How the Companies Act decides for you
The Companies Act of South Africa removed the one-size-fits-all audit requirement. Instead, it uses a scoring system to match your company’s assurance needs to its actual size and public impact. That score is called the Public Interest Score, and it determines three things: whether your financial statements must be audited, whether an independent review suffices, or whether a basic compilation is enough.
Most company directors know their annual turnover and asset base, but many do not know their Public Interest Score or what it means for their financial reporting obligations. This article explains the thresholds, the differences between an audit and an independent review, and how to determine which applies to your company.
Visit our page at Do I need an Audit for our PIS Calculator
What is the Public Interest Score?
The Public Interest Score is calculated at the end of each financial year in terms of Regulation 26 of the Companies Regulations, 2011. It is based on a combination of factors:
- The number of employees
- The value of third-party liabilities
- The value of total assets at year-end
- The average annual turnover for the past three years
Each factor contributes points, and the total determines which assurance level your company requires. The score is not optional. Every registered South African company must calculate it annually, and it drives your filing obligations with CIPC.
The three tiers: audit, independent review, and compilation
The Companies Act sets out three distinct assurance levels based on your Public Interest Score and how your financial statements were prepared.
Audit required
An audit is required if:
- Your Public Interest Score is 350 or more, regardless of who prepared the financial statements
- Your Public Interest Score is 100 or more but less than 350, and your financial statements were compiled internally (by your own staff rather than an external accountant)
- Your Memorandum of Incorporation requires an audit
- Your company is a public company, state-owned company, or body incorporated by the state
An audit provides reasonable assurance. A registered auditor performs in-depth procedures, testing transactions, balances, and internal controls. The auditor’s report expresses an opinion on whether the financial statements present fairly, in all material respects, the financial position of the company.
Independent review required
An independent review is required if:
- Your Public Interest Score is 100 or more but less than 350, your financial statements are independently compiled, and your company is not owner-managed
- Your Public Interest Score is less than 100, your financial statements are independently compiled, and your company is not owner-managed
An independent review provides limited assurance. The reviewer performs primarily inquiry and analytical procedures to determine whether anything has come to their attention that causes them to believe the financial statements are not prepared in accordance with the Companies Act. It is less extensive than an audit and typically costs less.
Compilation only
A compilation is sufficient if:
- Your Public Interest Score is less than 100 and your company is owner-managed
- Your Public Interest Score is less than 100 and your financial statements are independently compiled
A compilation involves preparing financial statements from information provided by management. It does not provide any assurance on the accuracy or completeness of the statements. The accountant compiles the statements and attaches a report stating that no audit or review was performed.
What an independent review actually involves
An independent review is not a lesser audit. It is a different engagement with a different objective.
Under ISRE 2400 (Revised), the reviewer performs primarily:
- Inquiries of management and relevant employees
- Analytical procedures applied to financial data
- Evaluation of the sufficiency and appropriateness of evidence obtained
The reviewer does not verify balances through confirmation, inspect assets, or test internal controls in the way an auditor does. The objective is to obtain limited assurance that the financial statements are free from material misstatement.
The independent review report states whether anything has come to the reviewer’s attention that causes them to believe the financial statements do not comply with the Companies Act. This is a lower level of assurance than an audit, but it is still a professional engagement conducted under recognised standards.
Who can perform an independent review?
The Companies Regulations specify who may perform an independent review based on your company’s Public Interest Score.
PIS of 100 or more
The review must be performed by:
- A registered auditor (registered with IRBA), or
- A member in good standing of a professional body that has been accredited in terms of section 33 of the Auditing Profession Act (such as SAICA or ACCA)
PIS of less than 100
The review may be performed by:
- A person in the categories above, or
- A person qualified to be appointed as an accounting officer of a close corporation in terms of the Close Corporations Act
The key requirement is that the independent reviewer must not have been involved in the preparation of the financial statements. Independence is a prerequisite.
Owner-managed companies: the exemption
Section 30(2A) of the Companies Act provides an exemption from independent review for certain owner-managed companies. If all shareholders of the company are also directors, and the company’s Public Interest Score is below 100, the company is not required to have an independent review.
