INITIAL complications are to be expected as companies and close corporations (CCs) try to work out how to calculate public interest scores (PIS) in the new Companies Act and interpret the regulations.
Ian Scott of accounting firm Grant Thornton says the new Act includes a PIS calculation that determines what report these entities need in the future, unless they hold assets in a fiduciary capacity with an aggregate value of over R5 million, in which case an audit is needed.
“The new Act also brings increased regulation to close corporations as their PIS calculations are subject to the same criteria as companies, although the outcomes are different.”
The regulations provide for both activity and size criteria to determine whether companies or close corporations require audited financial statements.
The regulations state that every entity is required to calculate its PIS at the end of each financial year and the score is calculated as the sum of the following:
• A number of points equal to the average number of employees of the company during the financial year
• One point for every R1 million (or portion thereof) in third-party liabilities at year end (these exclude shareholder loans and inter-company loans with common shareholdings)
• One point for every R1 million (or portion thereof) in turnover during the financial year
• One point for every individual who, at the end of the financial year, is known by the company to directly or indirectly have a beneficial interest in the business
If a close corporation has a PIS score below 100 it requires an accounting officer’s report, just as it did previously.
“If the score is between 100 and 350, it would appear that close corporations need an accounting officer’s report, if the financial statements were externally prepared, but these organisations will require an audit if statements are internally prepared,” says Scott.
A close corporation with a score over 350 requires an audit and these statutory audits are restricted to registered auditors only.
For companies with a score below 100 an independent review is required if it is not owner-managed.
However, if the company is owner-managed then there is no requirement for outside professional assistance.
If a company is not owner-managed and obtains a PIS score of 100 to 350, then an audit is required if internally compiled, or an independent review if externally compiled. On the other hand, if the company is owner-managed with a score of 100-350, no professional intervention is required if reports are externally compiled, but an audit will be needed if internally compiled.
If a company scores over 350 points, an audit is required regardless of whether the company is owner-managed or not.
“What this means has not been understood by many and it is going to cause some nasty surprises,” says Scott.
“Internally compiled is being interpreted by experts as meaning the preparation of books up to trial balance, including determination of accounting policies, and not just the preparation of year-end financial statements.
“It would therefore appear that outside professional assistance is required in order to avoid having financial statements ‘internally compiled’,” he warns. — WR.
