Companies

Act No. 71 of
2008 –
Student’s
version

Bomi Nomlala

2024
Legislation and regulations –
Auditor must be familiar

ISA 250 provides the background for Examples of laws and regs which the
consideration of laws and regulation auditor must be familiar
Please read this standard Companies Act 71 of 2008
Income Tax 58 of 1962
Value Added Tax Act 89 of 1991
The National Credit Act 34 of 2005
The Financial Intelligence Centre Act 38 of 2011
Protection of Personal Information Act 4 of 2013
Labour Relations Act 66 of 1995
Municipal Finance Management Act No 56 of 2003
Companies Act

Recent Development

Co.’s Act of 2008 came to effect on 1 May 2011

Act and regulations have to be read together

Sections are now broken down into 9 chapters

Each chapter is broken down into topics and parts

In addition to the 9 chapters there are 5 schedules

Companies Act Section/regulation reference

Audit requirement Section 30

Appointment of an auditor Section 90
Resignation of the auditor Section 91
Rotation of auditors Section 92
Rights and restrictions of auditors Section 93
Companies Regulations
PIC calculation requirement Regulation 26(2)
Categories of companies to
audited
Regulation 28 Acts and
Independent review
Auditing Profession Act
Regulation 29
Regulations -
General requirements
Accreditation of professional
Section 3-31
Section 32-36
audit work
bodies
Registration of individual auditors Section 37- 40
and firms
Duties in relation to the audit Section 44
Duty to report irregularity(RI) Section 45
Limitation of the auditor's liability Section 46
Improper conduct and Section 47- 51
disciplinary proceduces
Offences- including of RI Section 52-54
Companies Act
Recent Development
– Key points that came out of the new Co.’s Act:
1. Audit and Public Interest Score
2. Independent review
3. Social and Ethics Committee
4. Provision of financial assistance to acquire shares in the
company
– Important regulations:
 Regulations 26 to 29 (Sec 30 of Co.’s Act) – Public Interest Score –
If AFS are in the public interest then - MUST be AUDITED.
 Regulations 42 - Qualification for members of Audit Committee
 Regulation 43 – Social & Ethics Committee
Important Regulations – Public
Interest Score (Reg. 26 - 29)
Every company and CC must calculate at the end of
each financial year their Public Interest Score
(Refer Chapter 2, Section 30).

The PI score is used primarily to determine:

Which financial reporting Categories of companies Who must carry out the
review of a company which
standard the company which must be must be independently
must comply with; audited/reviewed; and reviewed
Regulation 26 - Public Interest Score
– Sum of:
 Number of points equal to the average number of employees
during the year
 1 point for every R1mil in third party liability at y/e
 1 point for every R1mil in turnover for the year
 1 point for every individual who directly or indirectly has an interest
in securities
The above may seem straightforward however the calculation can become
tricky when there are share options or a person is an employee and
shareholder or shares held by another company.
Decision to audit is also impacted by who prepares the AFS – Refer reg. 27
Public Interest Score Calculation
example:

Employees:
• Beginning of the year – 490
• End of the year – 510

Liabilities at y/e – R23,6 mil

Turnover for the year – R252.3 mil

Number of shareholders – 85

Calculate the Public Interest Score

What is the answer?????

Regulation 27: Financial
Reporting Standards

A company’s financial statements may be compiled internally

or independently

To be classified as “Independently prepared” the AFS must be

prepared by:
• By an independent accounting professional (refer next slide)
• On the basis of financial records provided by the company
• In accordance with any relevant financial reporting standard

Regulation 27 also sets out the financial reporting standards

applicable to the different categories of companies.
Example 1 of CoSAct

Natal Sharks Board(Government entity)

100% ownership

NPC for endangered Sharks

Required:
1. Should this NPC be audited and why??
2. Which regulation governs the auditability or non
auditability of this relationship????
– Independent accounting professional (reg. 26):
Independently
– Registered auditor in terms of the AP Act, or
Compiled
– Member in good standing of a professional body
Financial accredited in terms of the AP Act
Statements (Reg. – Is qualified to be appointed as the accounting officer
27) of a CC in terms of the CC Act
– Does not have a personal financial interest
– Is not involved in day to day management, or so
involved in the last three years
– Is not a prescribed officer or full-time executive
employee of the company, or have been in the last
three years
– Is not related to the person who independently
compile the financial statements
Regulation 27 – categories of Co.’s

