Companies that need an audit whatever their score
Which South African companies must be audited regardless of their public interest score: public and state-owned companies, some NPCs and fiduciary holders.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
The public interest score has become the first thing many South African practitioners calculate when a new company client arrives. Turnover, employees, liabilities, shareholders: add the points, compare with the thresholds, and the audit question seems settled.
For some companies, though, the score is the wrong place to start. The Companies Act and its regulations put certain companies into the audit category because of what they are or what they hold, whatever their score. A practitioner who goes straight to the calculation can conclude that a small public company, or a modest non-profit created by a government department, needs only a review. That conclusion would be wrong before a single point was counted.
Public and state-owned companies
The Companies Act, as originally published on the government's page, requires every company to prepare annual financial statements within six months after the end of its financial year, and requires a public company's statements to be audited.
The Companies Regulations, as published in April 2011, repeat the point in their list of companies that must be audited: besides public and state-owned companies, it includes any company whose public interest score reaches the stated thresholds.
So the first two questions on any new company client are simple:
- Is it a public company?
- Is it a state-owned company?
If either answer is yes, it is audited. Its size, its score and how its statements are compiled do not change that.
Non-profit companies with a public origin or function
Non-profit companies are often assumed to be small and lightly regulated. Some are. But the Companies Regulations, as published, require the statements of a non-profit company to be audited if it was incorporated by the state or a foreign entity, or incorporated to perform a statutory or public function.
That catches organisations that may look modest on paper: an agency set up by a provincial department, a foundation established by a foreign government or company, or an entity created to carry out a regulatory or public service role. Ask how and why the non-profit was incorporated, and record the answer with the evidence, usually its founding documents. The Companies Regulations as published on the government's site set out these categories in regulation 28, alongside the public interest score tests that follow them.
Companies holding assets in a fiduciary capacity
The third category turns on what the company holds for others. The regulations, as published, require a company to be audited if it holds assets in a fiduciary capacity for persons not related to it worth more than R5 million at any time during the financial year.
CIPC states the same rule for private and personal liability companies: such a company must have its annual financial statements audited if it holds assets in a fiduciary capacity for unrelated persons worth more than R5 million at any time during the year.
Two features of the test catch practitioners out. It applies "at any time" during the year, so a year-end balance below the threshold does not settle it. And the assets are those held for unrelated persons, so the question is about the nature of the holding, not the company's own balance sheet. Property managers, administrators and others who hold client money can fall within it. The test is explored further in the fiduciary assets audit test.
Only then the public interest score
Once a company has been cleared of all three categories, the score comes into play. According to the regulations as published, a company with a public interest score of 350 or more, or of at least 100 if its statements were internally compiled, must be audited. Below those levels, the company may need an independent review or neither, depending on its circumstances, as set out in when a company must be audited.
The order of questions is therefore:
- Is it a public company?
- Is it a state-owned company?
- Is it a non-profit incorporated by the state or a foreign entity, or to perform a statutory or public function?
- Did it hold assets in a fiduciary capacity for unrelated persons exceeding R5 million at any time in the year?
- Only if all the answers are no: what is its public interest score, and how were its statements compiled?
The regulations quoted here are from the text as published in April 2011, and the Act from its text as originally published; check the current consolidated versions before relying on the exact wording for a client.
Recording the engagement type in Achekam
In Achekam, for a South African client, 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, and the thresholds come from the approved rule book. A partner records the engagement type.
The score-based answer is only the last of the five questions above, so the partner should confirm the first four before accepting it. When creating the engagement, staff choose its type, such as statutory audit, independent review or annual financial statements compilation, and a firm can add its own named types. Record on the client file why the type was chosen, especially where the reason is one of the three categories that override the score. A note such as "audit required: non-profit incorporated by a provincial department to perform a public function" answers the question for every later reviewer.
Add the five questions above to the firm's acceptance checklist for every company client, in that order. Then review the current list of non-profit and property-related clients, the two groups most likely to have been placed on the score alone.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
