Explain whether a close corporation is exempt from financial reporting and if it is required to have its financial statements audited.


Question: Explain whether a close corporation is exempt from financial reporting and if it is required to have its financial statements audited.

A close corporation is not automatically exempt from financial reporting or auditing. Whether or not a close corporation is required to have its financial statements audited depends on a number of factors, including its size, turnover, and public interest score (PIS).

Close corporations are exempt from financial reporting if:

  • They have a turnover of less than R1 million (excluding value-added tax) for two consecutive financial years.
  • They have less than 10 members.
  • They do not have a public interest score (PIS) of 350 or more.

Close corporations are required to have their financial statements audited if:

  • They have a turnover of R1 million or more (excluding value-added tax) for two consecutive financial years.
  • They have 10 or more members.
  • They have a public interest score (PIS) of 350 or more.

The public interest score (PIS) is a measure of a company's importance to the public. It is calculated based on a number of factors, including the company's size, turnover, and number of employees.

A close corporation can also be required to have its financial statements audited if it is specifically required to do so by law or by a contract.

Here is a table that summarizes the financial reporting and auditing requirements for close corporations:

CriteriaFinancial reporting required?Audit required?
Turnover less than R1 million for two consecutive financial yearsNoNo
Fewer than 10 membersNoNo
Public interest score (PIS) less than 350YesNo
Turnover R1 million or more for two consecutive financial yearsYesYes
10 or more membersYesYes
Public interest score (PIS) of 350 or moreYesYes
Specifically required by law or contractYesYes

If you are unsure whether your close corporation is required to have its financial statements audited, you should consult with a registered auditor.

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