SOUTH AFRICA Law and Practice Contributed by: Professor Michael Katz, Matthew Morrison and Madison Liebmann, ENS
ments. In terms of the Companies Act, it is man - datory for public and state-owned companies to appoint an auditor and to have their financial statements audited. The appointment of an auditor must occur upon incorporation of the company by the incorpora - tors, or within 40 business days of incorporation by the directors of the company. The first audi - tors of a company will hold office until the first AGM of the company, and are re-appointed on an annual basis at every AGM. An appointed auditor may not be: • a director, prescribed officer, employee or consultant of the company; • a director, officer or employee of the person appointed as company secretary; • a person who habitually or regularly performs the duties of accountant or bookkeeper of the company; or • a person appointed as the auditor of the company in the immediately preceding five years. Pursuant to the amendments to the Companies Act, a period of two years must lapse before an auditor can be appointed to a company if an auditor had certain involvement with the com - pany. This is a departure from the previous time period, which was five years. It is not mandatory for a private or personal liabil - ity company to appoint an auditor, unless the company is required to produce audited finan - cial statements (see 6.1 Financial Reportin g). The Regulations set out a guideline to deter - mine when it is in the public’s interest to have the financials of a company audited. The Regu - lations provide that a private profit company’s
financials must be audited if they meet any one of the following criteria: • if such a company, in the ordinary course of its primary activities, holds assets in a fiduci - ary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the finan - cial year exceeds ZAR5 million; • any other company whose PI Score in that financial year is 350 or more; or • any other company whose PI Score in that financial year is at least 100 (but less than 350) and whose AFS for that year were inter - nally compiled. Certain categories of private, personal liability and non-profit companies that are not subject to audit requirements may be required to have their AFS independently reviewed by an accountant. If a company is not required to be audited but is not exempt in terms of the Companies Act, its AFS must be independently reviewed. 7.2 Requirements for Directors Concerning Management Risk and Internal Controls King IV Generally speaking, requirements for directors in connection with the management of risk and internal controls in a company would fall under the general duty of care, skill and diligence under the Companies Act. In addition, King IV recom - mends that the board of directors of a company appoints a risk committee that will be in charge of overseeing and mitigating all of the company’s potential risks. King IV recommends that the risk committee should comprise at least three direc - tors, the majority being non-executive directors. The chair of the committee should be a non- executive director, and the chair of the board
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