What is Public Interest Score (PIS)?
Public Interest Score is calculated in terms of Regulation 26 of the Companies Act. It is an important new development, as it will be crucial in determining the financial reporting standards that the company must adopt (these provisions apply equally to close corporations).
A Public Interest Score (PIS) applies to every company and close corporation, and has to be calculated at the end of each financial year in terms of Company Regulation 26.
Using this system, a company is allocated points according to the number of its employees, its annual turnover, its stakeholders and the level of third party liabilities at the end of the financial year.
Why the score is important?
The PIS determines whether the company requires an independent audit, or have its financial statements independently reviewed.
- A company with a public interest score of 350 or more points in a financial year, must have its annual financial statements for that financial year audited.
- A company with a public interest score of between 100 and 349 points (both inclusive), must have its annual financial statements audited only if they were internally compiled.
- A company with a PIS of more than 500 points in any two of the previous five years must appoint a social and ethics committee. Every state-owned company and listed public company is obliged to appoint a social and ethics committee.
How to score your company?
- 1 point for every employee (equal to the average number of employees during the financial year)
- 1 point for every R1 million of third party liability at the end of the financial year (third party liability means debts outstanding, creditors, instalment sales, etc. owing to outside parties)
- 1 point for every R1 million of turnover (or portion thereof) during the financial year
- 1 point for every individual with a beneficial interest in the company’s securities (if a for-profit company) and in the case of a non-profit company, 1 point for every member of the company (or who is a member of an association that is a member of the company).
What is the score used for?
The PIS score will determine whether the company needs an independent audit or not, and, as discussed above, whether it needs to appoint a social and ethics committee.
The PIS is used to determine:
- whether a company needs an audit or independent review, and
- which financial reporting standards apply, as well as
- whether the company (other than state-owned and listed) is required to appoint a social and ethics committee.
A PIS will also confirm whether an Independent Review engagement for a company / CC must be performed by a registered auditor, or a person qualified to act as an accounting officer.
The independent review engagement for a company / CC with a PIS greater than 100 MUST be performed by ONLY a registered auditor (and no-one else!)
Disclaimer:
Please note that the information provided does not constitute legal or professional advice, but rather the applicability of existing theory to a given practical situation. Due care is taken to ensure that the information is correct, but it remains subjective and an interpretation of application of information.