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Accountants: add Independent Reviews to your arsenal (and make money)


This article was prepared with the technical assistance of Lettie Janse van Vuuren of SA Accounting Academy.

Independent Reviews (IRs) were introduced as an alternative to the audit for certain types of companies.

Conducting IRs is a potentially massive business opportunity for those who are licensed to do this (through SA Institute of Business Accountants), as many of the audits now being done by auditors can be comfortably handled by in Independent Reviewer.

The Companies Act of 2008 introduced the IR to make it less of a financial burden for smaller and start-up companies.

The key difference is the level of assurance: an audit provides “reasonable assurance”: the IR provides “limited assurance”.

Many companies are switching to IRs because they are quicker, cheaper and fit for purpose. A bank will often request an IR (rather than an audit) before lending money to a company. Stakeholders and key shareholders may ask for an IR to ensure their money is in safe hands. The level of assurance is lower than for an audit, but is often sufficient for the needs of those requesting it.

The key determinant of whether a company is required to perform an audit or an IR is its Public Interest Score (PIS), now required by the Companies and Intellectual Property Commission (CIPC). If your company scores above 350, an audit is required. Below that, an IR will suffice.

Here’s how the PIS is calculated:

  • 1 point for every employee
  • 1 point for every million Rand owed to a third party
  • 1 point for every million Rand turnover in one financial year
  • 1 point for every shareholder or beneficiary

Example: This is an over-simplification, but if you employ 50 people (that’s 50 points), have creditors of R12 million (12 points), turned over R50 million in the last financial year (50 points) and have three shareholders (3 points), your total PIS score is 115. You do not need to perform an audit. You can choose to do an IR instead.

Key differences between IR and audit

Audit: this is a more thorough process, usually commencing with interviews with the CEO and senior executives. The auditor must corroborate the ending balances of client accounts and disclosures. To do this, the auditor must cross-check against source documents, tests of internal controls, third party investigations and other processes outlined in the International Standards on Auditing (ISA). The audit is based on a more thorough sample of transactions than an IR, but is by no means comprehensive.

Independent Review: Like the audit, this begins with an examination of the account balances provided by management, but with a far more limited sampling and cross-checking of data. The amount of time invested in an IR is lower than for an audit, and it is usually much cheaper.

International Standard on Review Engagements (ISRE) SRE 2400 explains that the objective of a review of financial statements is to enable a practitioner to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework (negative assurance).

Saiba members who are licensed to conduct IRs (after a relatively short, intense course) can add this to the range of services they provide to clients. This includes schools (of which there are tens of thousands in SA), farms, churches and smaller to middle sized companies.

Tendai Chinyande CA(SA) will be covering this subject in a special webinar on 11 April, where she will explain the difference between the audit and IR, how to calculate the PIS, and how to establish a system of quality control for reviews, prepare working papers to accept, perform and complete the engagement, and be able to compile the review report.

Click here to register for the event.

Or for more information you can phone SAAA on 010 593 0466.