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In South Africa, not all companies are required to have their financial statements audited.
However, under the Companies Act 71 of 2008, certain businesses must comply based on their structure, financial position, or Public Interest Score (PIS).
Failing to comply with audit requirements can result in penalties, reputational damage, or even legal consequences.
Below is a detailed look at which companies are required to have an audit and why understanding these regulations is essential for business compliance.
Who Must Have an Audit?
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Companies Holding Fiduciary Assets
A profit or non-profit company that, primary activities, holds assets exceeding R5 million in a fiduciary capacity (on behalf of others who are not related to the company) must be audited. Examples include:
- Investment and trust companies
- Fund managers
- Administrators of retirement funds
- Businesses managing client deposits or financial assets
This requirement exists to ensure transparency and accountability.
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Non-Profit Companies That Meet Certain Criteria
Non-profit companies must be audited if they were incorporated:
- Directly or indirectly by the state, a state-owned entity, an international entity, or another company
- Primarily to perform a statutory or regulatory function under any legislation
- For a purpose related to a statutory or regulatory function
For example, a government-funded NGO handling significant public funds would likely require an audit to ensure financial integrity.
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Companies With a High Public Interest Score (PIS)
A company’s Public Interest Score (PIS) determines whether an audit is needed. The PIS is calculated annually based on factors such as turnover, employees, third-party liabilities, and beneficial ownership. Here’s how it applies:
- PIS of 350 or more → Audit is compulsory
- PIS between 100 and 349 → If financial statements are internally compiled, an audit is required. If externally compiled, an independent review may sufficient
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Public Companies
All public companies, whether listed on a stock exchange or unlisted, are legally required to have their financial statements audited. This ensures financial transparency, especially for shareholders and investors.
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Companies Where the Memorandum of Incorporation (MOI) Requires an Audit
Even if a company does not meet the regulatory audit thresholds, it must still be audited if its Memorandum of Incorporation (MOI) specifies this requirement. Companies may choose to include an audit requirement in the MOI to enhance credibility, especially if they seek investors, funding, or international partnerships.
What If Your Company Doesn’t Require an Audit?
If your company does not meet the audit requirements, you may still need to undergo an independent review. An independent review is a lower level of assurance than an audit but still involves financial statement verification by a qualified accountant or independent reviewer. Independent Reviews Are Required For:
- Private companies with a PIS between 100 and 349, where financial statements are externally compiled.
- Owner-managed businesses that chooses to undergo voluntary reviews for investor confidence.
Why Does This Matter?
- Compliance → Non-compliance can result in legal penalties, SARS investigations, and reputational damage.
- Trust & Transparency → Audited financials enhance investor and stakeholder confidence.
- Strategic Planning → Understanding PIS thresholds helps businesses plan for future growth and compliance needs.
Even if your company is not legally required to have an audit, obtaining audited financial statements can boost credibility, attract investors, and improve financial management.
Contact PATC Today
If you are looking for a reliable, cost-effective, and flexible accounting solution, look no further than PATC’. Contact us today to learn more about how we can help you achieve your financial goals. Take advantage of our one-hour *free consultation now.
If you need assistance in your business’ finances, from accounting to tax consulting and financial management, we can help you. Contact us today and let us know how we can help you.
Now read: Provisional Tax in South Africa
