Audit, Independent Review, and Compilation Requirements Under the South African Companies Act
26 February 2025
The Companies Act of South Africa, 2008 (Act No. 71 of 2008), along with its Regulations (2011), establishes specific thresholds and criteria that determine whether a company needs to have its financial statements audited, undergo an independent review, or if a simple compilation is sufficient. These requirements are primarily dictated by a company's Public Interest Score (PIS), the nature of its financial statement preparation, and any specific provisions in its Memorandum of Incorporation (MOI).
This article will break down the requirements in detail, ensuring clarity on when an audit is mandatory, when an independent review is required, and when a compilation suffices.
1. When Is an Audit Required?
An audit provides the highest level of financial assurance, requiring extensive verification of a company’s financial records by an independent registered auditor. The audit process ensures compliance with International Standards on Auditing (ISA) and aims to provide reasonable assurance that the financial statements are free from material misstatements.
1.1 Mandatory Audit for Certain Company Types
The following types of companies are legally required to be audited, regardless of their PIS:
Public Companies (Ltd): These are companies whose shares are publicly traded or made available to the public.
State-Owned Companies (SOC Ltd): These are government-owned companies or companies listed as public entities in Schedules 2 or 3 of the Public Finance Management Act, 1999.
Certain Non-Profit Companies (NPCs): If an NPC was:
Incorporated by the state, an organ of state, or a foreign government; or
Established primarily to perform a regulatory or statutory function, it must be audited.
1.2 Audit Based on Public Interest Score (PIS)
The Public Interest Score (PIS) is a key factor in determining whether a private company requires an audit. The PIS is calculated as follows:
1 point per employee (average during the financial year).
1 point per R1 million in turnover (or part thereof).
1 point per R1 million in third-party liabilities (or part thereof).
1 point per shareholder or member.
A private or non-profit company must be audited if:
PIS is 350 or more (regardless of who prepares the financial statements).
PIS is 100 or more but less than 350, and the financial statements were internally compiled (prepared without an independent professional accountant).
1.3 Audit Required by the Memorandum of Incorporation (MOI)
If a company’s MOI explicitly requires an audit, then the company must conduct an audit, even if the Companies Act does not mandate one.
Some companies choose to include an audit requirement in their MOI to enhance governance and stakeholder confidence.
1.4 Voluntary Audit
Even if a company is not legally required to be audited, it may choose to conduct one. This can be done through:
A shareholder resolution, where shareholders agree that an audit should be conducted.
A board decision, where the directors of the company opt for an audit as a good governance practice.
2. When Is an Independent Review Required?
An independent review is less rigorous than an audit, but it still involves an external professional assessing a company's financial statements for plausibility rather than full verification.
2.1 Independent Review Based on Public Interest Score (PIS)
A company must undergo an independent review if:
Its PIS is 100 or more but less than 350 and its financial statements are independently compiled and the company is non owner managed.
Its PIS is below 100, unless it qualifies for an exemption.
2.2 Exemptions from Independent Review
A company is exempt from an independent review if:
It is an owner-managed company, meaning all shareholders are also directors.
It voluntarily opted for an audit, making a review unnecessary.
The company falls under a category requiring statutory audits (e.g., public companies and SOCs).
2.3 Who Can Perform an Independent Review?
If the company’s PIS is 100 or more, the independent review must be performed by:
A registered auditor; or
A member of a professional accounting body forming part of The IRBA (SAICA and ACCA)
If the company’s PIS is less than 100, the independent review can be performed by:
A qualified accounting officer under the Close Corporations Act, such as CIBA Business Accountants in practice who hold the Independent Review License
The review must follow the International Standard on Review Engagements (ISRE 2400).
3. When Is a Compilation of Financial Statements Sufficient?
If a company does not meet the thresholds for an audit or independent review, then a compilation of financial statements is sufficient. This means the financial statements are prepared without external verification, and no assurance is provided.
3.1 What Are Compiled Financial Statements?
Internally Compiled: The financial statements are prepared by the company’s internal accountant, finance team, or directors.
Independently Compiled: The financial statements are prepared by an external accounting professional who is not involved in the day-to-day financial operations of the company.
3.2 Impact of Compilation on Review/Audit Requirements
If a company’s financial statements are independently compiled, it may be required to undergo an independent review.
If financial statements are internally compiled, and the PIS is 100 or more, the company may require an audit instead of a review.
4. Summary Table
Key Takeaways
Audits are required for public companies, SOCs, large private companies (PIS ≥ 350), and companies where the MOI mandates it.
Independent Reviews apply to mid-sized companies (PIS 100-349) whose financials are independently compiled.
Compilations are sufficient for small, owner-managed companies (PIS < 100) that do not require external assurance.
By understanding these requirements, companies can ensure compliance with the Companies Act and align their financial reporting with the appropriate level of oversight.
Access the CIBA IFRS for SME Annual Financial Statements CPD here.
📢 IFRS for SMEs & Annual Financial Statements 📢
Are you confident in preparing annual financial statements under IFRS for SMEs? Do you understand the legal requirements set by the Companies Act of South Africa?
Access our CPD webinar Recording and gain the skills to independently draft a full set of financial statements that meet compliance and regulatory standards.
🔎 What you’ll gain:
✅ A solid understanding of IFRS for SMEs – what it is and how it differs from full IFRS
✅ Key Companies Act requirements for financial statements
✅ Step-by-step guidance on preparing financial statements (Balance Sheet, Income Statement, Cash Flow Statement & more)
✅ Hands-on insights into recognition, measurement, and disclosure rules
✅ Practical solutions to common financial reporting challenges
📅 Date: Available
⏳ Duration: 1.5 hours
🎓 CPD Units: 2 (Accounting)
📍 Format: Recorded Event
Don’t miss this opportunity to sharpen your financial reporting expertise and ensure your statements are accurate, clear, and fully compliant.
🔗 Access the CPD here
Choose Your Path to Exclusive Insights
Stay ahead in the world of accounting with premium content designed for professionals like you. Access expert articles, industry trends, and essential resources. Become a CIBA member and claim your CPD hours from CIBA.