A look at CC Auditing and the New Public Interest Score.
If you haven’t heard already, there are no more close corporations or CC’s. If you were planning to open a cc for your small business then unfortunately this option will no longer be available to you. You will instead have to look at opening a Pty Ltd. While you will have to apply with the requirements of the new act in registering a Memorandum of Incorporation, if the business is small you may be exempted from auditing your business. This is subject to various conditions and the calculation of points using the Public Interest Score.
If you are an owner or a member in an already registered close corporation, don’t panic! If the close corporation was registered before 1 May 2011, it may continue to operate as a cc for an indefinite timeframe. The members are free to convert to a company when they feel it is in their business’s best interest.
Towards the end of April 2011, the dti (Department of Trade and Industry) published the final Regulations on the Companies Act. There were a number of new arrangements that apply to close corporations regarding, amongst others, a cc’s auditing requirements.
With the changes that were brought about in the new Companies Act, you may now have to audit your close corporation if:
- Your business’s public interest score for the financial year is:
- 350 or higher
- At least 100 ( If it’s annual financial statements for the year were prepared “in-house” or by staff of the CC.)
- Your business, in the course of its primary activities, holds assets in a trustee capacity for persons, not related to the CC, and the average value of such assets held at any time during the financial year exceeds R5 million.
There is, however, an exemption from Auditing detailed in the Amendment Act. If every person who is a holder of, or has a beneficial interest in, any securities issued by that company and is also a director, then the company is exempt from having its annual financial statements audited. This is of course on condition that the CC is not in a class of companies that is required by law to have its annual financial statements audited, or requires auditing in terms of another law, or finally has entered into an agreement whereby its annual financial statements will be audited.
Public Interest Score (PIS)
It is now compulsory for every close corporation to calculate it’s Public Interest Score. This must be calculated at the end of each financial year.
The Public Interest Score is calculated as the sum of:
- A number of points that equal the average number of employees of the CC during the financial year.
- One point for every R 1 million (or portion thereof) in third-party liabilities of the CC at the financial year end.
- One point for every R 1 million (or portion thereof) in turnover of the CC during the financial year
- One point for every individual who, at the end of the financial year, is known by the CC to directly or indirectly have a beneficial interest in the CC.
After calculating the PIS score, it is used to determine whether or not the CC will be audited and which financial reporting standards will apply to the CC.
If your CC has a year end on or after 1 May 2011, calculate your PIS score using the criteria above and then consult the table below to find out whether you do require an audit and what financial reporting standard applies to you.
|Public Interest Score||Financial Reporting Standard||Audit|
|PIS ≥ 350||IFRS / IFRS for SMEs||YES|
|PIS ≥100 and < 350 and AFS were internally compiled||IFRS / IFRS for SMEs / SA GAAP||YES|
|PIS ≥ 100 and < 350 and AFS independently compiled||IFRS / IFRS for SMEs / SA GAAP||NO|
|PIS < 100 and AFS independently compiled||IFRS / IFRS for SMEs / SA GAAP||NO|
|PIS < 100 and AFS internally compiled||The Financial Reporting Standard as determined by the company for as long as no Financial Reporting Standard is prescribed||NO|
We hope that this article has shed some light on the Auditing requirements for existing CC’s as well as provided insight on the new Public Interest Score. If you have any questions about your CC or how this new system affects your business, please contact Brett on 021 421 4444.