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The Association of Chartered Certified Accountants (ACCA) is pleased to comment on the draft revised Commercial Code, a copy of which has been seen by us.

Our comments below concentrate on issues relating to accounting and auditing matters. In making these comments, we have been given to understand that the Commercial Code is to be supplemented, in due course, by further legal instruments, viz an Accounting Law and Accounting Code, which will make further, more detailed provision for accounting matters. This is important because it has implications for the way that accounting issues are to be dealt with in the Commercial Code.

We consider that any discussion of the appropriateness of new accounting frameworks needs to be conducted in the light of a number of key questions, which revolve around considerations of the purpose of accounting information and the regulatory objectives of the Government concerned. In this context, we consider that the following are the key issues to consider:

Scope � which forms of business enterprise are to be subjected to rules regarding accounting and reporting, and why? It may be felt that the law on financial reporting should treat differently entities, e.g share companies, in which members have limited personal liability (and are thus able to shelter behind an artificial legal structure) as opposed to entities which do not enjoy limited personal liability and whose members may thus be made personally responsible for paying the debts of their businesses. Alternatively, it may be felt that all businesses which are regulated by the Commercial Code should be required to keep and prepare accounts.

Basic requirement to keep accounts � should there be basic requirements for regulated businesses to keep accounting records of their transactions? If so, should the law contain detailed rules on how records should be kept or should there be an element of discretion afforded to businesses on how they do so?

Content of annual accounts � what information should the law require to be included in annual accounts, and why? To what extent should the legal requirements be supplemented by accounting standards? Should any set of accounting standards be recognised by law?

Differential reporting rules � once it is decided which forms of business enterprise are to be covered by the revised Code, should all regulated businesses be subject to one single set of rules or should there be different rules for different sorts of enterprises? For example, should there be separate sets of rules for, e.g. general partnerships, share companies and private limited companies? Or should there be, perhaps additionally to �enterprise'-based rules, differential reporting rules based on some parameters of business size � such rules might for example, impose the most strict reporting rules on the largest share companies with more relaxed rules applying to �small' private companies and partnerships.

Publication � for those enterprises which are required to prepare annual accounts, should those accounts be required to be published or otherwise presented to a regulatory agency, or is it sufficient for there to be a legal requirement for accounts to be prepared either for its own sake or as a mandatory basis for tax assessments?

Audit � should the law require the annual accounts of enterprises to be audited by an independent auditor? If so, what should be the purpose of such a requirement? As with our earlier consideration of financial reporting rules, should there be a requirement for all regulated businesses to be audited, or just some of them? If only a selected group of enterprises to be subjected to an audit requirement, what is to be the rationale for electing this group?

In the following paragraphs we consider the contents of the Code in the light of the above key issues.

Comments on scope

The proposed Commercial Code is extremely wide in its scope. It covers all forms of trading activity, and contains specific rules governing the commercial activities of individuals, partnerships and limited liability companies among other forms of enterprise. It may be seen as advantageous to have just one statute containing all relevant legislation concerning commercial activity. On the other hand, such an approach will inevitably lose focus because its contents will have to include a collection of very different material � the basic concepts underpinning, e.g. companies, partnerships and sole traders are very different. Also, by grouping together all forms of commercial business activity in the one statute, it becomes more difficult for the drafters to frame provisions which can have common application to be all types and sizes of commercial firms. The result of grouping together legal provisions for these various types of enterprise is that the Code comprises, effectively, a series of free-standing sections.

We do not understand the need for the Code's practice of identifying what appears to be a finite list of specific activities which constitute �trades.' In our view, it would be more straightforward for the Code simply to apply its provisions to natural persons (i.e. individuals) or �business organisations', perhaps adding �who are conducting lawful activities with a view to making a profit'.

Comments on the basic requirement to keep accounts

Book 1, Title 3, Chapter 1 contains the basic rules relating to accounts record keeping.

Under article 63(1), all persons and business organisations carrying on a trade must keep, according to the generally accepted accounting principles , such books and accounts as are required in accordance with business practice and usage, having regard to the nature and importance of the trade carried on. �Petty traders' may be exempted from keeping accounts. Article 63(1) is intended to be the basic legal requirement for record keeping by regulated persons. The requirement may be supplemented by other, more detailed requirements applying to particular forms of enterprise, but the basic legal requirement applies to all.

The Title goes on to say that any trader shall keep a book of account where he shall make a daily record of his daily dealings, and must, once a month, reconcile the proceeds of such dealings. Traders must also prepare, at the end of each financial year, an assets and liabilities account and a profit and loss account. All books and accounting documents must be preserved for at least ten years.

