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Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003)

Industry Charters

Chartered Accountancy Charter

Section C From Theory to Practice: The Scorecard

12. The Generic Scorecard for the CA Sector

12.2 Application of the CA Sector Scorecard

12.2.1 The Ownership Scorecard

 

The ownership Element measures the effective ownership of enterprises (CA sector) by Black People. It is measured on the basis of the following indicator Weightings:

 

Ownership indicators

Weighting points

Compliance

Code

CA sector

Target for 2016

Voting Rights


• Exercisable Voting Rights in the enterprise in the hands of Black People

3

5

32.5%
• Exercisable Voting Rights in the enterprise in the hands of black women

2

3

10%

Economic Interest


• Economic Interest of Black People in the enterprise

4

7

32.5%
• Economic Interest of black women in the enterprise

2

3

10%
• Economic Interest of the following black natural people in the enterprise: Black Designated Groups

1

2

2.5%

Realisation Points


• Ownership Fulfilment

1

0
• Net Value

7

0

Bonus points


Involvement in the ownership of the enterprise of -




• Black New Entrants

2

 

10%
• black Participants in

1

 

10%
o Employee Ownership Schemes,



o Broad-Based Ownership Schemes; or



o co-operatives



Exercisable Voting Rights in the enterprise in the hands of Black People, for having achieved the following Targets:


• Between 3.5% and 39%; or

1

32.5-39%
• Between 40% and 49%; or

2

40-49%
• 50% or more

3

50% or more

 

For purposes of the CA sector, indicator Weightings have the following definitions:

 

Voting Rights

 

• Voting Rights means a Voting Right attaching to an Equity Instrument owned by or held for a Participant.

 

Measurement of Voting Rights

 

 

Where     A      =      score achieved by the enterprise for the measured ownership indicator

                  B      =      percentage that Exercisable Voting Rights in the hands of the category of Participants who are Black People in that enterprise holds to all Voting Rights held by all Participants of that enterprise

                  C      =      percentage compliance Target for Exercisable Voting Rights for the applicable measured ownership indicator

                  D      =      Weighting points allocated to the applicable measured ownership indicator

 

• If an entity gains a score in the formula above that exceeds the Weighting points, that entity will only receive the Weighting points.

 

Economic Interest

 

• Economic Interest means a claim against an entity representing a return on ownership of the entity, similar in nature to a dividend right. For the CA Sector it will mean any distribution to a partner or partner equivalent, this includes salaries, drawings and/or profit share paid to partners. Partner equivalent would include all persons who have an equivalent status to a partner per the IRBA rules, this will include individuals who are not necessarily registered accountants per the IRBA rules but are directors in the practice (should these individuals be regarded as partner equivalents).
• Broad-Based Ownership Schemes as defined in the Codes are not expected to be relevant to the CA sector due to the ownership and management constraints brought about by the regulation of the auditing profession. However, it might be applicable to audit firms who have affiliated entities who do have such schemes.

 

Measurement of Economic Interest

 

 

Where    A      =      recognisable percentage of black Participants' claim to Economic Interest in the enterprise

                 B      =      percentage that Economic Interest which Participants who fall within the category of Black People in the enterprise holds to all Economic Interest which all Participants of that enterprise holds

                C      =      percentage compliance Target for Economic Interest for the applicable measured ownership indicator

                D      =      Weighting points allocated to the applicable measured ownership indicator

 

• If an entity gains a score in the formula above that exceeds the Weighting points, that entity will only receive the Weighting points.

 

Ownership Fulfilment

 

• Ownership Fulfilment occurs-
o on the release of all black Participants in a Measured Entity from all Third Party Rights arising from the financing of their transaction with the Measured Entity (this is not likely to be applicable to the CA profession), or
o if all black Participants in the Entity have never been subject to any such Third Party Rights.
• A score of 7 points for Net Value is a requirement for awarding the Ownership Fulfilment point.

 

Net Value

 

• The following formula is used to calculate the deemed Net Value referred to in formulas A and C below:

 

Calculation of deemed Net Value

 

 

Where    A      =      deemed Net Value

                 B      =      for purposes of formula A or B below, is the value of the Equity Instruments relevant to the calculation, determined on the date of measurement

                 B      =      for purposes of formula C below, is the value of the Equity Instruments relevant to the calculation, determined on the date of sale or loss

                 C      =      for purposes of formula A or B below, is the carrying value of any Acquisition Debts of the relevant black Participants on the date of measurement

                 C      =      for purposes of formula C below, is the carrying value of any Acquisition Debts of the relevant black Participants on the date of sale or loss

                 D      =      for purposes of formulas A or B and C below, is the value of the Measured Entity on the date of measurement

                 D      =      for purposes of the exclusion principle, is the value of the measurable portion of the Measured Entity on the date of measurement

 

• The Net Value points are the lower result of formula A and formula B. For the CA profession Formula A is generally not applicable as there is seldom a purchase of goodwill in professional service firms. Therefore only formula B will be used to calculate this section of the scorecard for the profession.

 

Formula A            

 

Where    A      =      the score obtained for Net Value

                 B      =      the deemed Net Value for all black Participants in the Measured Entity determined using the formula for the calculation of Deemed Net Value above

                 C      =      the time-based graduation factor of the Economic Interest compliance Target outlined below

• 10% for the first year after the current equity interest date
• 20% for the second year after the current equity interest date
• 40% from the first day of the third year after the current equity interest date to the last day of the fourth year after the current equity interest date
• 60% from the first day of the fifth year after the current equity interest date to the last day of the sixth year after the current equity interest date
• 80% from the first day of the seventh year after the current equity interest date to the last day of the eighth year after the current equity interest date
• 100% from the first day of the ninth year after the current equity interest date to the last day of the tenth year after the current equity interest date

 

Formula B            

 

Where   A      =      the score obtained for Net Value

                B      =      the percentage Economic Interest in the Measured Entity of black Participants

                C      =      the Target for the ownership indicator measuring Economic Interest of Black People in the enterprise

 

• If an enterprise gains a score which exceeds the Weighting points for Net Value, that entity will only receive the Weighting points.
• Calculation of the recognition of ownership after the sale or loss of shares by black Participants

 

Formula C          

 

Where   A      =      the percentage of rights of ownership that survive the sale of an Equity Instrument by a black Participant

                B      =      the percentage of rights of ownership for each of the indicators in the ownership scorecard that were attributable to the black Participant immediately before his or her sale or loss

                C      =      the Net Value percentage provided for in the calculation of deemed Net Value above undertaken for the Equity Instruments sold or lost by the black Participant on the date of the sale or loss. The value of the enterprises is measurable as at the date of measurement

                D      =      the most recently determined B-BBEE Recognition Level of the Measured Entity which is less than one year old, based on its Generic Scorecard result for all Elements other than ownership determined using statement 000

 

Bonus points

 

In terms of the CA sector and based on the specific sectoral characteristics, the bonus points under ownership will be awarded as follows:

 

Bonus point

Compliance Target for 2016

Exercisable Voting Rights in the enterprise in the hands of Black People, for having achieved the following Targets:

 

 
• Between 32.5% and 39%; or

1

32.5-39%
• Between 40% and 49%; or

2

40-49%
• 50% or more

3

50% or more

 

While the bonus points awarded in terms of the CA Sector Code differ from that gazetted in the Codes, it does adhere to the intention of the Codes.