Holding money for others: when you need an audit
Why a South African private company that holds more than R5 million for unrelated people at any point in the year must be audited, whatever its size.
By Achekam · · 5 min read · For Running a business businesses in South Africa
Most owners of small private companies in South Africa have heard that an audit depends on the public interest score, and that a company with a modest score can usually get by with an independent review or less. For many companies that is right.
There is a second test, though, and it has nothing to do with turnover, staff numbers or the score. It looks at whose money is sitting in the company's accounts. A company that holds money or other assets on behalf of other people can need an audit even if it is otherwise tiny. This article explains that test, how to tell whether it reaches you, and what follows if it does.
The test: assets held in a fiduciary capacity
CIPC says a private or personal liability 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.
"In a fiduciary capacity" means the company holds the assets for someone else's benefit, not as its own. The money is in the company's bank account, but it belongs to, or is held in trust for, another person. "Unrelated persons" means the rule looks at assets held for people who are not related to the company, which is why the question cannot be answered from the balance sheet alone: you have to know who the money is held for, not just how much there is.
The Companies Regulations, as published in April 2011, say the same thing in regulation 28(2): a company holding assets in a fiduciary capacity for unrelated persons worth more than R5 million at any time in the year must be audited. The same regulation also brings in certain non-profit companies, such as one incorporated by the state or by a foreign entity, or to perform a statutory or public function.
"At any time": the peak, not the year-end balance
The phrase that catches people out is "at any time during the year". The test is not what you hold on the last day of the financial year. It is the highest amount held for unrelated people on any single day.
Consider, in words, a company that collects money on behalf of clients and pays it on a few weeks later. For most of the year it holds a modest float. In one busy month, though, several large receipts arrive before the related payments go out, and for a few days the total held for others goes above R5 million. By year end the balance is back to its usual level. On CIPC's wording, that one peak is enough.
That has a practical consequence. You cannot answer the question in the month after year end by looking at the closing balance. You need a record of what was held for others through the year, day by day, or at least enough to show it never crossed the line.
Who should check
Whether a particular arrangement is "fiduciary" is a legal question, and you should take advice on your own facts. Companies that routinely receive money or hold assets that are not theirs, and then pass them on, are the ones that should ask the question each year. If you are unsure, the cheapest moment to get an opinion is before the financial year starts, not after the statements are drawn up.
How this sits beside the public interest score
The fiduciary test is in addition to the public interest score test, not instead of it. CIPC says a private or personal liability company must be audited if it compiles its financial statements internally and has a public interest score of 100 or more, or if they are compiled by an independent party and its public interest score is 350 or more.
So there are two separate routes into an audit:
| Route | What triggers it |
|---|---|
| Public interest score | A score of 100 or more with internally compiled statements, or 350 or more with independently compiled statements |
| Fiduciary assets | More than R5 million held for unrelated persons at any time during the year |
A company with a low score is not safe from an audit if it crosses the fiduciary line, and a company that never holds anyone else's money can still be audited because of its score. The full picture of when an audit is required is set out in when a company must be audited. CIPC's page on audit and independent review requirements lists the tests, including the fiduciary one, and the filing rule that follows.
Filing the audited statements
Once a company falls into the audit category, the consequences reach beyond hiring an auditor. CIPC says companies that must be audited must file a copy of their latest approved audited financial statements on the date they file their annual return. So the audit has to be finished, and the statements approved, in time for the annual return, which affects how you plan the year-end.
Before you appoint anyone, confirm that the person signing the audit report is a registered auditor. How to do that is explained in checking that your auditor is IRBA-registered.
Appointing your auditor in Achekam
If your books are on Achekam, a business appoints its accounting firm by the firm's Achekam address or firm code, in a defined role: accountant, auditor, tax practitioner, payroll provider or adviser, each with an access level. The firm then accepts or declines the appointment.
An appointed firm works directly in the business's own ledger. No copy of the books is made, so what the firm posts appears in the business's own accounting screens, and the auditor looks at the same records your team uses rather than an export prepared for them.
Separately from any software, keep money held for others in its own bank account and its own ledger accounts. That makes the peak easy to see and gives the auditor a clean trail from receipt to payment.
Decide before the year starts
Look at the past year's highest balance held for others, and at what the coming year is likely to bring. If there is a real chance of crossing R5 million for even a day, plan for an audit now: agree the timetable with an auditor, separate the money in the books, and make sure the statements will be approved in time for the annual return.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
