1. PPE & Intangible assets (Software) 1.1Did not review the
residual values & useful live of assets Capex spend was low
during austerity period and some assets are now used longer than
expected. This was last done in FY2005/06 at time of corporatising
SABC. Impact: SABC depreciates assets faster than useful life of
the asset. Income statement depreciation too high, profits too low.
Balance sheet net book value of assets too low. Cash flow statement
no impact = book entries.
Slide 3
1. PPE & Intangible assets (Software) 1.2Did not test
assets for impairment The present value of the future cash flows
that an asset will generate has to be compared with the net book
value of the asset. If the present value of the future cash is less
than the net book value then a provision for impairment of the
asset must be raised to reduce the net book value to the level of
the present value of future cash flows. The challenge for the SABC
is to link the future cash flows from advertising and TV licences
back to each individual asset (85 000 assets on the register) that
will be used to support the cash flow generating operations of the
SABC. This was last done in FY2005/06 focused mainly on assets that
could linked directly to revenue generation e.g OB-vans Impact:
SABC assets (33 807) with zero net book value are still in use to
generate cash flows and no adjustment is thus required. The
remainder of assets with a net book value presents the SABC with
the challenge as discussed above. Cash flow statement no impact =
book entries
Slide 4
2. Licence fee revenue SABC recognises income from TV licences
on the cash basis (when payment is made) and not on the accrual
basis (when renewal notices are mailed). This has been the SABCs
policy for many years and reflected in all prior year annual
reports/accounting policies. The matter was also raised at the time
of IFRS conversion and reviewed by the external audit partners. The
cash basis is used in view of the high piracy level (estimated at
64%) and uncertainty that economic benefit will accrue to the SABC.
This treatment is also inline with IFRS standards. A motivation and
request to remain on the cash basis has been sent to National
Treasury for approval by the Minister of Finance. The motivation is
based on many challenges (duplicate households, cancellations,
change to concession, marriages, change in business TV sets) to
keep an address base of 12-million households clean enough to pass
an audit. SABC would have audit qualifications relating to the
completeness of revenue if the accrual basis is used.
Slide 5
2. Licence fee revenue The TV Licence system was designed to
process and maintain records on the cash basis as per diagram
below:
Slide 6
2. Licence fee revenue Impact: Income statement revenue too low
Licence fees issued but not paid were R597m, penalties issued but
not paid were R790m. On accrual basis revenue would have been R1
387m higher. In total it would have been the cash based revenue of
R914m plus the R1 387m not received = R2.3bn. Income statement
impairment for bad debt too low historical payments show that not
all licence fees are paid and a provision for bad debts would have
to be raised. How much of the licence fees and penalties need to be
impaired have to be determined. If the same non-payment rate of
prior years is used, it would be based on the cash payments
received. Impairment must also allow for duplicate households,
cancellations, change to concession licences etc. Based on
historical payments received, the bad debt provision would be
estimated at the licences and penalties issued but not paid R1
387m. The net surplus after the provision for bad debts would thus
be same as the surplus based on the cash recognition basis. Balance
sheet TV Licence debtors not reflected and thus too low,
accumulated provision for bas debt too low. Cash flow statement no
impact = book entries.
Slide 7
3. Content Previous years qualification on television
programme, film and sport rights could not be cleared in full. This
has been a challenge since 2008. The annual financial statements
are prepared on an external transaction basis, but the cost of
content includes both external and internal transactions (cost of
using SABC facilities to produce content). This is done to have a
true reflection of the total cost to produce content internally.
When the production cost is written-off to the Income statement the
internal portion is also written-off but as an internal cost item
which is now not included in the AFS. Note 7 in the AFS has to be
prepared on both the external/internal basis because the production
costs includes both transactions but the write-off to the Income
statement only reflects the external costs. Thus the information in
Note 7 will only agree with the Income statement on external costs
because the movement on internal costs is not reflected in the AFS.
This treatment has been used for many years and a solution to deal
with internal costs and movements has to be researched. Impact:
Income statement none Balance sheet none Cash flow statement no
impact = book entries.
Slide 8
4. Trade and other receivables (Debtors) The impairment of
debtors was assessed using the age of debt (debt older than 120
days) and not by a review of the individual debtors ability to
pay/not pay. Good debtors with 120 days old debt was assessed for
impairment which is too conservative. Impact: Income statement
impairment for bad debt too high Balance sheet debtors too low Cash
flow statement no impact = book entries.
Slide 9
5. Taxation SABC raised the non-payment of withholding tax with
SARS some years ago (2009). SABC and SARS have been working
together to assess the financial impact and raised a provision for
the potential amount due. SABC is waiting for SARS to complete the
review process and issue the tax assessment. Once this is received
and SABC agrees, payment will be made. The treatment of TV licences
for accounting purposes and tax purposes differ, same as e.g.
different depreciation periods for fixed assets for accounting and
tax purposes. SARS has allowed the SABC a 100% claim for TV
licences not collected since corporatisation in 2006/07. A ruling
was issued in 2007, but not updated since. SABC tax compliance
certificates have been issued by SARS each year since 2007. SABC
has applied for a permanent ruling in this regard.
Slide 10
6. Expenditure A request was made for supporting documents
relating to manual journals raised by management during the year.
Manual journals are processed by all SABC business units in Jhb.
and provinces. At month-end various journals need to be processed
for accruals for outstanding payments or transfers of prepaid
expenses to the Income statement, etc. The supporting documents had
to be sourced from all the business units across the country and
the submission of the file for auditing was too late. The AG did
not audit the file after the deadline expired. The SAP journal
system has already been enhanced to force the attachment of
electronic copies of the supporting documents. This will speed up
the retrieval of supporting documents in future.
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Slide 24
Slide 25
Slide 26
Slide 27
Slide 28
Slide 29
Slide 30
Slide 31
Slide 32
By the end of the financial year spending on new capital
equipment and replacement of old technology was underspent by 80%.
Only R122m of a total Capex budget of R500m was used. The
cancellation of the Siemens technology implementation contract and
the Henley fire resulted in some digital migration projects being
delayed by eight months.
Slide 33
Slide 34
Government Guarantee - Nedbank Loan During the year there was a
total reduction in the balance due of R722m (R27.7m x 12 months
plus R390m in advance). An amount was paid in advance during
January 2013 in view of the high cash balances and higher interest
rate (8%) paid on the loan. The SABC earned an average interest of
5.25% on cash balances. The SABC still owed R167m to Nedbank with
the monthly instalments of R27.7m continuing and payments are
scheduled to be completed by September 2013. The Nedbank loan has
been paid back in full!