As part of the independent audit of the financial statements of a company, the audit team needs to confirm that the company complied with the legal requirements that relate to the company secretarial records. Secretarial records are minutes and resolutions, filings with the Companies and Intellectual Property Commission (CIPC), and other registers that are prescribed by the Companies Act, 71 of 2008. Also included are the Memorandum of Incorporation (MOI) and any changes that have occurred during the past year and that may have needed to be registered with the CIPC.
This part of the audit is referred to as the “stat audit” (shorthand for audit of statutory records). A stat audit not only ensures that the information relating to share capital, directors, etc. are correctly disclosed in the annual financial statements, but it is also an invaluable added service to client management to ensure they comply with regulatory requirements and avoid penalties, fines, or even the inconvenience of being deregistered due to non-compliance.
The stat audit normally starts with a review of minutes, submissions made to CIPC and discussions with management to determine if we need to be aware of any changes or any developments that may be subject to specific Companies Act requirements. We also have a facility whereby we can directly access the CIPC records to ensure that what the regulator has on record is correct and up to date.
Another useful source of information is obviously our own Corporate Statutory department. This highly skilled department maintains the statutory records for more than a thousand clients, including some audit clients where this is allowed by our code of conduct and the Companies Act. In cases like these, the stat audit process is easier because the Company Secretarial department would have most of the records already.
Despite all of these information sources, we still realise that we will never have all the information that management has, which is why we have introduced a Statutory Audit Representation Letter. This not only gives management an opportunity to confirm the accuracy of the information we have obtained from other sources but also to provide us with other information that we are not always aware of and/or do not have access to. It saves a lot of audit time and effort if the letter is accurately completed and returned to us as soon as possible so that the stat audit is not holding up the annual audit because of missing information. The audit team can then focus their remaining audit work on issues that arise from the stat audit work. For example, if a review of minutes shows that the directors approved a bond, the team can make sure this is correctly accounted for.
Other developments that we need to be made aware of include:
- Changes in the composition – for example a new director may have been appointed but CIPC has never been notified.
- Changes to the MOI – for example an increase in authorised share capital. This could result in the figures in the Annual Financial Statements being incorrect regarding the share capital.
- Changes to both street and postal registered addresses. If CIPC has not been notified of the change, and they or an external party use the incorrect address, the directors can be held liable for any loss which the company may incur as a result of the correspondence not being received.
- Changes to the year-end. If the new-year end has not been registered with CIPC and SARS has not been notified, the company will be required to have the audit done at the year-end as registered with CIPC.
The audit of the statutory documents of a company should be a rather painless process if everything is in order, but it is an important procedure to be performed.
Corporate Statutory Audit, Johannesburg