There are no additional rules on accounting record-keeping for joint ventures, partnerships or companies (though there are more detailed requirements concerning the format of company accounts).

We would make the following comments on the foregoing provisions.

The drafters of the Code have clearly tried to make article 63(1) as flexible as they can. We understand this objective. In our view, though, the text is so loosely worded that many businesses will feel able to claim that it does not apply to them. The text says that traders must keep �such books and accounts as are required in accordance with business practice' � our point is that if there is no accepted business practice as regards keeping accounts and records, then a literal reading of the article may conclude that the trader in that situation will not have to keep the books and records referred to. The text goes on to say that the books and accounts are to be kept �having regard to the nature and importance of the trade carried on'. Again, this suggests that, if the business being carried on is considered � by whom? � to be of little commercial importance, the level of detail required to be kept in any books and records should reflect that.

There is a resulting inconsistency between article 63 and article 64. As discussed above, article 63 allows for much flexibility as regards whether books and accounts are to be kept and what information should be included in them. But article 66 states that every trader must keep a �book of account'.

We believe that articles 63 and 66 should be more consistent. We suggest that article 63 could be re-worded thus:

�Any person or business organisation carrying on a trade shall maintain books of account and prepare accounting statements in accordance with the requirements of this Code, but notwithstanding any specific requirements in the Code [or the Accounting Law or Accounting Code*] the information required to be included in the books of account and accounting statements shall have regard to the needs and circumstances of the trade being carried on by the person or business organisation concerned.'

* We understand that further rules are planned via these instruments.

We would also query whether, given that the text in this Title is meant to apply to all except �petty traders', it is reasonable to include the level of detail contained in articles 66 and 68.

We think that article 71 is very sensible. It may act as an incentive for smaller traders to comply with the law.

We would point out that, although article 445 expressly recognises that the basic book-keeping provisions in article 63 et seq apply to share companies, there is no corresponding provision in the text dealing with private limited companies.

Comments on annual accounts rules

The Code requires share companies to prepare a detailed inventory, a balance sheet, a profit and loss statement and a report on the company's activities and affairs. There are few additional provisions concerning the information to be included in the accounts. It would be better, in our view, if the Code simply set out the statements to be prepared and cross-referred to whatever provisions are planned for the content of these statements.

In particular, while article 446(2) calls for the profit and loss account to include detailed information, there is no indication of what this detailed information is to comprise. There should be some cross-reference to where the detailed requirements are to be set out, whether this is to be the Accounting law or code or specified accounting standards.

On a matter of terminology, article 447 refers to a �directors report', while article 446(1)(b) does not. The terminology used should be consistent throughout to avoid confusion.

On a related matter, it is proposed that dividends may be paid by a share company out of net profits in then company's approved balance sheet. This provision does not take into account the possibility that a company may have losses brought forward from previous years. It would be potentially detrimental to a company's creditors if these accumulated losses were able to be ignored in this way.

With respect to the duties of auditors in articles 374 and 375, we believe it is essential that the legislation states expressly that the auditor is to address his report to the members of the company. The Code must also contain a concise statement of the terms on which the auditor is to frame his report the current wording is vague and unhelpful. We suggest that the drafters consider specifying that the auditor's report should state

• whether or not the accounts have been prepared in accordance in accordance with the requirements of the Code [and the Accounting law and code]
• whether the accounts have been prepared in accordance with any accounting standards [to be specified]
• whether the accounts give a true and fair view (the standard test of accounts compliance).

Comments on differential reporting rules

It may be that the intention is for any such rules to be contained in the Accounting Law or Code. But we note that there is limited provision for differential reporting rules in the Code as it stands, other than to specify the particular accounts disclosure rules contained in articles 446-461 to share companies. There are no specific reporting rules for either joint ventures, limited partnerships or private limited companies. As it stands therefore, the accounting disclosure rules discussed earlier apply to all share companies without distinction, while there are no detailed disclosure rules, and minimal requirements for accounting statements, for application to other types of enterprise.

Conclusion

As stated earlier, the draft code is very wide in its scope. This makes it more problematic for the Code to lay down rules for all the enterprises that it covers. As it stands, there are few rules regarding accounting by business organisations. This may be because the intention is to introduce more detailed rules in the Accounting law or code. But we consider that, if the Commercial Code is to be the fundamental piece of legislation for business entities, it should lay down the basic rules for all types of regulated entity, even if those basic rules are very flexible. The more detailed rules to be brought in by the Accounting law or code can then build on the basic rules and references in the Commercial code.

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