The term has however managed to intimidate and confuse many small business owners. We’d love to shed some light on the topic and summarise what you need to know.
First off, the Companies Act actually requires all companies to calculate their PI score. This score serves as an indicator of a company’s public interest. Why is it important to understand the extent of a company’s public interest? It determines the specific regulations and reporting requirements that a company will have.
Your company’s PI score determines:
Before the number-crunching can commence (joking – it’s really a simple process), you need your company’s latest financial figures. The most important figures you’re looking for includes:
Assets held on behalf of another person e.g. a bank holding its clients’ funds.
To save you even more time, CQS developed a super savvy PI score calculator to get your company’s PI score in seconds. Let’s look at the following example:
After you’ve calculated your company’s PI Score, you’ll be able to determine if your company’s financial statements should be audited or independently reviewed. Remember, the following companies will always be subject to an audit (irrespective of their PI score):
For private companies, the following table can be used:
From the above, you’ll note that there’s a difference between:
In an owner-managed company – the shareholders of the company are also the directors who manage the company. The general assumption is that directors will apply added due care in managing a company when their own interests are at stake. Therefore, the risk of misconduct is less.
Financial statements are internally compiled when for example; a company’s own financial director prepared the financial statements. It is independently compiled when an external accountant/auditor prepared financial statements of the company. Naturally, independently compiled financial statements are subject to less risk of misstatement.
The different types of engagement offer different levels of assurance to stakeholders in respect of the company’s financial statements:
It boils down to the following: As each different engagement type requires a different amount of time and work performed by a professional – the cost of each engagement will differ significantly. For smaller private companies, compiled financial statements will suffice 90% of the time, saving you bucket loads of cash.
Finally, the last step is to find a professional to assist you in preparing your financial statements. Trust in this business relationship is key: When it comes to your company’s financial statements, you need a quality product – even if it was only subject to a compilation engagement. In the end, you need a product that you’ll be proud to present to all stakeholder.