What is an audit?
Companies appoint an auditor to give reasonable assurance that the Annual Financial Statements are free of material misstatement. This objective review increases the value and credibility of the data and information produced by management and gives users assurance that they can rely on the information presented to them.
Reasonable assurance is the confidence the auditor has in their findings, after exercising professional and due care, that the Annual Financial Statements are free of material misstatement.
Material misstatement is any error or omission in the Annual Financial Statements that is material enough to affect the shareholders, investors, or any other user’s opinion or action towards the company.
Who needs to be audited?
With the implementation of the new Companies Act, No. 71 in 2008 the requirement that all companies are to be audited changed slightly with Independent Reviews being added to the mix.
Now only Public Interest Companies and State-Owned Companies are required to be audited by the Companies Act, No. 71 of 2008. Companies can also elect to have a voluntary audit carried out on their Annual Financial Statements.
How do I know if my company needs to be audited?
If you are not a State-Owned Company, you will need to determine if you fall into one of these categories:
- The company 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 R5 million;
- Your company had the Annual Financial Statements compiled internally (someone employed within the company) and the company’s public interest score is over 100; or
- Your company had the Annual Financial Statements compiled independently (by an external party to the company) and the company’s public interest score is over 350.
How is the Public Interest Score calculated?
Points are allocated as follows:
- A number of points equal to the number of average employees of the company during the financial year;
- One point for every R1.25 million (or portion thereof) of third-party liability of the company held at financial year end;
- One point for every R1.25 million (or portion thereof) of turnover of the company during the financial year;
- One point for every person who has a direct or indirect beneficial interest in the companies issued securities.
Once tallied you will be able to determine if your company is liable to an audit should it fall into the categories listed above.
What if my company does not fall into one of the categories above?
Your company will the either be subject to an Independent Review or a Compilation.
Click here to read more on Independent Reviews.
