Types of companies
The Companies Act (the Act) provides for a new classification of companies as either Profit Companies or Non-Profit Companies. With regard to profit companies, the Act distinguishes between four different types of companies, namely:
- Private companies (Pty)Ltd: A company that is not a state owned company, and its Memorandum of Incorporation prohibits it from offering any of its securities to the public, and restricts the transferability of its securities.
- Personal liability companies Inc.: The company and the directors are jointly and severally liable for any debts and liabilities of the company.
- State owned companies SOC Ltd.: An enterprise, registered as a company, which is listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, or is owned by a municipality.
- Public companies Ltd.) A company that is not a state owned company, private company or personal liability company.
Public interest score
Companies Regulations, 2010 require that every company calculate its ‘public interest score’ for each financial year. In terms of this requirement every company must calculate its ‘public interest score’ for each financial year, calculated as the sum of the following:
- a number of points equal to the average of employees of the company during the financial year (“employee”, has the meaning set out in the Labour Relations Act, 1995);
- one point for every R 1 million (or portion thereof) in third party liability of the company, at the financial year end;
- one point for every R1 million (or portion thereof) in turnover during the financial year; and
- one point for every individual who, at the end of the financial year, is known by the company:
- in the case of a profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or
- in the case of a non-profit company, to be a member of the company, or a member of an association that is a member of the company.
The company’s public interest score will be used to determine whether or not certain companies will require audited financial statements, which financial reporting standards should apply, and who may conduct an independent review for those companies that are not subject to the audit requirement.
Companies that require IFRS
- State owned companies
- Public companies listed on an exchange
- Non-profit companies that are required in terms of Regulation 28 (2)(b) to have their annual financial statements audited.
Companies that require IFRS for SME*
- Public companies not listed on an exchange
- Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is at least 350.
- Profit companies, other than state-owned or public companies ––
- whose public interest score for the particular financial year is at least 100 but less than 350; or
- whose public interest score for the particular financial year is less than 100, and whose statements are independently compiled.
- Non-profit companies, other than those contemplated in the first row above, whose public interest score for the particular financial year is at least 350.
- Non-profit companies, other than those contemplated in the first row above––
- whose public interest score for the particular financial year is at least 100, but less than 350; or
- whose public interest score for the particular financial year is at less than 100, and whose financial statements are independently compiled.
*As long as they meet the scoping requirements of IFRS for SME, if not then IFRS.
Companies that require modified cash basis
Profit companies, other than state-owned or public companies, whose public interest score for the particular financial year is less than 100, and whose statements are internally compiled.
Non-profit companies, other than those contemplated in the first row above, whose public interest score for the particular financial year is less than 100, and whose financial statements are internally compiled.
Internally or Independently compiled
Financial statements will be internally compiled, unless it was “independently compiled and reported”. In terms of the Regulations “independently compiled and reported” means that the annual financial statements are prepared
- by an independent accounting professional,
- on the basis of financial records provided by the company, and
- in accordance with any relevant financial reporting standards.
The opportunities for business accountants
- Business accountants that specialise in IFRS or IFRS for SME are able to advise companies of all sizes as to the best application of the standards within their business context. The standards allow for professional judgment, by directors of companies, on how to apply the standard. This can have a significant effect on the company’s bottom line and balance sheet.
- If you are an IFRS specialists other accountants are likely to outsource compilation of financial statements to your firm, meaning you can earn extra as a specialist.
- IFRS specialist can assist legal practitioners as expert witnesses or as case advisers on how to interpret financial statements.
- Understanding IFRS and IFRS for SME means that you will be able to complete a set of financial statements much faster using a drafting tool such as Draftworx, saving your time and costs.
What CIBA needs to do
CIBA is a legislative controlling body for accountants, accounting officers and independent reviewers. As a controlling body we are required to ensure our members compile financial statements in line with relevant standards and laws. We perform this function by requiring members to stay up to date with the latest developments in financial reporting standards. We offer CPD and training courses to help guide members with their everyday challenge in the workplace.
What you need to do
The firm should study the financial reporting requirements in the Companies Act, IFRS and IFRS for SME, modified cash, and ensure that all compilation engagements are performed in terms of this standards and practices. The firm should study any relevant laws, regulations, founding documents or contract terms to determine the qualifications of the persons required to perform the engagement, prior to performing the engagement. Members are required to register with www.saiba.academy and read www.accountingweekly.com to stay updated and do a specialist license to unlock additional advisory work.
In summary you can:
- Do a google search to identify the types of companies that are likely to need this particular service.
- Write an email or letter to them and explain how you can help them.
- Do the CIBA CPD and relevant license related to the particular service.
- Perform the service for your new client.
- Alternatively contact a CIBA Strategic Alliance partner.
Additional resources
CIBA has provided a number of guides, videos and PowerPoint slides that will assist accountants with understanding their responsibilities in terms the various types of engagements: