This article only deals with companies which have to use the public interest score (“PI Score”) per Regulation 28 of the Companies Act as amended to determine if an audit needs to be performed in respect of a financial year.
Regulation 28(2): In addition to public companies and state owned companies, any company that falls within any of the following categories in any particular financial year must have its annual financial statements for that financial year, audited:
- any profit or non-profit 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 R 5 million;
- any non-profit company, if it was incorporated––
- directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or
- primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; or
- any other company whose public interest score in that financial year, as calculated in accordance with regulation 26 (2)––
- is 350 or more; or
- is at least 100, if its annual financial statements for that year were internally compiled.
Regulation 26(2) defines the manner in which a company shall determine its PI Score at the end of each financial year. The following framework is provided:
- PI Score below 100 > owner managed > no audit or independent review required;
- PI Score below 100 > non owner-managed > independent review required;
- PI Score above 100 but below 350 > owner-managed > books of account and annual financial statements internally compiled > independent review required;
- PI Score above 100 but below 350 > owner-managed > books of account internally compiled > annual financial statements independently compiled – neither audit nor independent review required;
- PI Score above 100 but below 350 > non owner-managed > books of account and annual financial statements internally compiled – audit required;
- PI Score above 100 but below 350 > non owner-managed > books of account internally compiled > annual financial statements independently compiled > independent review required;
- PI Score above 350 > audit required.
The phrase “independently compiled and reported” per Regulation 26(1)(e) creates the complexity. Basically two instances exist where neither an audit nor an independent review is required.
No doubt many companies will endeavour to fall into one of these categories.
Interestingly, a company may from one year to the next be subject to an audit, then to an independent review and in the third year perhaps neither, based upon the above analysis. It will be interesting to see how auditors approach such a situation, but company directors can rest assured – it will cost more in audit fees.