Must my company prepare audited financial statements?
For most companies the answer is no. The Companies Act of 2008 only requires a company to have their financial statements audited if its Public Interest Score is 350 or more. That would typically be a company with an annual turnover of about R300m and 50 employees. So why do we still get companies requesting audited financial statements? Let’s take a look at this.
Reason 1. The company’s auditor did not want to lose the business, so failed to advise the owner(s) that not only are audited financial statements not needed, but the company doesn’t even need an auditor. Shame on our profession!
Reason 2. The bank or a Government customer requires them in order to tick a box. That’s an expensive tick. If this hits you, go back to the bank or the customer and offer them independently compiled financial statements. They are identical to the audited ones, but are signed off by the compiler who, in most cases, must be a CA(SA) and may even be an auditor (as is the case with us). One client simply had us prepare the unaudited version and submitted them, knowing that even if he had to have them audited, he would not have incurred any extra cost as, in any event, the financials have to be compiled before they can be audited.
Most companies do not even need formal financial statements
If your company is owner managed (that is, the directors are the shareholders) and has a PPIS of less than 350,, then the directors can usually decide how they want the financial statements prepared, and most opt for a simple Balance Sheet and Income Statement, which are produced by the bookkeeping software at the push of a button. SARS accepts them in this format. If the shareholder is a trust, then the company cannot be owner managed.
So, don’t be fooled into wasting money on audits.