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Audit, independent review, or neither? What your company's PI score decides
The Companies Act does not require every company to be audited. Your public interest score and whether you are owner-managed decide what you need. Here is the full decision tree.
One of the most expensive misunderstandings I see is a small owner-managed company paying for an annual audit it was never required to have. The Companies Act of 2008 replaced the old “every company gets audited” rule with a sliding scale. Here is how it works.
Step 1: calculate your public interest score
Regulation 26(2) gives every company a public interest (PI) score for each financial year, made up of:
- 1 point per employee, using the average number of employees during the year,
- 1 point per R1 million (or part thereof) of third-party liability at year end (loans, trade creditors, SARS, overdrafts; not shareholder loans),
- 1 point per R1 million (or part thereof) of turnover for the year, and
- 1 point per individual who directly or indirectly holds a beneficial interest in the company’s shares.
A company with 4 staff, R3.2 million turnover, R600,000 of creditors and two shareholders scores 4 + 4 + 1 + 2 = 11.
You can run this calculation instantly with the PI score calculator.
Step 2: check for automatic audit triggers
Regardless of PI score, an audit is required if the company:
- is a public or state-owned company,
- holds assets in a fiduciary capacity for unrelated persons exceeding R5 million in aggregate at any time during the year (think attorneys’ trust accounts, estate agents, managing agents), or
- has a Memorandum of Incorporation that requires an audit, or the shareholders have resolved to have one.
Step 3: apply the PI score
| PI score | Who compiled the AFS | Requirement |
|---|---|---|
| 350 or more | Anyone | Audit |
| 100 to 349 | Internally (by the company itself) | Audit |
| 100 to 349 | Independently (by an independent accounting professional) | Independent review by a registered auditor or a member of a professional body accredited under the Auditing Profession Act, such as a SAIPA Professional Accountant (SA) |
| Below 100 | Either | Independent review, which may also be performed by anyone qualified to be an accounting officer of a close corporation |
Step 4: the owner-managed exemption
Section 30(2A) is the clause that saves small companies the most money. If every shareholder is also a director (or the company has one shareholder who is the sole director), the company is exempt from both the audit and the independent review requirement, unless an automatic audit trigger above applies.
Put the two together and the practical outcome for most small businesses is:
- PI score below 100 and owner-managed: no audit, no review. You can compile your own annual financial statements, and FTG Books is built to do exactly that.
- PI score below 100 but not owner-managed: an independent review is required. It is a far lighter engagement than an audit.
- PI score 100 to 349: have your statements independently compiled and reviewed; do not compile them internally or you will be forced into an audit.
- PI score 350 or more: audit, no way around it.
What an independent review actually involves
An independent review under ISRE 2400 is an engagement where the reviewer performs enquiries and analytical procedures to obtain limited assurance that nothing has come to their attention suggesting the financial statements are materially misstated. There is no testing of controls, no confirmations, no inventory counts. It typically costs a fraction of an audit and is finished in days rather than weeks.
As an Independent Reviewer (SA) I perform these engagements for companies, and I built FTG Review to make them efficient and well documented for other practitioners too.
Do not forget the Financial Accountability Supplement
Companies that are not required to be audited or reviewed still file a Financial Accountability Supplement (CoR 30.2) with their CIPC annual return. Those that are audited or reviewed file their AFS in iXBRL format. Getting this wrong attracts compliance notices.
Unsure where you land? Run the calculator, then book a call if you want a second opinion.
This article is general information, current at the date of publication, and not advice. Tax law and SARS practice change; please confirm the position for your own circumstances or book a consultation.
Companies ActPI scoreindependent reviewauditAFS