Does your non-profit company need an audit?
How a South African non-profit company's public interest score decides between an audit and an independent review, and when to have it worked out.
By Achekam · · 4 min read · For Non-profit businesses in South Africa
A non-profit company in Durban has grown. Five years ago it was a small volunteer group with a modest grant; today it employs a team, runs three programmes and receives money from several funders. Its board has always had its annual financial statements independently reviewed. This year a new board member asks whether that is still enough, or whether the law now requires an audit.
For a South African company, including a non-profit company (NPC), the answer usually starts with a single number: the public interest score. It is not a judgement about how important your work is. It is a calculation set out in the Companies Regulations, and it decides whether the law requires an audit.
This article explains how the score is counted, the thresholds that matter, the other reasons an NPC may need an audit, and how and when to get the answer.
How the public interest score is counted
Under Companies Regulation 26(2), the score for a financial year adds together:
- one point for every average employee during the year;
- one point for every R1 million, or part of it, of third-party liabilities at year end;
- one point for every R1 million, or part of it, of turnover during the year;
- one point for every individual with a beneficial interest in the company.
For a non-profit company, two of those lines need care. What counts as turnover when most of your income is grants and donations, and how the last line applies to an NPC that has members rather than shareholders, are questions for your accountant. Do not guess; the difference can move the score.
Note "or part of it". Turnover just over a million rand scores two points, not one. Small organisations are sometimes surprised by how quickly the points add up once staff numbers grow.
The thresholds: 350, and 100 for statements compiled internally
Regulation 28 sets two audit thresholds:
- a company with a public interest score of 350 or more must be audited;
- a company scoring 100 or more must also be audited if its financial statements were compiled internally, that is, prepared within the company rather than independently. Your accountant will confirm which description fits your statements.
The second threshold is the one NPCs most often overlook. An organisation whose own finance officer prepares the annual financial statements reaches the audit requirement at a much lower score than one whose statements are compiled independently.
Below the audit thresholds, a company may still need an independent review, depending on its score and circumstances. CIPC's page on financial statements and independent reviews sets out which private companies must have their annual financial statements audited or independently reviewed, using the public interest score thresholds of 100 and 350, and lists other triggers as well.
Other reasons an NPC may need an audit
The score is not the only route to an audit. Before concluding that you are exempt, check with your accountant whether:
- your memorandum of incorporation requires an audit, regardless of the score;
- any funder requires audited statements under its grant agreement;
- another registration or approval your organisation holds carries its own audit condition;
- one of the other triggers on CIPC's page applies to you.
Any one of these can mean an audit is needed even when the score is low.
How your accountant prepares and checks the score
If you keep your books in Achekam, you can appoint your accounting firm by its Achekam address or firm code, as accountant, auditor, tax practitioner, payroll provider or adviser with an access level, and the firm accepts or declines.
For a South African client, the firm's staff prepare a public interest score for a financial year from the client's records. A different person reviews it, and Achekam then says whether an audit or an independent review is required. Missing inputs are named, never assumed, so if your average staff numbers or the count of individuals are not in the records, the firm will ask for them rather than filling in a guess. The thresholds come from the firm's approved rule book, and a partner records the engagement type.
That second-person review is worth asking about. A score prepared and checked by two people is far less likely to rest on a misread turnover figure.
It also helps to know who does what. In South Africa, the Independent Regulatory Board for Auditors (IRBA) regulates auditors, CIPC administers the Companies Act and SARS collects tax. The public interest score is a Companies Act matter; your auditor, if you need one, is regulated by IRBA.
When to ask
The score is calculated for a financial year, from turnover for the year, liabilities at year end and the year's average staff. But you should not wait until the year has closed to find out the answer, because by then an audit may be needed that nobody planned or budgeted for.
A sensible timetable:
- A few months before year end, ask your accountant for an estimated score using the year's figures to date and your expected year-end position.
- If the estimate is near a threshold, discuss with your board whether to plan and budget for an audit now.
- If an audit looks likely, appoint the auditor before year end, so they can plan their work, including attending any year-end counts.
- After year end, have the final score prepared and reviewed from the closed year's records.
If your accountant already keeps your books, see when your accountant sets up and pays for your books. If your auditor does not use Achekam, when your auditor is not on Achekam explains how to work with them.
Ask your accountant this month for an estimated public interest score for the current year, and put the answer in front of your board at its next meeting.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
