The Companies Act, No. 71 of 2008 and the Companies Regulations, 2011 brought forth a new concept of the public interest score (PI Score).
Each company is required to calculate a PI Score annually. This calculation should be done for each company individually and not at a consolidated group level.
The PI Score helps:
- Determining which Financial Reporting Standards a company must use;
- Whether a company must be audited or independently reviewed;
- Which persons are eligible to perform the independent review, and
- Whether a company must appoint a Social and Ethics Committee.
In terms of Regulation 26(2), the PI Score is calculated as the sum of the following:
- A number of points equal to the average number of employees of the company during the financial year
- One point for every R1 million (or portion thereof) in third party liability of the company at the financial year-end
- One point for every R1 million (or portion thereof) in turnover during the financial year
- One point for every individual who, at the end of the financial year, is known by the company to directly or indirectly have a beneficial interest in any of the company’s issued securities.
- Profit Companies:
One point is allocated for every individual who, at the end of the financial year, is known by the company to have a beneficial interest in any of the company’s issued securities. This is broad enough to include a right to receive or participate in any distribution in respect of a company’s securities. For example, the beneficiaries of an employee trust holding shares in a company will be regarded as having a “beneficial interest” in the securities of that company. In the same way, if a community trust in which 3000 individuals have a beneficial interest is a shareholder in a company, this will equate to 3000 public interest points. A “beneficial interest” does not include an interest held by a person in a unit trust or collective investment scheme.
- Non-Profit Companies:
One point is allocated for every individual who, at the end of the financial year, is known by the company to be a member of the company or a member of an association that is a member of the company.
- Profit Companies:
Effect of Public interest Score on financial Reporting
A company with a public interest score of 350 or more points in a financial year, must have its annual financial statements for that financial year audited.
A company with a public interest score of between 100 and 349 points (both inclusive), must have its annual financial statements audited only if they were internally compiled. In terms of the Regulations, annual financial statements are “internally compiled” unless they are prepared by an independent accounting professional on the basis of financial records provided by the company in question and in accordance with relevant financial reporting standards.
Social and Ethics Committee
Every state-owned company and listed public company is obliged to appoint a social and ethics committee. Any other company which, in any two of the previous five financial years, has attained a public interest score of over 500 points, is also obliged to appoint a social and ethics committee.