While only public companies will need to be audited under the new Companies Act, getting rid of the statutory audit for private companies has far reaching implications.
“How will companies that no longer require audits prove credible with stakeholders, particularly with potential investors and buyers?” says Neil Miller, joint Managing Partner at Grant Thornton Cape.
The new Companies Act, initially scheduled for implementation on 1 October, will now be introduced on 1 April 2011. Under the current laws, all companies whether public or private, are required to be audited. The new Act allows for private entities to choose – they can decide to be audited or, alternatively, they may be subject to an independent review of their financial statements.
Miller adds that an audit is an essential means to detect white collar crime, a phenomenon that is a key concern for South African companies. “There are a number of parties who have a keen interest in the knowledge that financial statements undergo a formal audit by an independent external auditor. These include shareholders, the South African Revenue Service, banks, creditors, financiers and investors,” says Miller. “Would a bank be eager to lend money to a business that has not been audited?” asks Miller.
The South African Institute of Chartered Accountants (SAICA) warned decision makers who consider a review engagement to be simpler and cheaper than an audit, to think again. “An audit involves tests of controls and substantive procedures and would ultimately result in an opinion being expressed by a registered auditor. An audit results in a reasonable level of assurance,” explains Theashen Ashley Vandiar, Project Director of Auditing and Members’ Advice at SAICA.
An independent review performed in accordance with the International Standard on Review Engagements (ISRE) 2400, on the other hand, involves only enquiry and analytical procedures. “An independent review thus results in only limited assurance being expressed by a practitioner,” adds Vandiar.
As developments for the proposed new Companies Act start falling into place and the deadline nears, Miller concludes: “Our audit teams are not only focusing on providing audit opinions, we are striving to understand our clients’ current and future business needs in order to provide the right advice, in line with the changing Companies Act requirements.”
Notes to editors
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