According to the new rules, public companies will be required to carry out audits as usual, as well as those holding fiduciary funds valued at over R5 million. However, for private companies the decision to audit or do the newly introduced independent review is determined in part by the Public Interest Score of a company. Based on the Public Interest Score calculation, private businesses scoring 350 points or more must be audited.
Calculate your PI score
Between 100 and 349 points means non-owner companies will be reviewed if their statements are independently compiled, and they will be audited if internally compiled. Owner managed companies with 100 points or less will be exempt completely from audit or review if they so choose, but must still prepare financial statements. Any other company can obviously also choose to be audited if they so desire. These requirements apply equally to Close Corporations.
Choosing an Audit
However there are other factors to consider when making the final decision to audit or conduct an independent review. There may be circumstances when, although a company does not meet the ‘size criteria’ for an audit, shareholders may require one. Similarly financiers or tender submissions may insist on an audit. Governing bodies such as the Estate Agents Board or FSB may require an audit in terms of their legislative requirements. For companies that are thinking of selling their business in the foreseeable future or may want to apply for a loan, an audit may be the preferred route. In the case of a loan, the approached bank has better data from a qualified source with audited financial statements to make its decision on whether to provide a loan or not, and so that route is likely to be the better choice. Another point for consideration is the different levels of assurance given by an audit and independent review. For example, an audit gives a positive assurance (the highest level of assurance) indicating that the financial statements are a fair representation of the operations and financial condition of the business. An independent review in contrast gives limited or negative assurance of the fair presentation of the financial statements and their alignment to the appropriate financial reporting standards of the company.