Do I need an audit?

There's still a lot of confusion about audits and whether a company must be audited or not.

It was the new Companies Act of 2008 (which actually only came into law in 2011) that changed the game. First off, all owner managed companies except the big ones (typically with a turnover in the region of R300m) are not required to undergo any form of audit. They don't even have to prepare financial statements to any particular standard which means that an income statement and balance sheet printed from their accounting software will do. Owner managed means that the shareholders and the directors are one and the same. There's some debate about whether a trust as the shareholder with a trustee as the director satisfies this requirement, but we take the view that it does.

Interestingly, a CC, which is, by its very nature, always owner managed comes off worse, because in terms of the Close Corporations Act, it is required to produce Annual Financial Statements to international standards and to have them signed by an accounting officer no matter what its size.

Generally, a company that is not owner managed must produce Annual Financial Statements to international standards and have them reviewed or audited (depending on the size of the company) by a professional.

So the rule is owner managed - no (unless very large), not owner managed - yes (no matter the size). Of course, your bank may think differently. They may insist on audited financials even if the Companies Act does not require them.

The detail of whether the financials must be reviewed or audited and by whom the review can be undertaken is a bit more complicated and you'd do well to ask your accounting professional. But beware, in terms of the Companies Act it is your responsibility to call for an audit if it is required. Don't expect your auditor to tell you - he won't necessarily have all of the up to date numbers on hand. Rather, you should approach him before year end, give him the facts that he asks for and then get him to advise you. Why before year end? Because if an audit is required, he must attend on the year end stock take (assuming you carry inventories), otherwise he'll almost certainly have to qualify his audit report.

And there's a big catch. If in say year ended 2014 you did not need to be audited, but by year ended 2015 you have grown to the point where your financials must be audited (or more likely, your bank insists that your 2015 financials are audited), the auditor will have to audit 2014 and 2015 because the financials have two columns, one for each year and the auditor has to satisfy himself that both columns are fairly presented. But he would not have attended on the 2014 stock take, so his 2015 report will be a qualified report regardless of the quality of the accounts. How crazy is that?

Need a shelf company, CC or trust? We've got them, including shelf Inc and NPC companies.

Memberships

South African Institute of Chartered Accountants. Designation CA(SA)  Internationally Accredited Financial MediatorsIndependent Regulatory Board for Auditors. Designation RA<Engineering Council of South Africa. Designation Pr(Eng) Member of MENSA, the High IQ Society

 

 

 

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