This exemption does not apply if:
- The company voluntarily opts for an audit
- The Memorandum of Incorporation requires an audit or review
- The company is a public company or state-owned company
For owner-managed companies in this category, a compilation of financial statements is sufficient.
Why this matters for your business
The distinction between an audit and an independent review has practical consequences beyond compliance:
Cost. An audit is generally more expensive than an independent review because of the broader scope of procedures. For companies in the 100 to 349 PIS band, getting the compilation right (independently rather than internally) can mean the difference between an audit and a review.
Assurance level. Banks, investors, and potential buyers often prefer audited financial statements because of the higher level of assurance. An independent review provides a professional opinion, but it is limited assurance rather than reasonable assurance.
Time. An audit typically takes longer to complete than a review because of the additional procedures required. If your year-end is approaching, understanding your obligations early helps with planning.
Filing requirements. Companies with a PIS of 350 or more must submit financial statements in XBRL format to CIPC. Companies with a PIS of 500 or more must also establish a Social and Ethics Committee.
How to calculate your Public Interest Score
The Public Interest Score is calculated by adding four components:
- Employees: One point per employee on average during the financial year
- Third-party liabilities: One point per R1,000 (or equivalent) of third-party liabilities at year-end
- Total assets: One point per R1,000 (or equivalent) of total assets at year-end
- Average turnover: One point per R1,000 (or equivalent) of average annual turnover for the past three years
If your score is 350 or more, you must have an audit. If your score is between 100 and 349, whether you need an audit or review depends on who prepared your financial statements and whether your company is owner-managed. If your score is below 100, your obligations depend on ownership structure and compilation method.
The score should be calculated by your auditor, independent reviewer, or the accountant who compiles your financial statements. It is not a calculation you should attempt without professional guidance, because the definitions of assets, liabilities, and turnover for this purpose follow specific regulatory conventions.
The bottom line
The Companies Act gives every South African company a clear framework: your Public Interest Score determines your assurance requirements. An audit provides the highest level of assurance but costs more and takes longer. An independent review provides limited assurance at a lower cost. A compilation is sufficient for the smallest, owner-managed companies.
Knowing your score and understanding which tier applies to your company helps you plan your financial reporting, manage costs, and meet your filing obligations with CIPC. If you are unsure about your score or your obligations, a conversation with your auditor or accountant can resolve the question quickly.
SC Audit is an IRBA-registered audit firm based in Bellville, Cape Town. SC Audit’s partners Niel Schoeman, Simone Coetzee, and Hennie Meyer support businesses across South Africa with statutory audits, independent reviews, compilations, and assurance services. Contact SC Audit to discuss which assurance level applies to your company.
Frequently Asked Questions
What is the difference between an audit and an independent review?
An audit provides reasonable assurance through in-depth testing of transactions, balances, and internal controls. An independent review provides limited assurance through primarily inquiry and analytical procedures. An audit is more extensive, takes longer, and costs more. Both are professional engagements conducted under recognised standards, but they have different objectives and produce different levels of assurance.
How do I calculate my company’s Public Interest Score?
The Public Interest Score is calculated by adding points for employees (one per employee), third-party liabilities (one per R1,000), total assets (one per R1,000), and average annual turnover for the past three years (one per R1,000). Your auditor or accountant should perform this calculation, as the regulatory definitions of each component follow specific conventions.
Can my company choose an audit even if it is not required?
Yes. A company may voluntarily elect to have its financial statements audited, even if the Public Interest Score would only require an independent review or compilation. Some companies choose this because banks, investors, or customers prefer audited statements, or because the Memorandum of Incorporation requires it.
What if my financial statements are compiled internally?
If your company compiles its financial statements internally (by your own staff) and your Public Interest Score is 100 or more, an audit is required regardless of ownership structure. Having an external accountant or firm compile your statements independently can reduce the assurance requirement to an independent review for companies in the 100 to 349 PIS band.
Who can perform an independent review on my company’s financial statements?
For companies with a PIS of 100 or more, the review must be performed by a registered auditor or a member of an accredited professional body such as SAICA or ACCA. For companies with a PIS below 100, the review may also be performed by a person qualified to be an accounting officer under the Close Corporations Act. The reviewer must not have been involved in preparing the financial statements.