Audit or independent review: which does your company need?
At a glance
The rule: The Companies Act sets out who must be audited and who may be reviewed instead
Public interest: Public companies and certain others must be audited
Owner-managed: Many private companies qualify for an independent review, or no engagement at all
Where it is set: The Act, plus your Memorandum of Incorporation and any agreement
Getting it wrong: Non-compliant financials can block tenders, finance and sales
What it is
Every company has to have its financial statements dealt with in one of a few ways: an audit, an independent review, or — for some small companies — nothing formal at all. Which applies depends on the company's type and public-interest score, and sometimes on what the shareholders or a funder have agreed.
The important point: the choice is not free. An audit is more expensive than a review, but some contracts and financiers insist on an audit regardless of what the Act requires.
Who this affects
Owner-managed companies
Small private companies often do not need a full audit. An independent review, or a compilation, may be all that is required — leaving budget for growth.
Companies seeking finance or tenders
Banks, investors and tender panels may demand audited financials even where the law would allow a review. Check the requirement before you commit to a cheap option.
Questions to ask first
What is my company's public-interest score under the Companies Act?
Does my Memorandum of Incorporation require an audit?
Do my shareholders, bank or tender documents require audited statements?
Would a review or compilation satisfy everyone who needs the financials?
Who is a registered auditor, and who may perform a review?
How to decide and prepare
1. Check your public-interest score, and what your Memorandum of Incorporation says.
2. Identify what your bank, shareholders or tender documents require.
3. Decide between an audit and an independent review (or a compilation).
4. Appoint a registered auditor or an eligible reviewer in good time.
5. Have the financials ready before the deadline they are needed for.
Common mistakes
Choosing a review to save money, only to find a tender demands an audit.
Ignoring an audit requirement buried in the Memorandum of Incorporation.
Leaving the engagement too late, so the financials are not ready when needed.
Assuming "we are small" means no financial statement engagement at all.
Related
Sources
Companies Act, 2008 (financial statement and audit provisions)
IRBA guidance on audit and independent review engagements
Not sure which engagement you need?
We can check your public-interest score and what your funders or tenders actually require.
