1. The Financial Reporting Act (“Act”) was passed by the Parliament of Botswana on the 1st of April 2011. It provides a legal framework through the Botswana Oversight Authority (“BAOA”) for oversight of public interest entities.
2. According to the Act, a “public interest entity” is defined as:
2.1. Any entity that has issued equity or debt securities for public subscription and is listed on a stock exchange.
2.2. Any bank, deposit-taking institution, or other institution supervised by the Bank of Botswana.
2.3. Any insurance company, pension and provident fund, collective investment undertaking, or other institution supervised by the Non-Bank Financial Institutions Regulatory Authority.
2.4. Any entity where any two of the following conditions exceed amounts or numbers prescribed by the Minister in the Regulations:
2.4.1. Annual revenue,
2.4.2. Number of employees,
2.4.3. Total assets, or
2.4.4. Total liabilities, excluding shareholder’s equity, as of the end of the preceding accounting year.
2.5. Any partly or wholly funded public body.
3. Using his powers under Section 71 of the Act, the Minister introduced the first set of Financial Reporting (Public Interest Entities) Regulations, which took effect on the 15th of January 2016. These regulations set thresholds as:
3.1. An annual revenue of P300 million.
3.2. 200 employees.
3.3. Total assets of P200 million.
3.4. Total liabilities of P100 million, excluding shareholder’s equity.
4. These thresholds were subsequently revised by the amended Financial Reporting Regulations (“Regulations”), effective from the 1st of April 2022. The new thresholds are:
4.1. An annual revenue of P200 million.
4.2. 150 employees.
4.3. Total assets of P150 million.
4.4. Total liabilities of P50 million, excluding shareholder’s equity.
5. These new Regulations broaden the definition of public interest entities to include more businesses due to the reduced thresholds:
5.1. The revenue threshold was lowered to P200 million.
5.2. The employee count was reduced to 150.
5.3. The asset threshold was decreased to P150 million.
5.4. The liability threshold was dropped to P50 million.
6. If your business meets any two of the aforementioned thresholds, it qualifies as a public interest entity. Under Regulation 4 of the Regulations, such an entity must register as a public interest entity.
7. Once the BAOA approves a registration application, they will issue a registration certificate valid for one year, renewable before the 1st of January annually.
8. After registration, public interest entities must adhere to two primary obligations.
9. The first obligation requires notifying the BAOA upon appointing new directors, managers, or auditors to maintain an updated register as per Section 23 of the Act.
10. This obligation is clear and unequivocal.
11. The second obligation, according to Section 56(5) of the Act, states: “Where a public interest entity or other entity files any annual financial statement or report with a Government department or Authority, the entity shall also file a copy of the financial statement and report with the Authority, following the rules.”
12. Essentially, if a business must submit financial statements to a government department by law, they must also submit them to the BAOA.
13. This mandate necessitates reviewing the licensing under which one’s business operates. If there’s no obligation to file financial statements or reports with a regulator, there’s no need to submit them to the BAOA.
14. Additionally, the Regulations mandate auditors to seek evidence of BAOA registration before auditing a public interest entity. If an entity cannot provide evidence, the audit is postponed until they produce a registration certificate.
15. Notably, under Regulation 21 of the Regulations, if a public interest entity, board member, or employee breaches the Act or Authority rules, the BAOA may impose a fine not exceeding P500,000.
16. Lastly, we acknowledge that the BAOA is drafting the Pula Code of Corporate Governance, which will be obligatory for public interest entities once enacted. The draft can be viewed here: Invitation for Comments – Botswana Code Of Corporate Governance – BAOA.
17. Apart from the above, we see no other significant considerations for businesses recently classified as public interest entities, as detailed in paragraph 4.
18. For further information, please contact Simon at simon@armstrongs.bw or call +267 395 3481.
