Certified Public Accountants (CPA) are responsible for the compilation of three very different reports for their customers. The audit, review and compilation are all the three general levels of financial reporting differing fundamentally according to regulations that necessitate their execution. A very popular question exists among business owners, with regards to whether the statements should be independently audited, reviewed or compiled.
The Companies Act of South Africa (the Act) requires all companies to prepare financial statements within 6 months of the end of its financial year. The Act prescribes the following criteria to be applied, in determining the engagement type:
Auditing is the highest level of financial reporting. The Act prescribes that every for-profit or non-profit company that holds assets in a fiduciary capacity for persons who are not connected to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million, be audited. It further prescribes auditing under the following circumstances:
- Any non-profit company, incorporated
- directly or indirectly by the state, a state-owned company, an international entity or a company; or
- primarily to perform a statutory or regulatory function in terms of any legislation, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function.
- Any other company whose public interest score in that financial year is
- 350 or more; or
- at least 100, but less than 350, if its annual financial statements for that year were internally compiled.
TIP: Calculate your public interest score to determine if you exceed 350 points or not
- You receive points equal to the average number of employees of the company during the financial year.
- You receive one point for every R1 million (or a portion thereof) in third-party liabilities of the company, at the financial year end.
- You receive one point for every R1 million (or portion thereof) earned in turnover during the financial year.
- You receive one point for every individual who, at the end of the financial year, is a member of the company, or a member of an association that is a member of the company.
Independent review of financial statements
The independent review is designed to provide some level of assurance on the financial statements of a company. The review differs as it does not delve as deeply in auditing processes as an audit would.
The Act prescribes that an independent review of a company’s annual financial statements must be performed if, with respect to that company, every person who is a holder of, or has a beneficial interest in any securities issued by that company is not a director of the company.
A company and its directors may also choose to be voluntarily audited or reviewed if they wish to engage in an assurance engagement, where this has not been prescribed by the Act.
Compilation of financial statements
If none of the above-mentioned requirements apply to your business, you can proceed with the voluntary compiling financial statements which require no auditing of review. It is important to note, however, that unlike independent review and auditing, financial statements provide no assurance, in terms of the financial operations of a company.
Financial statements need to be compiled by a professional who holds the relevant qualifications and experience to do so. With compilations, or compiled financial statements, the outside accountant converts the data provided by the client into financial statements.
Our friendly staff is highly experienced in the compilation of financial statements, independent review and auditing. If you need help with any of this, do not hesitate to contact us.