Category of companies Financial reporting standard

State owned companies (SOE) IFRS, in the case of any conflict, the PFMA
(Public finance management Act) prevails

Listed public companies IFRS

Unlisted public companies IFRS, or IFRS for SMEs if the scoping
requirements are met
Profit companies other than SOE or public IFRS, or IFRS for SMEs if the scoping
companies with a public interest score of requirements are met
at least 350
Profit companies other than SOE or public IFRS, or IFRS for SMEs if the scoping
companies with a Public Interest Score of requirements are met, or SA GAAP
at least 100 but less than 350
Public Interest Score of less than 100 with
independently compiled financials
Profit companies other than SOE or public Financial reporting standards as
companies with a Public Interest Score of determined by the company as long as the
less than 100 standards are prescribed
Regulation 28: Public Interest Score
Application
– Reg. 28 stipulates the categories of companies which need to be audited. These
include:
1. Public companies and state-owned companies
2. Any profit/nonprofit company which in the ordinary course of its primary
activities, hold assets in a fiduciary capacity for persons who are not related
to the company, and the aggregate value of the assets held exceeds R5m at
any time during the financial year
3. Any company whose PI score in that financial year
 Is 350 or more
 Is at least 100 if its AFS was internally prepared
Regulation 28: Public Interest
Score Application

Public Private company Close corporation Owner managed

Interest
Score

Less than 100 Independent review Accounting officer No external

report intervention

100 to 349 Audit if internally Audit if internally Audit if internally

compiled, compiled, no compiled, no
independent review independent review independent review
if externally if externally if externally
compiled compiled compiled
350 and above Audit Audit Audit

Study section 30 (2A) for exemptions for audit and independent review

Independent reviewer must report reportable irregularities to the Commission (reg. 29)
Regulation 28: Public Interest Score
Application (link to S30(2))

A subsidiary of a All public & state A private company Company may have
listed company must owned companies may include in its a voluntary audit
be audited must be audited MOI that it has to
irrespective of the PI
score as its financial be audited (PI
statements are score is irrelevant)
consolidated into the
holding company.
Regulation 29 – Independent
Review
A company that does not have to be audited must have an independent review
unless it is a personal liability company in which every shareholder is a director
and vis versa (owner/managed – S30(2A))

If the PI Score is 100 or more, the review must be done by a registered auditor or
by a member of a professional body accredited in terms of the AP Act (SAICA is
the only registered body)

If PI score is below 100, review can be carried out by a person who is qualified to
be appointed as an Accounting officer in terms of the CC Act

Review must be done in accordance with ISRE 2400 (international statements on

review engagements)

Independent review cant be carried out by an independent accounting

professional who was involved in the preparation of the AFS
Regulation 29 – Independent
Review

The Auditing Profession Act states that an auditor is required to report a

reportable irregularity (RI) at an AUDIT client but not at a review client.

But Regulation 29 places an obligation on the Independent Reviewer to report an

RI at an independent review client.

The definition of RI and procedures that have to be followed differ for the above 2
scenarios. Major differences is that for an audit client the auditor reports to IRBA
and for an independent review, report is sent to the Commission.

Audit client – the auditor has 30 days whereas for independent review only 20
business days to communicate with management and send second letter or
report.
Companies Act Structure

Chapter 1: Interpretation, purpose and application

Chapter 2: Formation, administration and dissolution of companies

Chapter 3: Enhanced accountability and transparency

Chapter 4: Public offerings

Chapter 5: Fundamental transactions takeovers and offers

Chapter 6: Business rescue and compromise with creditors

Chapter 7: Remedies and enforcement

Chapter 8: Regulatory agencies and administration of the Act

Chapter 9:Offences, miscellaneous matters and general provisions

Sec 2 - Related and Interrelated
Persons and Control

Sec 2 basically says that an individual or company

and the individuals or companies related to them
are considered by the ACT to be the same person.
• E.g. To give a loan to a director a special resolution is required,
the company cannot get around this requirement by giving a
loan to the other company’s directors as they are both defined
as a related party i.t.o. Sec 2

