The difference between these types of engagements is the level of assurance that is provided on the financial statements as a whole in terms of being free of material misstatements.
- Audit – Reasonable assurance
- Independent review – Limited assurance
- Compilation – No assurance
When is an audit required for a private company?
To determine if a private company should be audited, regulation 28 of the Companies Act 71 of 2008 states that the following companies should be audited:
- A profit or non-profit company that holds assets in a fiduciary capacity for persons who are not related to the company and the aggregate value of such assets held at any time during the financial year exceeds R5 million.
- Any company whose public interest score in that financial year is 350 or more.
- Any company whose public interest score in that financial year is at least 100 (but less than 350) and whose annual financial statements for that year were internally compiled.
What is an independent review and when is it required?
An independent review provides the users of financial statements with limited assurance on the financial statements. Private companies should be independently reviewed, in terms of the Companies Act 71 of 2008, that are not owner managed and:
- Have a PI score of less than 349 and the financial statements are independently compiled or
- Have a PI score of less than 100 and are internally compiled.
When is a company owner-managed?
A company is owner managed if all of the shareholders are directors. This is used to determine whether an independent review engagement is required.
When should a private company use IFRS or IFRS for SMEs as their accounting framework?
The required accounting framework of a company is determined by if the company is listed on the stock exchange or whether the company holds assets in a fiduciary capacity of more than a R5million. If any of the two of these apply to the company, it is required by the Companies Act 71 of 2008 that the company uses IFRS as the accounting framework.