The New Companies Act – Does Your Business Still Need an Audit?

companies-act-auditThe 2008 Companies Act is now fully enacted and all registered businesses in South Africa must comply with its regulations. With a possible R1 Million fine or 10 years in jail for non-compliance, understanding the Act is a must for all business owners.

One of the major changes that the Companies Act brings with has to do with the need to audit your books on an annual basis. Depending on your public interest score (PIS), your business may not need an audit, with an independent review sufficing. This usually applies to small businesses, reducing the costs involved in conducting an annual audit.

To determine whether your business will require an audit, you’ll need to take the following steps:

Calculate Your Public Interest Score

Your company’s PIS is determined using a formula that takes several factors into account. The size of your business, whether your books are prepared by a member of staff or an external practitioner, and the number and type of shareholders the business has will determine the score. For the sake of accuracy, it is best to consult your accountant or financial advisor who will assist you in calculating your PIS.

Your PIS Determines Your Audit Status

If your PIS is under 100, your business should not need an audit. A detailed breakdown of PIS scores and their implications for an audit appear below:

  • 350 or more: An audit is required.
  • 100-349 with financials prepared by a staff member: An audit is required.
  • 100-349 with financials prepared by an external practitioner: An independent review is required – this must be conducted by a Chartered Accountant.
  • Under 100: An independent review is required.

Who May Conduct an Independent Review?

Accountants and Auditors registered in terms of the Public Accountants’ and Auditors’ Act (1951) may conduct an independent review. Members of the following financial organisations may also conduct an independent review:

  • South African Institute of Chartered Accountants
  • Southern African Institute of Chartered Secretaries and Administrators
  • South African Institute of Professional Accountants
  • Institute of Administration and Commerce of Southern Africa who have obtained the Diploma in Accountancy or the Diploma in Cost and Management Accountancy
  • The Institute of Cost and Management Accountants
  • Institute of Administration and Commerce of Southern Africa (with a Diploma for Company Secretaries)
  • Chartered Association of Certified Accountants who have passed the SA business laws exams and have received a practice number.
  • Southern African Institute for Business Accountants
  • South African Institute of Chartered Accountants
  • Chartered Institute of Business Management
  • Southern African Institute of Government Auditors

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