Review, audit or neither for a close corporation
The assurance choices open to a South African close corporation, the statements or FAS it must file with CIPC, and the cost of not filing.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
Plenty of South African accounting practices still look after a long tail of close corporations: the family panel-beater, the two-member consulting business, the property-holding CC that owns the owners' home office. Each year the same questions come round. Does it need an audit? Should it have a review? What does CIPC want with the annual return?
The answers differ from those for companies, and some of them are less obvious than practitioners assume. This article sets out what the sources say about assurance for a close corporation, what it must file, and how to handle the work in Achekam.
A voluntary independent review is possible
SAICA's resource on independent reviews explains that independent reviews are not required for owner-managed profit companies but may be done voluntarily, and that a review can also be done voluntarily for close corporations. SAICA lists CIPC Practice Note 3 of 2022 as a resource on independent reviews.
The word that matters is "voluntarily". The SAICA page presents a review for a close corporation as a choice, not a requirement. That choice can still be worth making:
- Lenders and landlords may ask for statements with some assurance attached.
- Members in dispute, such as two members who no longer trust each other, may want an independent view.
- A planned sale or conversion may go more smoothly with reviewed figures behind it.
SAICA's page on independent reviews explains what a review is, who may perform one and where voluntary reviews fit, and is a good page to share with a CC member deciding whether to commission one.
When a CC's statements must be audited is a separate question, governed by the Close Corporations Act as amended. This article does not cover it; check the Act before advising a CC whose members' agreement, lender or circumstances point towards an audit.
Statements or an FAS with the annual return
Whatever level of assurance the CC chooses, it has a filing duty. CIPC's step-by-step guide on annual returns says it is mandatory for companies, other than external companies, and for close corporations to submit either annual financial statements, through iXBRL, or a financial accountability supplement when filing annual returns.
So every CC client needs a decision each year: file statements, or file the supplement. The choice between the two, and what each involves, is covered in filing AFS or an FAS with the annual return.
Accounting officers in the review rules
Close corporation accounting officers also appear in the rules on who may review a company's statements. The Companies Regulations, as published in April 2011, require an independent review to be done in accordance with ISRE 2400. Where a company's public interest score is at least 100, the reviewer must be a registered auditor or a member of a professional body that holds accreditation. Where the score is below 100, a person qualified as a close corporation accounting officer may also do it.
For a practice that serves both companies and CCs, that matters in two ways. Its accounting officers may be qualified to review some smaller companies, not only to act for CCs. And when a CC chooses a voluntary review, the firm should think about who is best placed to perform it under ISRE 2400 (Revised), and keep that person apart from the preparation of the statements. The qualification rules are set out in who may perform an independent review.
Deregistration for not filing
CIPC's information guide on annual returns says it may refer a company or close corporation for deregistration if its annual returns are outstanding for two successive years, and that deregistration withdraws its juristic personality.
For a small CC, that is a real risk. Owners of dormant or near-dormant CCs often let returns lapse because nothing seems to be happening. Then a property needs transferring or a bank account needs changing, and the CC no longer exists as a legal person. A firm that tracks its CC clients' annual returns protects them from that surprise.
Close corporation statements and sign-off in Achekam
Achekam has statement templates for, among others, companies on IFRS for SMEs or full IFRS, close corporations, non-profits and trusts, with wording written for South African practice. A CC's statements can therefore be prepared on a template made for a CC, rather than adapted from a company layout.
Where the firm wants an outside practitioner to sign, Achekam supports that too. A firm can have another firm's officer compile its prepared statements under ISRS 4410 (Revised), or act as accounting officer and sign them, and the statements are issued only in the version that officer released. That keeps the firm's preparation and the officer's sign-off separate and makes clear which version the officer put their name to.
A practical annual routine for each CC client:
- Confirm whether the members want a voluntary review this year, and record their decision.
- Check the Close Corporations Act position on audit for this CC.
- Prepare the statements on the close corporation template.
- Decide between filing statements through iXBRL and filing the supplement.
- File the annual return on time, and diarise the next one.
List every close corporation the firm acts for, with the date its last annual return was filed. Any CC with a return outstanding goes to the top of the list, and each of the others gets a short note to its members asking whether they want a voluntary review this year.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
