As the economist would say, it depends on the company’s Public interest score. A company’s public interest score determines the financial reporting standard that a company or close corporation needs to adopt, whether it needs to appoint a social and ethics committee as well as whether the company needs to be audited or simply require an independent review. A company’s public interest score needs to be calculated at the end of its financial year by either an independent reviewer, compiler of financial statement or an auditor. READ MORE ABOUT THE PUBLIC INTEREST SCORE HERE AND HOW TO CALCULATE IT
If a company is required to be audited, then it’s financial statements must be signed off by a registered auditor (External auditors). However, if a company is required to do just an independent review, then in such a case, the financial statements can be prepared and signed-off by either a registered auditor or an Accounting Officer. The question that bets now is how does one determine whether a company needs an audit or an independent review? Let’s check it out.
The following private companies are required to have their annual financial statements audited:
- Any private or personal liability company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million. For this purpose, fiduciary capacity means someone who holds assets as a trustee, administrator, transfer agent, executor or as a custodian;
- Any private or personal liability company that compiles its financial statements internally (for example, by its financial director or one of the owners) and that has a Public Interest Score (PIS) of 100 or more;
- Any private or personal liability company that has its financial statements compiled by an independent party (such as an external accountant) and that has a Public Interest Score (PIS) of 350 or more;
A private or personal liability company is subject to an Independent Review provided that it is not managed by its owners if:
- It compiles its financial statements internally and it’s Public Interest Score is less than 100;
- It has its financial statements compiled independently and it’s Public Interest Score is between 100 and 349
As a rule of Thumb, any private company that has a public interest score of less than 100 is not required to be audited and an independent review is enough unless the company has opted to have its financial statements audited or is required by its Memorandum of Incorporation (MOI) to do so.
NOTE: As to whether the financial statements require an audit or an independent review, it must also be signed by 2 directors or 1 director if the company has only 1 director. The director (s) must sign and date the financial statements before or on the date the audit report or independent review is signed and dated.
What about Non-profit companies (NPC)? Do they require an audit? As a rule of thumb, a Non-profit company is not required to appoint an auditor unless its memorandum of incorporation requires it to do so. They are, however, also subject to the Public Interest score specified above which means for example, if they hold assets that exceed R5million in a fiduciary capacity, then they must be audited.
The following accounting bodies are recognized by the companies and intellectual property commission (CIPC) for the purpose of appointing an accounting officer:
The South African Institute of Chartered Accountants (SAICA)
Auditors registered in terms of the provisions of the Auditing Profession Act, 2005(CA)
The South African Institute of Business Accountants (SAIBA)
The South African Institute of Government Auditors (SAIGA)
The Southern African Institute of Chartered Secretaries and Administrators (ICSA)
The Chartered Institute of Management Accountants (CIMA)
The South African Institute of Professional Accountants (SAIPA)
The Association of Chartered Certified Accountants (ACCA)
The Chartered Institute of Business Management (MCIBM)
THE IAC who have obtained the Diploma in Accountancy (IAC)