In response to numerous questions regarding Independent Reviews (IR), the reasons they are required and the criteria involved, we have compiled some valuable information for you.
What is an IR?
An Independent Review (I) provides limited assurance that the annual financial statements of a private company registered in South Africa are fairly presented. In contrast, an audit provides reasonable assurance. The review must be conducted by a registered auditor or member in good standing with a professional body accredited in terms of the Auditing Profession Act, 2005 who is not involved in the compilation of the same annual financial statements.
An IR is essential for several key reasons. Primarily, it ensures compliance and helps prevent fraud. Additionally, it enhances credibility, accuracy and reliability of the annual financial statements.
How do I know if I need an IR?
There are a few considerations:
- Management structure – If a company is owner-managed, meaning every shareholder is a director, then it
may not necessarily require an IR. - Public Interest Score (PIS) – This score determines the level of assurance required and is calculated based
on the number of employees, turnover, third-party liabilities and the number of shareholders.- PIS below 100 – No I is necessary if the company is owner-managed
- PIS between 100-349 – An I is required even if the company is owner-managed
- PIS above 350 – An audit is required regardless of whether the company is owner-managed or not.
- Preparation of annual financial statements – Where annual financial statements are prepared internally
then an I may be required depending on the PIS score.
What is involved in an independent review?
A practitioner evaluates a company’s annual financial statements in accordance with the International Standard on Review Engagements (IRE) 2400, to provide an objective assessment including:
- Understanding the entity,
- Communication with management around internal processes and controls,
- Performing analytical procedures involving comparing financial data over time,
- Verifying and examining the annual financial statements to ensure they are prepared in accordance with the applicable financial reporting framework (IFRS, IFS for SME’s),
- Gathering sufficient evidence to support the conclusions drawn from the review,
- Maintaining detailed working papers that document the procedures performed and evidence obtained, and
- Forming a conclusion based on the evidence collected on whether the annual financial statements are free from material misstatement.
What do I do with my IR?
- Review the report to understand findings, conclusions and any recommendations made by the reviewer.
- Implement any recommendations made and use the insights gained to prepare for future reviews.
- File the report with the Companies and Intellectual Property Commission (CIPC) along with your annual
return. Non-compliance can result in penalties and may affect your company’s compliance status with the
CIPC.
What are the consequences of not doing an IR?
- Regulatory penalties: The CIPC may impose fines and penalties for non-compliance with the Companies Act, 2008. As practitioners, Omne is obliged to report non-compliance matters to the CIPC.
- Legal consequences: Non-compliance may result in legal action against the company and its directors.
- Reputational risks: Failing to comply with statutory requirements may cause stakeholders, customers and partners to lose trust in your business.
- Deregistration: In severe cases, CIPC may deregister the company, effectively ceasing its legal existence and operations.
