Shareholders, lenders, creditors and private investors often need assurance that the financial statements accurately represent the true financial position of a company. Trade Unions are increasingly falling into this category of stakeholders.
The highest level of assurance that financial statements are presented fairly in all material respects, in accordance with the appropriate accounting framework, is an audit. It is a methodical and objective examination of the financial statements and the verification of specific information.
The audit considers internal controls, testing of selected transactions and communication with third parties. The results are reported as to whether the financial statements are fairly stated and free of material misstatements. The audit gives both management and external parties the assurance that the financial data are credible to use to make informed decisions.
In terms of the Companies Act 2008 (effective May 2011), private companies in South Africa are required to have an audit if they have a measure of public interest, quantified in terms of their turnover, number of employees, number of shareholders and level of third party debt. All public companies are required to have an audit. Audits can only be performed by Registered Auditors accredited by the Independent Regulatory Board for Auditors (IRBA).
An audit could:
- satisfy stakeholders such as employees, customers, suppliers and trade unions, as to the credibility of published information;
- facilitate the timeous and accurate payment of company and personal tax, VAT and other taxes thereby avoiding interest, penalties and investigations;
- assist in complying with bank covenants;
- help deter and detect material fraud and error;
- facilitate the purchase and sale of businesses;
- facilitate BBBEE transactions;
Where a companys circumstances are likely to change, for example a sale or merger is anticipated or significant growth is likely, a voluntary audit might be a good choice.
IT'S YOUR CHOICE
Each type of report on financial statements may suit specific circumstances, depending on requirements from your company's bank or other parties, as well as budgetary constraints.
Understanding each report's unique strengths and weaknesses can help you choose the most appropriate one. Please consult us if you have questions about which type of engagement is right for you.
Whether you choose an audit, review, or compilation engagement, the professionals at Meredith Harington will be responsive, knowledgeable, innovative and committed to your business or organisation.