Frequently asked questions: Accountability and Transparency
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Q: Is it necessary for me to have my financial statements audited?
A: Only public companies, state-owned companies and certain private companies with a greater responsibility to the wider public as a consequence of their significant social or economic impact as indicated by any relevant factors, including its annual turnover, the size of its workforce or the nature and extent of its activities, are required to be audited. All other companies must be either voluntarily audited or independently reviewed.
An independent review is a report prepared by an independent professional accountant, based on the business’s financial statements, and speaks to the company’s financial health. In comparison, an audit is more costly and places a heavier burden of compliance on a company than independent reviews.
According to the Regulations of the Companies Act 71 of 2008 (“Companies Act”), every company must calculate its public interest score (“PIS”) for each financial year in order to determine, among other things, whether or not it is obliged to have its annual financial statements audited, and which set of financial reporting standards it must comply with in preparing its financial statements.
The following private companies are required to have their annual financial statements audited:
- Any private or personal liability company if, in the ordinary course of its primary activities, it 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 private or personal liability company whose financial statements are compiled internally and that has a PIS of 100 or more; and
- Any private or personal liability company whose financial statements are compiled by an independent party and that has a PIS of 350 or more;
unless the company has elected to have its annual financial statements audited or is required to do so by its Memorandum of Incorporation.
Companies which are not required to be audited may be exempt from an independent review if they have only one beneficial shareholder, or where all the directors are also the beneficial shareholders. This exemption does not apply if such company meets the PIS thresholds requiring an audit.
Q: What happens if I do not file my annual returns?
A: The Companies Act requires all companies to file annual returns with the Companies and Intellectual Property Commission (“CIPC”). The purpose for the lodging of such annual returns is to confirm whether a registered company is still trading, or if it will be in business in the near future. Non-compliance could have grave consequences for companies and their ability to transact.
The Companies Act requires every company to submit an annual return, together with its financial statements, to the CIPC within 30 business days of the anniversary date of its incorporation date. Failure to do so over a period of 2 consecutive years will result in de-registration of the company by the CIPC. Once a company has been de-registered, it no longer has any juristic personality and therefore ceases to exist.
An interested person of the company, including a third party who has a direct or indirect financial interest in the business, can apply to the CIPC to have the company re-instated. However, this process may take a few months and is complicated by the requirement of co-operation from both the Department of Works and National Treasury, as any assets of the deregistered company are forfeited to the state as bona vacantia assets upon deregistration.
Should the company be re-instated, its legal existence is revived and any rights and obligations that existed immediately prior to the deregistration are re-instated.
Article provided by M. Prem Inc. M. Prem Inc. is a law firm specialising in business law and business development. We specialise in contract negotiation and preparation; mergers and acquisitions structuring and facilitation; regulatory and corporate governance compliance; enterprise and supplier development intervention. Our philosophy is to prevent dispute and resolve conflict thereby limiting financial loss and promoting business growth. Visit www.mprem.co.za.