What is the difference between an audit and a financial review?

When does my company require an audit, and when does my company require an independent review?

 

The implementation of the new Companies Act has relieved many businesses of the need to shoulder the cost of an annual audit, and they may not have to. The question on the minds of many business owners is; how do I establish if I need an audit or financial review to ensure that I remain compliant?

It is also important to note that the amendment to the Close Corporation Act that; close corporations are treated in the same way as all other companies.

In establishing what the position of your company is one is required to establish what your company Public Interest Score (PIS) is. In order to do this we need to calculate the cumulative total, after allocating 1 point for (you could also use this helpful link);

1. the average number of employees of the company during the financial year;
2. for every R1 million (or portion thereof) in third party liability of the company, at the financial year end;
3. for every R1 million (or portion thereof) in turnover during the financial year; and
4. for every individual who, at the end of the financial year, is known by the company-

in the case of a 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.

Considering the PIS score that you have arrived at; you will be able to determine into which category your company falls as follows;

below 100 points – Independent Review,
between 100 and 350 points – Independent Review if financials have been compiled externally, if internally an audit is required,
greater than 350 points – An audit is required.

Lets consider an example to illustrate the above;

Small Pty. Ltd.

  1. Has 20 employees,
  2. Owed R1,5m to suppliers at the their financial year end,
  3. It’s turnover was R15m.
  4. It has 1 shareholder.

Small Pty. Ltd. scores 37,5 points on the PIS. – You are able to engage an independent and registered accounting professional in private practise.

Medium Pty. Ltd.

  1. Has 40 employees,
  2. Owed R5m to suppliers at their financial year end,
  3. Their turnover was R63m,
  4. They have 3 shareholders.

Medium Pty. Ltd. scores 111 points on the PIS. You are able to engage an independent and registered accounting professional in private practise.

And so it goes on, and we are sure you get the idea. Members of the following accounting professions are recognised by CIPC;

  1. The South African Institute of Chartered Accountants (SAICA),
  2. Auditors registered in terms of the provisions of the Auditing Profession Act, 2005(CA),
  3. The Southern African Institute of Chartered Secretaries and Administrators (ICSA),
  4. The Chartered Institute of Management Accountants (CIMA),
  5. The South African Institute of Professional Accountants (SAIPA),
  6. THE IAC who have obtained the Diploma in Accountancy (IAC),
  7. The Association of Chartered Certified Accountants (ACCA),
  8. The Chartered Institute of Business Management (MCIBM),
  9. The South African Institute of Business Accountants (SAIBA),
  10. The South African Institute of Government Auditors (SAIGA).

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