Does my company need an audit, an independent review, or neither?
Many owners of small companies pay for more assurance than the law requires, or don’t realise they need some. The answer for a private company depends on two things: who owns it, and its public interest score.
Start here: is every shareholder also a director?
If every person who holds shares in the company, or has a beneficial interest in them, is also a director, the company is owner-managed. Section 30(2A) of the Companies Act exempts it from both an audit and an independent review, unless it falls into a class that must be audited (below), or its Memorandum of Incorporation requires one.
Most one- and two-person companies fall here. They still need annual financial statements, but not an audit or a review.
Work out your public interest score
Under regulation 26 of the Companies Regulations, add up points for the financial year:
- one point for each employee, on average, during the year;
- one point for every R1 million, or part of R1 million, of third-party liabilities at year end;
- one point for every R1 million, or part of R1 million, of turnover;
- one point for each individual with a direct or indirect beneficial interest in the company’s shares.
A company with 6 employees, R2.4 million of liabilities, R8.5 million of turnover and 2 shareholders scores 6 + 3 + 9 + 2 = 20 points.
What the score means
| 350 points or more | Audit |
| 100 to 349 points, statements compiled internally | Audit |
| 100 to 349 points, statements compiled independently | Independent review, by a registered auditor or a CA(SA) |
| Below 100 points | Independent review, which an accounting officer may also perform |
A company must also be audited if it holds assets of more than R5 million in a fiduciary capacity for people who aren’t related to it, as part of its main business, or if its Memorandum of Incorporation or shareholders require an audit.
The owner-managed exemption doesn’t apply to a company that must be audited. An owner-managed company with a score of 350 or more still needs an audit.
Check every year
Your score changes with your turnover, staff and debt, so check it each year before the statements are prepared. A company that grows past 100 points, or brings in a shareholder who isn’t a director, can move from “neither” to “review” without noticing.
This article is general information based on the law at the time of writing. It isn’t advice for your specific situation. Get in touch if you’d like help with yours.