Independent Reviews – Companies Act 71 of 2008

Ensuring Compliance with an Independent Review

As businesses grow and expand, ensuring that their financial statements accurately reflect their financial position becomes increasingly important. The Companies Act 71 of 2008 uses a Public Interest Score (PI Score) to determine when a company must be audited or have an independent review.

Public Interest Score (PI Score)

The Public Interest Score is a numerical value that determines the level of public interest in a company. It is calculated based on a company’s annual turnover, the number of employees, and the extent of public access through shareholders and long-term loans.

The PI Score dictates specific requirements and regulations a company must follow. For instance, companies with a PI Score of less than 350 are exempt from appointing an auditor. However, a company must obtain an independent review if its PI Score is between 100 and 349.

According to section 30(2) of the Companies Act 71 of 2008, a company meeting this threshold must have its annual financial statements reviewed by an independent accounting professional registered with a recognized professional body. The review must adhere to the International Standards on Review Engagements.

What is an Independent Review?

An independent review is a limited assurance engagement that provides a moderate level of assurance on the accuracy of financial statements. Unlike a full audit, it does not require extensive testing of financial information or a detailed analysis of internal controls. Instead, it focuses on identifying any material misstatements in the financial statements.

In South Africa, independent reviews are conducted by registered accountants who possess the expertise to provide a professional and objective assessment. These accountants must adhere to recognized accounting standards during the review.

The Independent Review Process

The review process involves:

• Understanding the Business and Its Operations: Gaining insight into the company’s activities and financial practices.

• Performing Analytical Procedures: Conducting a detailed examination of financial data to identify any inconsistencies.

• Making Inquiries of Management: Discussing financial matters with management to clarify any uncertainties.

• The accountant then prepares a report that provides an opinion on the accuracy of the financial statements. If material misstatements are identified, the accountant collaborates with management to resolve these issues.

Importance of Independent Reviews

Independent reviews are crucial for ensuring the accuracy and reliability of financial statements. They provide stakeholders with confidence in the financial information presented and can identify potential areas for improvement in the financial reporting process. This allows businesses to enhance their operations and provide more transparent and reliable financial information.

If you are a business owner, it is essential to engage a registered accountant to perform an independent review of your financial statements to ensure compliance with the Companies Act 71 of 2008.

For more information, Contact BNT Accounting and Taxation now