In 2008, the Companies Act was revised, removing the requirement for certain companies to be audited. Since its revision, the Act has become more flexible, and more understanding to startups and SMEs who may find an annual audit a financial burden during their formative years. The Act now provides for two types of financial reviews, an independent financial review and an audit. Whether a business opts for one or the other depends entirely on whether they fall above or below a particular threshold.
This threshold is known as the Public Interest Score (PIS), whereby points are given to a business according to their annual turnover, the amount of money owed to third parties, number of employees, and number of shareholders. Businesses who score a PIS of 350 or more must undertake an audit, whereas those whose score is below 350 may opt for an independent review. The PIS is calculated as follows:
- 1 point for every employee.
- 1 point for every million Rand owed to a third party.
- 1 point for every million Rand turnover in one financial year.
- 1 point for every shareholder or beneficiary.
Once a business has figured out their PIS, an audit or independent review may take place, but many business owners opt for an audit without knowing that the choice of an independent review is available. For this reason, we break down the difference between an independent review and an audit, and hopefully provide you with the insight into which option would best suit your business needs.
An independent review is the latest addition to the Companies Act, that provides limited assurance. An accounting professional may review a business’s financial statements via particular enquiries with the aim of simply determining that no financial errors or miscalculations have occurred. This type of financial review requires less rigorous investigation, and the costs inevitably are less than expected for an audit.
An audit requires an independent auditing team comprised of qualified auditors to review financial statements via various in-depth procedures. These financial statements are comprised of transactions and documents provided by the business undertaking the audit. An audit provides the highest level of assurance, otherwise known as reasonable assurance. It therefore carries higher authority than a review. As an audit requires far more detailed investigation into a business’s financial statements, it is a more expensive option.
As the Companies Act requires all registered businesses to have their financial statements reviewed, we hope this article provides you with the necessary information to decide whether your business is required to undergo and audit or whether you can choose the option of an independent review. The addition of the independent review gives business owners more choices to better suit their business needs. If you as the business owner are unsure of your PIS score, or need help with your financial statements, we at Smith&Rossi are able to answer any questions you might have, are able to provide the service of an independent review, as well as assist in the preparation of an audit.