An individual is defined as a natural person, a juristic

person is a person formed by law e.g. CC, trust, and
a person includes a juristic person
Sec 2 - Related and Interrelated Persons and
Control

Individual related to another individual when:

• Married or live together similar to marriage
• Separated by no more than two degrees of natural or adopted consanguinity

Individual related to a juristic person when the individual directly or indirectly

control the juristic person

Juristic person is a foreign co and a trust

Juristic person related to another juristic person if

• Either directly or indirectly control the other or the business of the other
• Is a subsidiary of the other
• A person directly or indirectly control each of them or the business of each of them
Sec 3 – Subsidiary Relationships

A company will be a subsidiary of another juristic person if that

juristic person:

Is able to directly or indirectly exercise a majority of the voting

rights pursuant to a shareholders agreement or otherwise or

Has the right to appoint or elect directors of that company who

control the majority of the votes at a board meeting

Basically all companies within a group structure will be related.

(Holding co., subs, fellow subs)
Sec 4 - Solvency and
Liquidity Test
Is satisfied if considering all reasonable foreseeable
financial circumstances of the company at the time of the
decision:
1. Assets of the company fairly valued are equal to or
exceed the fairly valued liabilities (this must take into
account any reasonably foreseeable contingent
assets/liabilities)
2. It appears that the company will be able to pay its
debts as they come due in the ordinary course of
business
a. In the next 12 months after the liquidity or solvency test is
considered or in the case of a distribution - 12 months after
the distribution is made.

b. A distribution is a direct/indirect transfer of

money/property made to a shareholder by virtue of
his shareholding e.g. dividend
Helps to protect stakeholders from abuse by directors
Sec 8 - Categories of Companies
– Profit and non-profit
– Non-profit company is a company incorporated for public benefit and the
property & income of which are not distributable to its incorporators,
members, directors, officers or related parties except as reasonable
compensation for services rendered
– Profit company
– State owned company
– Private company
– Public company
– Personal liability company (is a private co but the MOI states that it’s a
personal liability co and includes a clause which states that all directors (past &
present) are jointly and severally liable together with the company, for any
debts & liabilities of the company that were contracted during their term of
office)
Sec 13 – Rights to Incorporate the company

– Profit company – 1 or more persons or an organ of the state

– Non-profit company – 3 or more persons or an organ of the state or a juristic person

Process:
 Template of MOI (NOI)
 File Notice of incorporation with MOI
 Pay prescribed fee
Commission may reject Notice of Incorporation if:
 MOI is not completed properly or incomplete
 No. of directors required is not met (private co/personal liability is 1 and public co & non
profit company is 3)
 Persons listed as directors are disqualified in terms of Act.
If the provision of MOI is consistent with Act and it will be void to
the extent that it contravenes or is inconsistent with the Act

MOI includes:

Details of incorporation (date, type of co)

Alteration of MOI
Sec 15 – MOI,
Authorised shares (no. & class)
Shareholder
Authority of board to issue debt instruments
agreements &
Powers, activities, restrictions of the
Rules of co.
Shareholder rights

Shareholder meetings (notice , location , quorum , resolutions)

Directors (composition, meetings, committees, compensation)

Sec 15 – MOI, Shareholder
agreements & Rules of co.

MOI may include a provision (as long as it is proven to be in the best

interests of the stakeholders):
 Dealing with a matter that ACT doesn’t address
 Altering the effect of an Alterable provision in the Act e.g.
Providing for a lower quorum for shareholder meetings
 Imposing on the company a higher standard, greater restriction,
longer period of time or any more onerous requirement than
would otherwise apply to the co. i.t.o. an unalterable provision of
the Act. Only allowed if they are making it more stricter and NOT
more lenient.
 That contains restrictive conditions applicable to the co. or which
prohibits amendment to any particular provision of the MOI.
Sec 15 – MOI, Shareholder
agreements & Rules of co.
Rules relating to governance
 In addition to MOI, the board has the authority to
make, amend, repeal any necessary or incidental
rules relating to the governance of the company in
respect of matters not addressed in the ACT or MOI.
 Rules must be consistent with MOI and Act (if not will
be void)
 Filed with commission
 Published i.t.o. the requirements for the publishing of
rules contained in MOI.
– MOI and Rules are binding :
 between the company and each shareholder
 Between or among shareholders
 Between the company and each director or
prescribed officer or any person serving as a
member of any committee of the board
Sec 15 – MOI, Shareholder
agreements & Rules of co.

