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