Does my company need an audit or an independent review, is a question that we get asked from time to time, and we can understand why, given that there was a time when any private company (PTY) was compelled to undergo an audit. And as such, there was always a preference to register your business as a closed corporation (CC) or, as a sole trader for that matter.
In most cases, small and medium sized businesses just want to remain compliant with the companies act (yes there will always be exceptions). And of course we cannot steer away from what is possibly the single biggest concern of an audit – THE COST. Thankfully, changes in the Companies Act, could relieve you of this onerous burden. And for the folk who had sought the relatively cheaper – CC – option, you should also take note, as you may well qualify for either an audit, or an independent review under the new criterion.
The new structure requires you to establish, what is referred to as your Public Interest Score, and this result will determine whether you require, an audit, or an independent review. Let’s use an example to illustrate the process; in our example we will consider a bakery, which has 35 staff members, and an annual turnover of R22 million. And at the end of the financial year it had;
- Average number of employees – 35, this equals 35 points.
- Creditors are owed R1,5 million – this equals 1,5 points.
- Turnover was R22 million – this equals 22 points.
- 3 people in the company have a direct or indirect, beneficial interest in the company’s issued securities – this equals 3 points.
Your total Public Interest Score is; 61,5 points.
Now, the new Companies Act has set out the following points categories;
- Below 100 points – You are not compelled to undergo an audit, and independent review will suffice.
- Between 100 and 350 points, An independent review will suffice provided that the annual financial statements were compiled externally, if not, an audit will be required.
- Greater than 350 points – an audit is required.
Clearly, in the case of our example, a privately owned enterprise (PTY), an Independent Review would suffice, and it is no longer legally required for the company to undergo an audit. Referring back to our ‘bakery’, an independent review would cost R5,250.00, if undertaken by Core Business Elements, and you can be the judge of how this amount compares to an audit.