Voluntary audits and compulsory
audits, and the implications for Chapter 3 of the Act
Question
Section 30(2)(b)(ii)
introduces the concept of “audited voluntarily”. If a company does not fall
into a compulsory audit category, the audit is voluntary if it is requested in terms
of the company’s Memorandum of Incorporation, or by shareholders’ resolution or
by the board of directors.
A voluntary audit, as apposed to a compulsory audit which is required in terms of the Act or the
Regulations to the Act.
A public company (listed
and non-listed) and a stated owned company must apply all parts of Chapter 3 of
the Act [Sec 34(1), 84(1)(a), 84(1)(b)]. In essence, this means, the company
must appoint (and comply with all the relevant requirements relating thereto) a
company secretary, an auditor and an audit committee.
The requirements for a
private company, personal liability company or non-profit company are more
challenging to interpret: Refer to
Sections 34(2) and 84(1)(c).
My question is: Would
you agree with the interpretations under (a) to (e)?
(a) In the case of a compulsory audit, Chapter 3 applies to a private company, personal
liability company or non-profit company, provided that the company is not
required to comply with Parts B and D of Chapter 3; i.e. company secretaries
and audit committees, respectively. However, Part C, dealing with auditors, is
applicable – in total; all the sections relating to auditors.
(b) In the case of a compulsory audit and taking cognisance of (a), above, the company will
be required to comply with Parts B and D of Chapter 3 to the extent required by
the company’s Memorandum of Incorporation (MOI). However, this is only
to the extent required by the MOI. It would appear that there are no
limitations in this regard and the company’s MOI can determine specifically
(and selectively) “the extent to which” Parts B and D will apply to the
company.
(c) In the case of a voluntary audit, Chapter 3 does NOT apply to a private
company, personal liability company or non-profit company, except to the extent
required by the company’s MOI. Again, the MOI can be very specific (and
selective) in determining whether a part applies and the extent to which any
particular part applies to the company.
(d) With reference to (c), above, there is one
very important exception, namely that if an audit of the company’s financial
statements is required by its MOI, Section 90 with respect to the appointment
of an auditor (including the disqualifications as auditor) will apply to that
company.
(e) A private company which does not fall into
a compulsory audit category decides by way of its board of directors to have
its financial statements audited (i.e. a voluntary audit). Its MOI does not
include any provisions with respect to the application of Chapter 3 of the Act.
May this company continue to appoint an auditor, even though the auditor would
otherwise be disqualified under Section 90(2), since that Section is not
applicable to the company?
My opinion
(a) This interpretation is accurate. Only Parts
B and D are specifically excluded and, therefore, all other parts of Chapter 3
will apply in their totality.
(b) This interpretation is accurate. I can find
no indication that the extent to which the MOI may include or exclude any Part
or individual Section of Chapter 3 is limited. In fact, if the MOI does not
specifically include a provision, it will not be applicable.
(c) This interpretation is accurate. Refer to
(b), above for explanation.
(d) I think this is accurate, because of the
reference in Section 90 to Section 34(2).
(e) Yes. Section 90(2) is not applicable to the
company, because the MOI does not so determine. However, the engagement of the
auditor will still be measured against the ethical requirements applicable to
registered auditors, including relevant independence threats and the
consideration of safeguards to address any independence threats.
Response
received
(a) Agreed, if you need to be audited based on
the Act or regulations chapter 3, part C apply in total.
(b) Agreed, 84(1)(c)(i) excludes them from
parts B and D, but the MOI can introduce aspects with which they must comply.
They can therefore choose the sections they want to comply with.
(c) Agreed except for the part on appointment
of the auditor except as per (d)
(d) Agreed, if the MOI requires an audit
section 90 will apply for the appointment of the auditor.
(e) Yes - I agree that section 90(2) does not
apply to a voluntary audit. Therefore you would only need to consider IRBA
requirements and those in the Code of Conduct.
Source : Saica