– Shareholder agreements:
 Must be consistent with MOI and ACT
 Will be void if inconsistent
Sec 20 – Validity of company actions

No action of the company is void by reason only that:

o Action was prohibited by the MOI or
o As a consequence of the limitation the directors had no authority to
authorise the action
o Shareholders can ratify by special resolution an action
restricted/limited/qualified by the MOI by company or directors only if the
action doesn’t contravene the Co Act.
o A director/shareholder/prescribed officer may apply to High court to prevent
(restrain) fellow directors/shareholders from carrying out an action
prohibited by MOI.
o Shareholder can claim for damages against any person who or due to gross
negligence causes co. to do anything inconsistent with Act or a limitation,
restriction or qualification unless the action was ratified by shareholders
Sec 21 – Pre Incorporation Contracts

PRIOR TO INCORPORATION A WITHIN 3 MONTHS AFTER IF COMPANY FAILS TO RATIFY ANY PARTY WHO IS ACTING
PERSON MAY ENTER INTO A INCORPORATION, BOARD MAY OR REJECT THE PRE- ON BEHALF OF COMPANY
WRITTEN AGREEMENT IN THE RATIFY OR REJECT THE PRE- INCORPORATION CONTRACT WHEN ENTERING INTO THE
NAME OF THE, OR PURPORT INCORPORATION CONTRACT THE COMPANY WILL BE PRE-INCORPORATION
TO ACT IN THE NAME OF OR DEEMED TO HAVE RATIFIED CONTRACT WILL BE JOINTLY &
ON BEHALF OF THE ENTITY THE PRE-INCORPORATION SEVERALLY LIABLE IF THE
WHICH HAS YET TO BE CONTRACT COMPANY IS NOT
INCORPORATED INCORPORATED OR UPON
INCORPORATION THE
AGREEMENT IS REJECTED (IN
PART OR IN TOTAL)
Sec 22 – Reckless
Trading
– Company must not :
o Carry on business recklessly, with gross
negligence, with intent to defraud any person or
for any fraudulent purposes
o Trade under insolvent circumstances (Total
liabilities exceed Total assets)
o If Commission has reason to believe company is
trading recklessly or unable to pay its debts, it can
issue a notice to the company requesting it show
why it should be permitted to carry on trading.
o Company has 20 business days to show that its not
contravening Act or that it can pay its debts, if they
cant then Commission may issue notice requesting
company to cease trading.
PART C: TRANSPARENCY, ACCOUNTABILITY
AND INTEGRITY OF COMPANY

S24 – FORM AND STANDARDS FOR A company must maintain at its registered
COMPANY RECORDS office all documents required by the Act
for a period of seven years
MOI and rules
Director’s records
Reports presented at AGM
AFS
Accounting records
Minutes of meetings and resolutions
• shareholders
• directors
S28 – ACCOUNTING RECORDS
• A company must keep accurate and
complete accounting records in one of
the official languages of the republic
• Accounting records must be accessible
from the companies registered offices
S29 – FINANCIAL
STATEMENTS

Section 29 must be read in conjunction with Regulation 27, Section 30

– The published annual financial statements of a company must:
• satisfy the applicable financial reporting standards (either IFRS
or IFRS for SMEs);
• fairly present the state of affairs and business of the company;
• explain the transactions and financial position of the company;
• present the assets, liabilities, equity, income and expenses and
any other prescribed information;
• specify the date the financial statements were produced and the
applicable accounting period;
S29 – FINANCIAL STATEMENTS
(CONT’)

prominently present, on the present the name and The annual financial
first page of the financial professional designation of the statements must not be
statements whether the individual who prepared incomplete, false or misleading
financial statements have or supervised the preparation in any way
been: of the financial statements.
audited; or
independently reviewed; or
neither audited nor independently
reviewed.
Public company, Private company
S30 – ANNUAL
listed company and subject to
FINANCIAL
SOC subject to independent
STATEMENTS
audit review (PIS)

