity Method

Generally applied when the company exercises significant influence or hold 20% or more of the equity share capital of the investee.



Allows use of both purchase and pooling methods

Use of purchase method only. The companies Act prohibit the use of the pooling-of-interest method.


Written off in 40 years and charged to income

No accounting standards regarding goodwill but a variety of accounting policies for dealing with goodwill are allowed. Sometimes Goodwill

  • is most frequently treated as a permanent intangible asset
  • is written off against reserves or to offset it against share premium
  • is amortized over a defined period and some write it off at the time of acquisition as an extraordinary item
  • is shown as a deduction from shareholders’ equity.


Capitalization not required

Capitalization required

Research & Development

Immediate Expensing

No accounting Standards. But methods used include

  • Immediate expensing
  • Capitalized cost and amortized it to income over period not more than 3 years.


1nventory, revenue or sales,

Stock, Turnover

Deferred Tax

Full application

Both full and partial deferral.


Stated at lower of cost or net realizable value. Cost is determined using the FIFO method.

Same. But cost is determined using the FIFO or weighted average basis. Also the LIFO method may be used provided there is a disclosure of the difference between the carrying amount and the lower of: a) FIFO basis or b) The weighted average value and net realizable value

Foreign currency translation

Temporal method

Reported at the closing rates, except if these amounts are covered by forward exchange contracts, in which case the forward rates are used.

Presentation of financial Statements

List most liquid items first

List least liquid items first

Summary of Significant Auditing Standards in South Africa compared to United States.

Auditing requirements in South Africa are set out in the PAA Act, the Companies Act, and auditing standards issued by South Africa Institute of Chartered Accountants (SAICA). The PAA Act and the Companies Act address the qualifications of auditors and statutory requirements concerning audits, whereas the professional standards deal with how audit should be planned and executed and with reporting standards. Auditing standards, statements on auditing standards and guides are issued by the Auditing Standards Committee (ASC) of SAICA. Auditing standards are contained in Auditing Statement No. AU 010 (Generally Accepted Auditing Standards). Guides do not carry the same authority as auditing standards or statement on auditing standards, but in the event of significant deviation from the guidance given, an auditor may be required to demonstrate that such deviation did not result in failure to comply with GAAS.

Whereas the working of auditing standards in South Africa differs from the working of generally accepted auditing standards in the United States, the substance is generally similar. However, there are certain substantive differences between South African and United States auditing standards and procedures. Some of these differences are: