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Johannesburg - The new audit points system contained in the recently released 2008 Companies Act draft regulations should be re-examined as it might place some companies and the public at risk.
This is according to the SA Institute of Chartered Accountants (Saica).
While welcoming the regulations as "a step in the right direction", the organisation recommends that the points system, to determine whether companies should be exempt from a compulsory audit, be tweaked.
"With a view to steering clear of convoluted thresholds, the new method will make it simpler to distinguish companies eligible for an audit exemption from those that are subject to mandatory audit."
Ashley Vandiar, Saica's project director for assurance and members' advice, said this will be achieved by calculating the number of points each company scores.
Companies with more than 750 points are deemed to be in the public interest - because their success or failure could have an effect on the public - which in turn means that they will require a mandatory audit.
Factors influencing the score include turnover, the number of employees and shareholders, and the extent to which a company is indebted.
While the points system is a simpler method for defining public interest, Vandiar says Siaca is concerned that the actual scores might be set at inappropriate levels.
"The consequence of the current scores is that many companies that should in fact be subject to reasonable assurance, because of 'public interest' considerations, are scoped out of the audit requirement.
"The changes should also resonate with business decision makers and stakeholders in that they entrench an audit, which is a crucial asset for any company in so far as checks and balances are concerned.
"An audit should never be seen as merely an expense, because it's not. It is an important tool that is designed to yield a reasonable level of assurance - the independent verification of important business information. This is what investors and stakeholders want and the new regulations will help decision makers and company directors to meet the needs of their stakeholders."
On non-public companies - entities that will be exempt from the mandatory audit - Vandiar warns against choosing an independent review engagement for wrong reasons.
"Good governance can be supported by an audit. That is why business leaders should always consider it. An audit results in a reasonable level of assurance but an independent review provides only limited assurance."
