The Companies Act of South Africa (the Act) requires all companies to prepare financial statements within 6 months after the end of its financial year. A very popular question among business owners with regards to financial statements is whether the statements should be independently audited, reviewed or compiled. In determining the engagement type, the Act prescribes the following criteria to be applied:
Audited financial statements
1. Any profit or non-profit company that, in the ordinary course of its primary activities, 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;
2. Any non-profit company, if it was incorporated:
- directly or indirectly by the state, a state-owned company, an international entity or a company; or
- primarily to perform a statutory or regulatory function in terms of any legislation, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function;
3. Any other company whose public interest score in that financial year is:
- 350 or more; or
- at least 100, but less than 350, if its annual financial statements for that year were internally compiled.
How to calculate your public interest score, to determine if you exceed 350 points or not:
- a number of points equal to the average number of employees of the company during the financial year;
- one point for every R1 million (or portion thereof) in third-party liabilities of the company, at the financial year end;
- one point for every R1 million (or portion thereof) in turnover during the financial year; and
- one point for every individual who, at the end of the financial year, is a member of the company, or a member of an association that is a member of the company.
Independent review of financial statements
The Act prescribes that an independent review of a company’s annual financial statements must be performed if the following apply and the company does not select to be voluntarily audited:
If, with respect to a company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is not a director of the company, that financial statements should be independently reviewed.
A company and its directors may choose to be voluntarily audited or reviewed if they wish to engage in an assurance engagement, although it has not been prescribed by the Act.
Compiled financial statements:
If none of the above-mentioned requirements has been met, the financial statements may be compiled.
With compilations, or compiled financial statements, the outside accountant converts the data provided by the client into financial statements without providing any assurances or auditing services.
If you need any assistance with your engagement in financial statements, do not hesitate to contact our friendly staff.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.