When it comes to preparing your company’s Annual Financial Statements (AFS), one of the most common questions business owners ask is:
“Do I need an audit, an independent review, or just a compilation?”
At Prosperity Accounting and Bookkeeping Solutions, we help South African businesses navigate this question with confidence. Each option serves a different purpose, involves a different level of assurance, and is guided by the Companies Act 71 of 2008.
Here’s a simple breakdown of what each means — and how to know which one applies to your business.
⚖️ 1. Audit – Full Assurance
An audit provides the highest level of assurance on your financial statements. It’s a detailed examination of your financial records, internal controls, and supporting documents, performed according to the International Standards on Auditing (ISA).
🔍 What Auditors Do:
- Verify transactions and balances through testing
- Review internal controls and accounting systems
- Confirm accuracy and completeness of financial data
- Express an audit opinion on whether your financials are “fairly presented”
🧠 Why It Matters:
Audited financial statements are often required by:
- Public companies (Ltd)
- State-owned entities
- Non-owner-managed private companies with a Public Interest Score (PIS) of 350 or more
- Companies that hold fiduciary assets exceeding R5 million (e.g., trusts or NPOs)
- Funding, tender, or investor applications
✅ Result:
A high level of confidence and credibility — often necessary for larger entities, regulated industries, or businesses seeking major funding.
📋 2. Independent Review – Limited Assurance
An independent review is a moderate assurance engagement that provides less assurance than an audit, but more than a simple compilation.
It’s designed for companies that are not legally required to be audited, but still need assurance that their financial statements are fairly stated.
🔍 What Reviewers Do:
- Perform inquiries and analytical procedures rather than detailed testing
- Evaluate whether anything appears to be materially misstated
- Express a negative assurance opinion, e.g.:
“Nothing has come to our attention that causes us to believe the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework.”
🧠 Who Needs It:
- Private companies that are not owner-managed with a PIS between 100 and 349
- Companies where stakeholders (e.g., lenders, investors) require independent assurance
- Entities wanting credibility without the cost of a full audit
✅ Result:
A cost-effective way to provide assurance — ideal for medium-sized companies or those wanting peace of mind without full audit procedures.
🧮 3. Compilation – No Assurance
A compilation is the simplest and most affordable option. It involves preparing financial statements from your accounting records, but no verification or assurance is provided.
The accountant compiles the statements in accordance with the applicable reporting framework (usually IFRS for SMEs) and issues a Compilation Report noting that no assurance was expressed.
🔍 What Accountants Do:
- Use your bookkeeping records to prepare financial statements
- Ensure the format and disclosures meet accounting standards
- Do not audit or review the information
🧠 Who It’s For:
- Owner-managed private companies with a PIS below 100
- Close corporations and small businesses not required to be audited or reviewed
- Businesses that only need statements for internal use or SARS submissions
✅ Result:
Clear, compliant financial statements — but without any verification. Suitable for small businesses with simple structures and low external risk.
⚙️ Summary: Choosing the Right Option
| Level of Assurance | Type | Who Performs It | When Required / Recommended |
| 🔵 High | Audit | Registered Auditor (RA) | Public companies, high PIS, fiduciary assets > R5m |
| 🟢 Moderate | Independent Review | CA(SA), RA, or registered professional accountant | Private companies with PIS 100–349 (not owner-managed) |
| ⚪ None | Compilation | Accountant or bookkeeper | Owner-managed companies, PIS < 100 |
📈 Why It Matters to Get It Right
Choosing the correct level of reporting isn’t just about compliance — it affects:
- Your credibility with banks, funders, and investors
- Your cost of compliance
- The transparency of your business operations
- Your ability to plan strategically and attract growth opportunities
Non-compliance with the Companies Act can lead to CIPC penalties or deregistration, so it’s worth getting professional advice before year-end.
✅ How Prosperity Accounting and Bookkeeping Solutions Can Help
At Prosperity Accounting and Bookkeeping Solutions, we guide you through every stage of your financial reporting journey:
- Determining whether you need an audit, review, or compilation
- Preparing compliant Annual Financial Statements (AFS)
- Conducting independent reviews where required
- Assisting with CIPC submissions and SARS tax compliance
We make compliance simple, clear, and cost-effective — helping your business stay credible and confident.
📞 Contact us today to find out which reporting level is right for your company.