Private company
Private company, Private Company in
and shares are
one share-holder, the public Interest-
held by directors –
no audit or review Audit
no audit or review
PART D: CAPITALISATION OF
PROFIT COMPANIES
S35 – LEGAL NATURE IF THE COMPANY SHARES AND REQUIREMENT TO HAVE
SHAREHOLDERS
A share issued by a company is a movable property and transferable.
A share does not have a nominal or par value.
A company may not issue shares to itself.
An authorised share of a company has no rights associated with it until it has been
issued.
Shares of a company that have been issued and subsequently:
(a) acquired by that company, as contemplated in section 48; or
(b) surrendered to that company in the exercise of appraisal rights in terms of
section 164,
have the same status as shares that have been authorised but not issued.
S36 –
AUTHORISATION FOR
SHARES

A share is movable
property, transferable
and has NO par value or PART D:
rights until issued CAPITALISATION OF
PROFIT COMPANIES

The MOI must set out

• class and number of shares
• a distinguishing designation
• the preference, rights and
limitations
S37 – PREFERENCE, RIGHTS, LIMITATIONS

On matters relating to preference, rights and limitations the

shareholder has a right to vote

At least one class of shares MUST

• voting rights
• entitled to net assets on liquidation

MOI deals with distribution, preference and voting rights

S38 – ISSUING SHARES

The Board may issue shares

at any time provided it
Retro actively authorise by
does not exceed
special resolution within 60
authorised shares, which
days
could render the issue null
and void
S39 – PRE-EMPTIVE RIGHT TO BE OFFERED AND SUBSICRIPTION
FOR SHARES

This section:
– (a) does not apply to a public company or state-owned company, except MOI
provides otherwise; and
– (b) applies to a private company or personal liability company with respect to
any issue of its shares, other than:
– (i) shares issued:
– (aa) in terms of options or conversion rights; or
– (bb) as contemplated in section 40(5) to (7); or
– (ii) capitalisation shares issued as contemplated in section 47.
S40 – CONSIDERATION FOR SHARES

The board of a company may issue authorised shares only:

(a) for adequate consideration to the company, as determined by the board;
(b) in terms of conversion rights associated with previously issued securities of
the company; or
(c) as a capitalisation share as contemplated in section 47.
Before a company issues any particular shares, the board must determine the
consideration for which, and the terms on which, those shares will be issued.
A determination by the board of a company in terms of subsection (2) as to the
adequacy of consideration for any shares may not be challenged on any basis
other than in terms of section 76, read with section 77(2).
S41 – SHAREHOLDER APPROVAL FOR
ISSUING SHARES IN CERTAIN CASES
(1) Subject to subsection (2), an issue of shares or securities convertible , must be approved by a special
resolution of the shareholders of a company, if the shares, securities, options or rights are issued to a:
(a) director, future director, prescribed officer;
(b) person related or inter-related to the company, or to a director; or
(c) nominee of a person contemplated in paragraph (a) or (b).
(2) Subsection (1) does not apply if the issue of shares, securities or rights is:
(a) under an agreement underwriting the shares, securities or rights;
(b) in the exercise of a pre-emptive right to be offered and to subscribe shares, as contemplated in section 39;
(c) in proportion to existing holdings, and on the same terms and conditions as have been offered to all the
shareholders of the company or to all the shareholders of the class or classes of shares being issued;
(d) pursuant to an employee share scheme that satisfies the requirements of section 97; or
(e) pursuant to an offer to the public, as defined in section 95(1)(h), read with section 96.
S41 – SHAREHOLDER APPROVAL FOR
ISSUING SHARES IN CERTAIN CASES(cont’)
(5) A director of a company is liable as per section 77(3)(e)(ii) if :
(a) was present at a meeting when the board approved the issue of
any securities as contemplated in this section, or participated in the
making of such a decision in terms of section 74; and
(b) failed to vote against the issue of those securities, despite knowing
that the issue of those securities was inconsistent with this section.
(6) In this section, ‘future director’ or ‘future prescribed officer’ does not include a
person who becomes a director or prescribed officer of the company more than six
months after acquiring a particular option or right
S44 – FINANCIAL ASSISTANCE TO ACQUIRE SHARES

