This article is compiled with the assistance of Lettie Janse van Vuuren of the SA Accounting Academy.
The Companies Act of 2008 introduced the concept of a company’s Public Interest Score (PIS).
This is an important new development, as it will be crucial in determining the financial reporting standards that the company must adopt (these provisions apply equally to close corporations).
A Public Interest Score (PIS) applies to every company and close corporation, and has to be calculated at the end of each financial year in terms of Company Regulation 26.
This calculation is usually performed by the:
- Independent reviewer
- Compiler of the financial statements.
Why the score is important
The PIS determines whether the company requires an independent audit, or have its financial statements independently reviewed (which is a lesser standard than the audit).
- A company with a public interest score of 350 or more points in a financial year, must have its annual financial statements for that financial year audited.
- A company with a public interest score of between 100 and 349 points (both inclusive), must have its annual financial statements audited only if they were internally compiled.
A company with a PIS of more than 500 points in any two of the previous five years must appoint a social and ethics committee. Every state-owned company and listed public company is obliged to appoint a social and ethics committee.
How to score your company
1 point for every employee (equal to the average number of employees during the financial year)
1 point for every R1 million of third party liability at the end of the financial year (third party liability means debts outstanding, creditors, instalkment sales, etc. owing to outside parties)
1 point for every R1 million of turnover (or portion thereof) during the financial year
1 point for every individual with a beneficial interest in the company’s securities (if a for-profit company) and in the case of a non-profit company, 1 point for every member of the company (or who is a member of an association that is a member of the company).
You can see how quickly a company’s score can push above the 100 PIS mark.
What is the PIS used for?
The PIS score will determine whether the company needs an independent audit or not, and, as discussed above, whether it needs to appoint a social and ethics committee.
The PIS is used to determine:
- whether a company needs an audit or independent review, and
- which financial reporting standards apply, as well as
- whether the company (other than state-owned and listed) is required to appoint a social and ethics committee.
A PIS will also confirm whether an Independent Review engagement for a company/CC must be performed by a registered auditor, or a person qualified to act as an accounting officer.
The independent review engagement for a company/CC with a PIS greater than 100 MUST be performed by ONLY a registered auditor (and no-one else!)
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