Independent Review or Audit
Huge Changes & Benefits for SA businesses
Article by listed accountant: Peter Masegare
On the 1st April,2011 the new Companies Act 2008 (“Act”) will replace both the Companies Act 1973 and Corporate Laws Amendment Act 2006.The new Act introduces the concept of an “Independent Review” as an alternative form of Auditing the financial statements. Private companies in South Africa will be able to replace the annual audit with an Independent Review. The act will do away with the formation of new CCs,although established CCs will continue to exist.In this way the act will align the reporting requirements of companies and close corporations,creating consistency and clarity.
The Act brings in some options for companies to choose from,to have a financial review or audit of their financial statements,which might save millions of rand.Small businesses will be able to opt for a less onerous and costly way of having their financial statements independently reviewed rather than the traditional route of audit under the new Companies Act. Under the new Companies Act,only public companies are obliged to be audited.The objective of the new legislation is to simplify the regulation of small to medium-size enterprises and make it less costly,and more affordable to do business in South Africa,”says Peter Masegare.
About 90% of all companies that were previously required to obtain an audit report will now be exempt,and the remaining 10% will be subject to either an independent review report or audit.However,all companies will be required to prepare annual financial statements,but regulations will determine the financial reporting standard to be followed.
Users of Financial Statements
Various users of the financial statements,will still require the annual financial statements,for making economic decisions and etc,eg,your South African Revenue Service,Banks,Creditors,Financiers and investors.The company,its self will require financial information for making strategic and operational planning.
Difference between Independent Review & Audit
Must be a registered members of a professional accounting body,and professional accounting body,should also be a member of the International Federation of Accountants,(IFAC).
International financial reporting standards(IFRS)
The Act also demanded greater accountability from those who prepare financial statements,demonstrating the importance placed on improving transparency in business.A person who will be engaged to prepare financial statements for a company would be required to do so in accordance with international financial reporting standards(IFRS),and independent review in accordance with ISRS4400 (International Standard on Related Services),to be laid down by a new Financial Reporting Standards Council in terms of the new Act.Section 29.1(e)ii of the Act required that the financial statements included a notice on the first page indicating the name and professional designation of the individual who prepared or supervised the preparation of the Annual Financial Statements.
The independent review is a report issued on the financial statements of smaller businesses by independent professional accountants.It is an alternative document to the traditional audit route issued by an auditor.
An audit involves assurance on various aspects of the companies transactions,eg,tests of control,substantive procedures and etc,and it does not come cheap.On the other hand,an independent review involves an inquiry and analytical procedures.
Quality of the Independent Review
The quality of the independent review is ensured by standardising the competence levels of independent accounting professionals.In terms of the draft regulations all those that issue the alternative assurance report should be affiliated with the International Federation of Accountants (IFAC) and will have to follow the same standardised and internationally aligned procedures when issuing reports.
It is therefore very crucial that consumers are made aware of the standards of performance that they should expect from report providers such as auditors,accounting officers and the recently introduced "independent accounting professionals".
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