Own accounting policies for small South African companies
When a South African company with a public interest score under 100 may use its own accounting policies, how the score works and how to set it up.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
A small owner-managed company asks why its statements need page after page of IFRS for SMEs disclosures when the only readers are the owner, SARS and the bank manager. Another client has been told by a friend that "small companies can make up their own rules". Somewhere between those two views sits the real position under the Companies Regulations.
South African law does allow some companies to prepare statements on their own accounting policies. The conditions are specific, though, and the basis still has to be set out and applied consistently. This article explains when the option is open, how the public interest score decides it, and how to prepare such a set properly.
The conditions for own policies
The IFRS Foundation's jurisdiction profile for South Africa states that SMEs with a public interest score under 100 points whose financial statements are internally compiled can use their own accounting policies if they are not required to comply with any other financial reporting standards. The profile attributes the point system to the Companies Act.
That is three conditions, and all three must hold:
- the public interest score for the year is under 100;
- the statements are internally compiled;
- nothing else, such as the MOI, a shareholders' agreement or a lender's covenant, requires a particular framework.
The second condition deserves care. If your firm is the one compiling the statements, read the Regulations' definitions of internally and independently compiled statements before relying on own policies; the answer depends on who prepares them and in what capacity.
How the score is worked out
The profile states that the Companies Act Regulations, 2011 prescribe IFRS or the IFRS for SMEs Standard depending on each company's public interest score, which is based on points for employees, third-party liabilities, turnover and shareholders.
Regulation 26(2) gives:
| Element | Points |
|---|---|
| Employees | One per average employee in the year |
| Third-party liabilities | One per R1 million, or part of it, at year-end |
| Turnover | One per R1 million, or part of it, in the year |
| Shareholders | One per individual with a beneficial interest in its securities |
Regulation 28(1) uses the score for audit thresholds of 350 and 100, the lower figure applying where statements are internally compiled. So the same calculation that opens the door to own policies also decides whether an audit is needed; see when a company must be audited.
The score is calculated for each financial year. A company that grows, borrows or brings in shareholders can cross the line without anyone noticing, which is why the score belongs in every year's file rather than only the first.
What own policies still have to do
"Own policies" does not mean no policies. The statements still need a basis of preparation that says what framework was used, and a policy note for each material area that a reader can follow. At a minimum, think about:
- revenue: when it is recognised and at what amount;
- property, plant and equipment: cost, depreciation method and useful lives;
- inventory: how cost is measured and whether it is written down;
- loans to and from shareholders: how they are measured and presented;
- tax: how current tax is measured.
The policies have to be applied consistently from year to year. A policy that changes every time the owner would like a different profit is not a basis anyone can rely on.
Setting it up in Achekam
For a South African client, staff prepare the 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 rather than assumed, the thresholds come from the approved rule book, and a partner records the engagement type. The score is prepared on the client's Client 360 profile.
With the score settled, choose the template. Achekam has statement templates for companies on IFRS for SMEs, full IFRS or their own policies, among other entity types, with wording written for South African practice.
The Studio includes standard accounting policy wording based on IFRS for SMEs, labelled for review before issue, and staff can write their own policies. For an own-policies set, that combination is useful: start from the standard wording where it suits the client, rewrite it where the client's chosen policy differs, and delete what does not apply. Notes take their figures from the mapped trial balance, and anything the trial balance does not hold is left as "[to be completed]" so a gap is visible rather than guessed.
When IFRS for SMEs is the better choice anyway
The profile states that all SMEs that are required, or choose, to prepare general purpose financial statements may use the IFRS for SMEs Standard, or full IFRS instead. Being allowed to use own policies is not the same as being wise to.
Recommend IFRS for SMEs when:
- the company is borrowing and the lender wants statements on a recognised framework;
- an investor, buyer or parent company will read the statements;
- the score is close to 100 and likely to cross it, so a framework change is only a year or two away;
- the client wants comparability with competitors or prior sets prepared on that basis.
For the wider decision, see choosing a reporting framework.
Check the Regulations before you rely on it
The government publishes the Companies Regulations, 2011, which include the public interest score calculation and the thresholds that use it. Read the definitions there alongside the client's facts, record the score and the reasoning on the file, and revisit both every year.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
