Rishen Narsing, CA(SA)
The independent review vs audit question is not a matter of preference. For a South African company it is answered by the Companies Act and its Regulations, driven mainly by your public interest score and by who compiled the annual financial statements. Get the answer wrong in the cheap direction and you have a compliance failure; get it wrong in the expensive direction and you have paid for assurance nobody required.
Here is how the requirement is determined, who is allowed to sign each report, and what each engagement actually costs you in management time rather than in fees alone.
What the Companies Act actually requires
The Act sets a default: public companies and state-owned companies are audited. Below that, the Regulations set out when a private company, a personal liability company or a non-profit company must be audited, when it must instead be independently reviewed, and when neither applies. Three variables drive the outcome: the public interest score, whether the statements were compiled internally or independently, and whether the Memorandum of Incorporation or another agreement imposes something stricter.
| Position | Usual requirement | The detail that decides it |
|---|---|---|
| Public or state-owned company | Audit | Status, not score |
| High public interest score | Audit | The score band set in the Regulations |
| Middle band, statements compiled internally | Audit is typically triggered | Who prepared the statements is decisive here |
| Middle band, statements independently compiled | Independent review | The compiler must genuinely be independent |
| Lower band | Independent review | Subject to the owner-managed exemption below |
| Every shareholder is also a director | Often neither | The exemption has conditions and exclusions |
| MOI or a loan covenant requires more | Whatever that document says | Contract can be stricter than the Act, never weaker |
How the public interest score is calculated
The score is a points calculation performed for each financial year. Points accrue for the average number of employees during the year, for third party liabilities at year-end, for turnover for the year, and for the number of individuals who directly or indirectly hold a beneficial interest in the company's issued securities. Liabilities and turnover are scored per million rand, which is why a growing business can cross a band without anyone noticing.
- Average employees, not headcount at year-end, so seasonal staff matter.
- Third party liabilities at year-end, which includes shareholder loans that are not equity.
- Turnover for the year, which moves the score fastest in a growth phase.
- Individual beneficial interest holders, counted by person and not by shareholding.
The practical differences between the two engagements
| Independent review | Audit | |
|---|---|---|
| Assurance given | Limited, expressed negatively | Reasonable, expressed as a positive opinion |
| Main procedures | Enquiry and analytical review | Enquiry, analytics, controls work, substantive testing, third party confirmations |
| Stock counts and attendance | Not normally attended | Attended where inventory is material |
| Confirmations | Rarely sought | Banks, attorneys, debtors, creditors and loan counterparties |
| Management time | Days | Weeks, spread over planning, fieldwork and completion |
| Report | Review conclusion | Audit opinion, plus a management letter |
| Typical fee | Materially lower | Higher, and driven by time spent |
Who may perform each engagement
An audit may only be performed by a registered auditor. An independent review may be performed by a wider group, but the permitted group narrows as the public interest score rises: at higher scores the review must be done by a registered auditor, and at lower scores it may be done by a member of a professional body accredited for the purpose, which includes SAICA members in practice.
Independence is the constraint that trips people up. Whoever maintained your accounting records or compiled the annual financial statements cannot also review them. That is exactly why we prepare annual financial statements and then hand the file over rather than assuring our own work.
4
Inputs to the public interest score
2
Assurance levels the Act recognises
6 mths
Deadline to prepare AFS after year-end
Annual
How often the score must be recalculated
The exemption most owner-managed companies miss
Where every person who holds a beneficial interest in the company's securities is also a director, the Act exempts the company from both audit and independent review, unless the company is otherwise required to be audited by the Regulations, by its MOI or by another law. In a genuine owner-managed business with no outside shareholders, that exemption often applies and is quietly missed for years.
It does not remove the obligation to prepare statements, and it does not remove the CIPC annual return or the tax filings. It removes only the assurance layer. If you also run a group, note that consolidation obligations sit separately from the assurance question, as we set out in our guide to group consolidations.
What each one costs you in time
Fees follow hours, and hours follow how much of the work you have already done. A reviewer who receives a clean trial balance with schedules behind every material balance asks a short list of questions. A reviewer who receives a bank export and a promise spends the budget rebuilding your ledger, and an auditor in the same position spends several times more.
The preparation is the same either way, and it is worth doing at the higher standard regardless. Work through the audit readiness checklist, tighten the month end close so year-end is a repeat of a routine you already run, and hand over a file rather than a folder.
How Synergy helps
We calculate and document your public interest score, tell you plainly which engagement the Act requires, and prepare the file for it. Our technical accounting service handles the positions that reviewers and auditors query most: revenue recognition, leases, related party disclosure and consolidation. We do not audit, so the independence line stays clear and we can sit on your side of the table for the whole engagement.
Not sure whether you need an audit or a review?
Book a free consultation. We will calculate your public interest score and confirm which engagement the Companies Act requires this year.
Book a Compliance Review
