Reporting and Auditing Requirements under the new Companies Act.

Friday, October 5th, 2012

The new Companies Act 2008 provides clear guidelines for companies and close corporations with regard to the preparation and review of annual financial statements.  In many cases, notably those of small to medium sized entities, the requirements have changed quite significantly.

Under the old Act, all companies were required to have an independent annual audit and their annual financial statements had to comply with generally accepted accounting practice. (as did Close Corporations.)

From the 11th May 2011, certain categories of company no longer need an independent audit, and in some cases, are not even required to have financial statements that comply with any ‘official’ reporting standards.

We raise this because these annual requirements do cost clients’ money, and in certain cases, this can be reduced or even avoided altogether.

Companies and close corporations which are regarded as “owner-managed” in terms of section 30(2) of the Act do not need an independent review of their financial statements.  However, certain of these entities, determined by their “public interest score” (by their size, to all intents and purposes), do still require financial statements to be prepared according to international financial reporting standards (IFRS), or IFRS for Small and Medium Enterprises (IFRS for SMEs).

In fact, only those companies and close corporations with a “public interest score” of less than 100, and which are owner-managed – and which have their annual financial statements prepared internally – only have to use a “financial reporting standard as determined by the company”.

In short, what this means is: financially competent owner-managers of companies with a public interest score of less than 100 can prepare their own annual financial statements, according to their own standards, and they don’t need an independent review.

However, having spread this bit of good news, we do need to sound a few words of warning:

  • Where IFRS or IFRS for SMEs is required to be used, we recommend that clients use the professional services of registered independent accountants.  These professionals keep up-to-date on the latest requirements and will ensure that the company complies with the Act in this regard.
  • Where no generally accepted standard is used, and especially where there is no independent review, clients may find that lending institutions will not place as high a regard on the ‘fair presentation’ of financial information, as they would if they had been independently prepared and/or reviewed.

If you would like to discuss this further, please feel free to contact us by phone or email.