What is the difference between internally compiled and independently compiled annual financial statements?

Independently compiled and reported financial statements are defined by Companies Regulation 26(1)(e) as being prepared –
“(i) by an independent accounting professional;
(ii) on the basis of financial records provided by the company; and
(iii) in accordance with any relevant financial reporting standards.”

Where the above definition is not met, the financial statements will be deemed to be “internally compiled”.

As per Companies Regulation 26(1)(d) an independent accounting professional is a person who –
“(i) is –
(aa) a registered auditor in terms of the Auditing Profession Act; or
(bb) a member in good standing of a professional body that has been accredited in terms of section 33 of the Auditing Profession Act; or
(cc) qualified to be appointed as an accounting officer of a close corporation in terms of section 60 (1), (2) and (4) of the Close Corporations Act, 1984 (Act No. 69 of 1984; and
(ii) does not have a personal financial interest in the company or a related or interrelated company; and
(iii) is not –
(aa) involved in the day-to-day management of the company’s business, nor has been so involved at any time during the previous three financial years; or
(bb) a prescribed officer, or full-time executive employee, of the company or another related or inter-related company, or have been such an officer or employee at any time during the previous three financial years; and
(iv) is not related to any person who falls within any of the criteria set out in clause (ii) or (iii).”

Companies should perform an assessment to determine the applicable accounting framework and the type of engagement required to be performed for purposes of its financial statements.

When can a company apply its own accounting framework and what is the impact on the type of engagement required by the Companies Act?

Internally compiled

Public Interest ScoreAppropriate accounting framework*Type of engagement
 

 

<100

No framework per the regulations.

Entity-specific accounting policies may be applied

 

Independent review (ISRE 2400)

100 – 349IFRS or IFRS for SMEAudit
350+IFRS or IFRS for SMEAudit

Independently compiled

Public Interest ScoreAppropriate accounting framework*Type of engagement
<100

(Owner managed*)

IFRS or IFRS for SMECompilation
<100

(Not owner managed)

 

IFRS or IFRS for SME

Independent review (ISRE 2400)
100 – 349

(Owner managed)

IFRS or IFRS for SMECompilation
100 – 349

(Not owner managed)

 

IFRS or IFRS for SME

Independent review (ISRE 2400)
350+IFRS or IFRS for SMEAudit

*An assessment is performed based on the requirements of IFRS for SME (section 1) to determine whether it may be applied.

* Owner-managed companies is where 100% of the shareholders are also directors of the company.