Why the preparer cannot also be the reviewer
Why the accountant who prepared a South African company's statements cannot perform its independent review, and how firms split the two roles.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
A client asks a reasonable-sounding question. "You already do our books and our statements. Can't you just do the review too? You know the numbers better than anyone." The practitioner is tempted. It would be efficient, the client trusts the firm, and the fee would be welcome.
The answer is no, and the reason is not a technicality. An independent review is valuable precisely because the person giving it did not produce what they are reviewing. A firm that prepares a company's statements and then reviews them is checking its own work, and the report it signs describes a check that never happened.
Limited assurance from someone outside the preparation
SAICA describes an independent review as a limited assurance engagement, made up mainly of inquiry and analytical procedures, performed under ISRE 2400 (Revised) by a practitioner who was not involved in preparing the financial statements. SAICA's resource on independent reviews explains the nature of the engagement and who may perform it.
The last part of that description is the answer to the client's question. Limited assurance is still assurance: a reader of the statements is told that someone independent examined them. If that someone prepared the statements, the reader is misled about what kind of check took place.
The Companies Regulations, as published in April 2011, require an independent review to be done in accordance with ISRE 2400. They also set who may perform it: a registered auditor or a member of a professional body with accreditation where the public interest score is at least 100, and, where the score is below 100, also a person qualified as a close corporation accounting officer. SAICA restates the same rule under regulation 29(4). Qualification and independence are separate tests; the reviewer must pass both.
Internal and independent compilation change the audit thresholds
How the statements were prepared affects more than the review. CIPC says a private or personal liability company must be audited if it compiles its statements internally and has a public interest score of 100 or more, or if they are compiled by an independent party and its score is 350 or more.
So when an outside firm compiles a company's statements, that independent compilation raises the score at which an audit becomes compulsory. A company whose score falls between those two thresholds avoids a compulsory audit only because an outside party compiles its statements. For such a company, the compiling firm is doing two jobs at once: preparing the statements and keeping the company out of the audit category. It cannot then add a third job, the review, on the same statements.
Sending frozen statements to another firm for review
The practical answer is to separate the roles across firms. In Achekam, a firm can send a frozen set of statements to another firm on Achekam, or to an outside practitioner by an e-mailed link, for an independent review under ISRE 2400 (Revised) or an audit. The reviewer's signed report is bound to that version of the statements.
Freezing matters. If the preparing firm keeps adjusting the statements after the reviewer has started, the review no longer relates to the figures that are issued. A frozen version gives both firms the same document, and binding the report to it shows which version was reviewed. For an audit, Achekam requires a partner the listing firm records as an IRBA registered auditor, but it does not check this with the IRBA, so the preparing firm should confirm the reviewer's credentials itself. Working with another firm's reviewer is covered more fully in an independent review by another firm.
An external officer compiling or signing instead
Sometimes the need is not a review but an outside signature on the compilation itself. A firm can have another firm's officer compile its prepared statements under ISRS 4410 (Revised), or act as accounting officer and sign them, and the statements are issued only in the version that officer released. That arrangement is explained in an external officer's sign-off.
The two arrangements answer different questions:
| Need | Arrangement in Achekam | Standard |
|---|---|---|
| Limited assurance on the statements | Frozen statements sent to another firm or outside practitioner for review | ISRE 2400 (Revised) |
| An outside officer to compile or sign as accounting officer | External officer compiles or signs; issued only in the version they released | ISRS 4410 (Revised) |
Preparer and reviewer separation within the firm
The same principle applies inside the firm, at a smaller scale. In Achekam, each set of statements names a preparer, a reviewer and an engagement partner. Only a user with a partner role can sign, and the person recorded as preparer or reviewer cannot issue the statements.
That internal reviewer is not the independent reviewer under ISRE 2400; they are part of the preparing firm's own quality control. But the logic is the same: the person who puts their name to the final product should not be the person who produced it. A firm that builds that habit internally will find it natural to apply the stricter rule when an independent review is required.
Signs that the roles have blurred
The line is usually crossed gradually rather than deliberately. Watch for these signs on review engagements:
- the reviewer's team posted adjusting journals or drafted notes to the statements;
- the reviewer's firm keeps the client's books during the year;
- the "review" file contains mainly preparation working papers;
- the client sends queries about the statements' content to the reviewer rather than the preparer.
Any one of them is a reason to stop and ask whether the reviewer is still outside the preparation.
For every client where the firm is asked to perform an independent review, check who prepared the statements. If the firm or anyone in it did, decline the review and arrange for another firm or an outside practitioner to perform it, sending them a frozen set of statements.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
