INDEPENDENT REVIEW ENGAGEMENTS

Unlike performing a quality review by a firm on work prepared by employees on its clients, as the name suggests, an Independent Review is an alternate assurance engagement wherein limited assurance is provided on a set of a company’s annual financial statements as opposed to that of reasonable assurance provided by an auditor as per an Audit of annual financial statements. The difference in assurance obtained from an Independent Review versus an Audit is due to the scope of work performed.

Introduction to Independent Reviews

Independent Reviews are used in place of audits for smaller companies. They are quicker than an audit and less costly than an audit.

Based on the requirements of the Companies Act an Independent Review could be compulsory for your company. An Independent Review becomes compulsory if, irrespective of the company’s public interest score (size of the company), all of the company’s shareholders are not also directors.  A company that has another company or a trust as a shareholder will require an Independent Review as neither can be appointed as a director (natural person).  In other words, an Independent Review is not compulsory for “owner managed” companies.

Close Corporations are not legally required to have an Independent Review but may do so voluntarily.

An Independent Review must be performed by a registered Independent Reviewer (an accountant with the relevant qualification for that particular company’s public interest score) and who was not involved in the preparation or compilation of the company’s annual financial statements in terms of the Companies Act 2008, promulgated in 2011, so as to ensure that no conflict of interest is present between the compiler of the financial statements and the Reviewer.

The main purpose of an Independent Review is to establish whether there are any material misstatements in the financial statements so that the company may obtain a report from the Reviewer of limited assurance that there is no material modification that should be made to the financial statements.

Benefits of an Independent Review

Even if it is not compulsory it is highly recommended that most medium-sized entities undergo an Independent Review.  Business environments change, and with this comes risk as well as opportunities.  There are substantial benefits in having an independent review.  Whether the directors are seeking additional funding, or lenders or investors require reassurance as to the viability and credit-worthiness of the company, an Independent Review will provide a level of confidence in the company’s financial statements from which directors, lenders and investors can progress.

• • Although an independent review is not designed to identify fraud, it may indicate where the business is losing money and where internal checks and controls need to be applied so that the company managers can use the independent review results to improve internal processes.
  • Financial statements that have been independently reviewed provide investors with confidence in the financial results of a company that help in making an informed decision whether to purchase a company’s shares.
  • Financial statements that have been independently reviewed protect investors, shareholders and other stakeholders of the company from possible accounting improprieties and safeguard the financial interests of shareholders and other stakeholders not involved in management and the daily running of the company.
  • An independent review gives greater creditability to a company’s financial records and statements through the written report from an independent source, being the reviewer of the financial statements.  This is particularly useful in matters such as trade disputes for higher wages, bonuses, or dealing with insurance claims regarding property, fire, and so on.
  • An independent review can provide an ethical check on employees and prevent them from misappropriating monies as well as to determine whether the financial records have been properly kept in terms of legislation and to help the company to be aware of any discrepancies.
  • Financial statements that have been independently reviewed are useful in helping the company to settle liability for taxes by way of a repayment agreement, negotiate loans for the company, determine the value and purchase price of a company or to settle monies on the death of a partner.

Unsure Whether Your Company Legally Requires an Independent Review?

What should be clear from the above is that not all companies are legally required to have an independent review. If you are unsure, our advice is to contact BAN to help you obtain certainty about your company’s independent review requirements.