 A company may provide financial assistance for the purchase of its own
shares or the shares of a “related” company if
 MOI adhered to
 the solvency and liquidity requirements are met ( Sec 4 )
 special resolution is obtained
S45 – LOAN OR FINANCIAL ASSISTANCE TO DIRECTORS
• MOI is adhered to
• Special resolution
• Liquidity and solvency test
• Financial Assistance can be a loan, guarantee & provision of security
S46 – DISTRIBUTION TO BE AUTHORISED BY BOARD

Distribution = Transfer of money or property for the benefit of shareholders of the

company or within the group. e.g. Dividends/Buybacks

legal obligation or

board has authorised the distribution by a resolution and

liquidity and solvency test

board resolution states the liquidity and solvency test was applied
S48 – COMPANY OR SUBSIDIARY ACQUIRING COMPANY SHARES

• Rq’s S46 will apply when a company buys back its own shares
• Shares held by directors will need special resolution
• A subsidiary may acquire shares in parent company
• not more than 10% issued shares
• voting rights may not be exercised
PART F: GOVERNANCE OF
COMPANIES

S57 – INTERPRETATION AND RESTRICTED APPLICATION OF PART

Exceptions: Profit company

• One shareholder – not required to comply with formalities in exercising
voting rights
• One director – not required to comply with formalities in performing
function.
• Every shareholder is a director – matters to be referred to shareholders
may be decided on by shareholders without internal compliances
SEC 65 – SHAREHOLDERS RESOLUTIONS

Ordinary & special resolutions

Ordinary resolution must be approved by

more than 50% of voting rights

Special resolution must be approved by at

least 75% of the voting rights
Sec 66 – Board, Directors and
Prescribed Officers
– For Sec 69 director includes – prescribed officer, member of a committee of the
board & member of audit committee
– Board of directors must manage the business. They have power and authority
unless prohibited by the MOI
– Private & Personal liability co. must have at least 1 director
– Public must have at least 3 directors
– Public co. must appoint an audit committee and may be required to form a social &
ethics committee (PI Score > 500). These committees must have at least 3
independent non-execs
– MOI may stipulate higher min no of directors
– Person who is ineligible or disqualified from being a director cannot be appointed
– Profit company other than SOE– MOI must provide that at least 50% of directors
must be appointed by shareholders
S69 – DISQUALIFICATION or INELIGILIBITY AS DIRECTOR / OFFICER

Ineligible

• Juristic person
• minor / legal disability
• Contravenes MOI
Disqualified
• Prohibited / declared delinquent
• Unrehabilitated insolvent
• Removed from office of trust – misconduct
• Convicted or imprisoned for theft, fraud or forgery
S71 – REMOVAL OF DIRECTORS

Removal at a general meeting by

ordinary resolution prior to removal:
• notice of the meeting and resolution
• opportunity to present his/her side
• the board may also remove a director in
certain circumstances
S72 – BOARD COMMITTEES

Unless the MOI stipulates otherwise

• no limit on number of committees
• delegate any authority to such committees
• one may include persons who are not
directors
S73 – Board Meetings

A director may call a • 25% of directors present if there 12 directors or

meeting at any time • 2 directors

Notice • stipulated in MOI to all directors

Quorum • a majority present

• one hand one vote

Voting • majority of votes for a decision
S74 – Directors acting other than
at meetings
• Provided each director receives notice of
meeting
• written consent
• electronic communications (video
conferencing)
Full disclosure of
S75 – Directors
interest must be made Director’s interest will
personal financial
or contract can be be valid if approved by
interests
declared voidable

the board after

full disclosure
nature and extent
• or

material
ratified by
circumstances
ordinary
regarding the
resolution
interests
S76 – Standards of directors conduct
• Not use the position of director for personal
advantage
• Communicate to the board swiftly on material
matters
• Exercise powers and functions of directors
• Rational basis for decision making
• Entitled to rely on performance / information /
reports of those working under the director
S77 – Liability of directors and prescribed
officers

