The Companies Act No. 71 of 2008 (the “Act”) came into effect on 1 May 2011, and amongst other important provisions, introduced the concept of the public interest (“PI”) score of a company.
This is an important development, as it determines the financial reporting standards that the enterprise must follow.
It applies equally to companies and close corporations.
The PI score is determined as follows:
⊗ calculate the number of points which equal the average number of employees of the enterprise during the financial year;
⊗ calculate one point for every R1 million (or portion thereof) in third party liability of the company, at the financial year end;
⊗ calculate one point for every R1 million (or portion thereof) in turnover during the financial year; and
⊗ calculate one point for every individual who, at the end of the financial year, is known by the company-
⊕ in the case of a for-profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or
⊕ in the case of a non-profit company, to be a member of the company, or a member of an association that is a member of the company.
A company with a public interest score of 350 or more points in a financial year, must have its annual financial statements for that financial year audited.
An enterprise with a public interest score of between 100 and 349 points (both inclusive), must have its annual financial statements (“AFS”) audited, but only if they were internally compiled.
In terms of the Regulations, annual financial statements are “internally compiled” unless they are prepared by an independent accounting professional on the basis of financial records provided by the enterprise in question, and in accordance with relevant financial reporting standards.
Any other enterprise which, in any two of the previous five financial years, has attained a public interest score exceeding 500 points, is also obliged to appoint a social and ethics committee, as a matter of interest.