Mandatory Audits: Breaking Down the Rules for SA Businesses

For many South African business owners, the word “audit” can evoke stress, confusion, or the assumption that it is a concern reserved for big-brand boardrooms. However, not all audits are optional, and understanding whether your company falls under mandatory audit requirements is essential for staying compliant with the Companies Act, avoiding potential penalties, and preserving public trust.

Let’s unpack what a mandatory audit is, who it applies to, and how to determine whether your business is affected.

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What is a mandatory audit?

A mandatory audit is exactly what it sounds like – an independent audit of your company’s financial statements that is required by law. A registered auditor must perform it, resulting in a formal audit opinion on the fairness and accuracy of your financial reporting.

Unlike voluntary audits, which are initiated at the discretion of business owners or stakeholders, mandatory audits are enforced based on specific criteria set out in the Companies Act, No. 71 of 2008, and the regulations thereto.

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Key metric for mandatory audits: The Public Interest Score (PIS)

Whether or not your company needs a mandatory audit often depends on a somewhat unfortunately named formula called the Public Interest Score (PIS). The PIS is calculated annually and considers the size and impact of your company.

Here’s a quick breakdown of how points are assigned:

• 1 point for each employee (based on average employee numbers during the year)
• 1 point for each R1 million (or part thereof) in third-party liabilities at year-end
• 1 point for each individual who holds a beneficial interest in the company’s securities
• 1 point for each R1 million (or part thereof) in turnover during the year
  

The higher your PIS, the more public accountability your company has – and the more likely you will be subjected to a mandatory audit.

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Which companies must be audited?

The Companies Act mandates audits for:

1. Public companies

2. State-owned companies

3. Private companies with a:

• PIS over 350, or
• PIS between 100 and 350, if their financial statements were not independently compiled

4. Any company holding assets or funds in a fiduciary capacity exceeding R5 million at any time during the year (e.g., law firms, estate agents)

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Other situations obligating an audit

Even if your company doesn’t meet the automatic thresholds, an audit may still be required in your Memorandum of Incorporation (MOI) or requested by shareholders holding more than 10% of voting rights.

Some lenders, grant providers, or investors also require audited financials as a condition of funding, even if the law does not.

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What happens if you ignore a mandatory audit?

In short: don’t. Non-compliance can lead to serious consequences, including:

• ‍Rejection of your financial statements by CIPC‍
• Fines or deregistration of your company‍
• Reputational damage, especially if investors or funders are involved‍
• Difficulty accessing credit or tenders due to a lack of verified financials
  

Being proactive about audit requirements will keep you on the right side of the law, but that is not where it ends – it demonstrates strong governance and financial transparency. Some businesses may even choose to undergo voluntary audits or independent reviews.

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Still unsure of your company’s obligations? Or in need of a reliable auditor?

If you still question whether your business qualifies for a mandatory audit, our experienced team at Huysamen Westraad Inc can help you calculate your Public Interest Score, interpret your compliance obligations, and guide you through the audit process.

We are registered auditors with extensive experience in statutory audits across industries. Our goal is not only to ensure compliance but also to deliver insights that support better financial decision-making.

Book a consultation, and we will figure it out together.