– Section 77(2)(a) of the Companies Act states that a director of a company may be
held liable in accordance with the principles of common law relating to a breach
of a fiduciary duty, for any loss, damages or costs sustained by the company as a
consequence of any breach by the director of a duty in section 75 of 76 of the
Companies Act. In case of breach of duty to act with the degree of care, skill and
diligence reasonably expected, the director may be held liable in accordance with
principles of the common law relating to delict (section 77(2)(b) of the
Companies Act).
– In addition, in accordance with section 162(5)(c)(ii) of the Companies Act a court
must make an order declaring a person to be a delinquent director if the person
took personal advantage of information or an opportunity, contrary to section
76(2)(a) of the Companies Act.
Part C – Auditors – sec 90
(Appointment of Auditors)

Public & state-owned companies must appoint an auditor at the AGM

If private company has to be audited ito ACT or regulations, then the auditor must be
appointed by the AGM

Auditor must be a Registered Auditor (IRBA)

Must be Independent

Person disqualified from being a director can't be an auditor

If AGM doesn’t appoint/reappoint auditor than directors have 40 days to fill vacancy
Part C – Auditors – sec 90
(Appointment of Auditors)

The following people cannot be appointed as auditors as they are not INDEPENDANT:

Director or prescribed officer of company

Employee or consultant of the company who was or has been engaged for more than 1
year in the maintenance or preparation of financial statements
Director, officer or employee of person appointed as company secretary

Person who alone or with a partner/employee habitually or regularly performs duties of

an accountant or bookkeeper or secretarial work for co.
If person was any of the above, then must wait 5 years (cooling off period)

A person related to any of the above

Part C – Auditors
Section Summary
Sec 91 – Resignation • Effective once notice is filed with the Commission
of auditors & • Board must submit name of potential auditors within 15 business
vacancies days to audit committee & the audit committee has 5 business
days to reject otherwise board can make appointment.
• Process cannot take longer than 40 business days to reappoint
new auditors.

Sec 92 – Rotation of • Same individual (or designated auditor in a firm structure) can't
auditors serve as auditor for more than 5 consecutive years (independence
becomes compromised)
THIS WILL CHANGE IN LINE WITH MANDATORY AUDIT FIRM ROTATION
IN 2023
Sec 93 – Rights & • Access to accounting records (books & documents), info &
restricted function explanations
of auditors • Holding co auditor who isn’t the auditor of the subs is allowed
access to all current & former financial statements and is entitled
to ask directors for info & explanations (documents, records)
deemed necessary
• Attend audit committee, AGM & general shareholder meeting.
Speak at these meetings on audit matters
Audit committee – section 94
– At least 1/3rd of members at any time must have academic qualifications or
experience in economics, law, finance, accounting, corporate governance,
industry, human resources & public affairs (sec 94(5))
– Member must not be:
 Executive director or been executive director during the previous financial
year (independence will be compromised)
 Prescribed officer / full time executive employee of the company or another
related / interrelated company or held such a post during the last 3 years
 Material supplier or customer of the company
 A related person to any of the above
Audit Committee – section 94

A public company & state-owned company or a company that has included in the
MOI that it must have an audit committee must have a committee with at least 3
members unless:

Company is a subsidiary of another company that has an audit committee and

Audit committee of the holding company will perform functions of the audit
committee on behalf of the subsidiary

Every member must be a director of the company and must have adequate
financial knowledge & expertise (link to King IV)
Duties of the Audit Committee
– Nominate for appointment of an independent auditor
– Determine and approve audit fees and terms of engagement
– Ensure auditor appointment is in terms of legislation & ACT
– Non audit services (nature, extent)
– Pre-approve non-audit services agreements
– Prepare audit committee report for AFS
– Receive & deal with concerns or complaints (accounting practice, internal
audit, content/audit of AFS, internal financial controls)
– Submit to board any matters concerns company’s accounting policies,
financial control, records & reporting
– Perform oversight functions determined by the board
CHAPTER 9: PART A OFFENCES
AND PENALTIES

S214 – False statements, reckless

conduct and non-compliance
• Breach of this section results in a fine or
imprisonment (10 years)
• fraud
• reckless trading
• misleading financials (S29(1))
Companies Act no.71 of 2008

QUESTIONS?!