The South African Institute of Chartered
Accountants (SAICA) has called for a new audit points system in the
Companies Act to be examined due to fear that it could place some
companies and the public at risk.

SAICA said while the regulations are “a step
in the right direction”, the audit points system, which determines
whether companies should be exempt from a compulsory audit,
requires further examination and thought.

The audit points system works by calculating
the number of points each company scores. Companies with more than
750 points are deemed to be in the public interest, and so require
a mandatory audit.

There are three factors influencing the score
including turnover, number of employees and shareholders, and the
extent to which a company is indebted. A company’s success or
failure could have a real impact on the public so SAICA thinks the
system could carry more risk.

SAICA project director for assurance and
members’ advice Ashley Vandiar said despite the points system being
a simpler method for defining public interest, the institute “is
concerned the actual scores might be set at inappropriate

“The consequence of the current scores is that
many companies that should in fact be subject to reasonable
assurance, because of ‘public interest’ considerations, are scoped
out of the audit requirement,” Vandiar said.

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Vandiar said an audit is not an “expense” but
is “an important tool that is designed to yield a reasonable level
of assurance”, helping decision makers and company directors to
meet the needs of their stakeholders.

Vandiar warns against non-public companies
that will be exempt from the mandatory audit choosing an
independent review engagement for wrong reasons.

The point system also determines who can
perform independent reviews. Companies that score above 300 points
must appoint either an auditor or a chartered accountant to perform
an independent review of the financial statements. Those scoring
less than 300 points can use any practitioner who qualifies to act
as an accounting officer.

According to Vandiar, the consequence of this
is the perception that the same standard will provide varying
degrees of assurance depending on the qualification of the

SAICA is also against the exemption of owner
managed companies from having any form of assurance saying
companies should be subject to some form of statutory

The institute is currently working with the
South African Department of Trade and Industry to address its
concerns and will recommend the Act itself be amended to require
owner-managed companies to be subject to the same rules as all
other companies.