Compilation, Independent Review, or Audit: Which Do You Need?

As a small business owner in South Africa, understanding the different types of financial assurance services is crucial for making informed decisions about your company’s financial reporting. The three main services — compilation, independent review, and audit — differ significantly in cost, scope, and the level of assurance they provide.

Compilation Engagement

A compilation engagement is the most basic level of financial assurance. The accountant compiles and presents financial information based on data provided by the client, without independently verifying or analysing the figures.

Key features:

• The accountant compiles financial statements from the client’s records.
• No assurance is provided regarding the accuracy of the financial statements.
• The accountant does not express an opinion on the statements.
• Generally the least time-consuming and least costly option.

A compilation engagement suits smaller businesses with straightforward operations, or those that don’t require assurance for stakeholders or regulatory purposes.

Independent Review

An independent review is a step up from a compilation. The accountant performs analytical procedures and inquiries to provide limited assurance on the accuracy of the financial statements.

Key features:

• Analytical procedures and inquiries provide limited assurance.
• Less extensive — and usually less costly — than an audit, but more rigorous than a compilation.
• The accountant expresses a conclusion based on review results.
• Required for many private companies under the Companies Act, depending on their Public Interest Score.

Audit

An audit is the most comprehensive level of financial assurance. The accountant conducts an in-depth examination of the business’s financial statements, internal controls, and supporting documentation to provide a high level of assurance.

Key features:

• Extensive testing of internal controls, transactions, and balances.
• Provides the highest level of assurance of the three services.
• The accountant expresses an opinion on whether the financial statements are fairly presented.
• More time-consuming and costly than the other two options.
• Required for public companies, state-owned entities, and private companies with a high Public Interest Score.

Which Service Does Your Business Need?

The Companies Act 71 of 2008 prescribes which companies require an audit or independent review based on their Public Interest Score (PIS). Your PIS is calculated annually using factors including turnover, third-party liabilities, number of employees, and number of shareholders. A SAIPA-registered accountant can calculate your PIS and advise which level of assurance is appropriate.

If you’re unsure which service is right for your business, contact DigMe Solutions. Our team can assess your requirements and provide guidance tailored to your specific situation.