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:
Criteria | Financial reporting required? | Audit required? |
---|---|---|
Turnover less than R1 million for two consecutive financial years | No | No |
Fewer than 10 members | No | No |
Public interest score (PIS) less than 350 | Yes | No |
Turnover R1 million or more for two consecutive financial years | Yes | Yes |
10 or more members | Yes | Yes |
Public interest score (PIS) of 350 or more | Yes | Yes |
Specifically required by law or contract | Yes | Yes |
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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