Small firms shun reviews as banks want audits [Bizcommunity (South Africa)]
(Bizcommunity (South Africa) Via Acquire Media NewsEdge) Small firms have not taken up independent reviews as much as expected two years after the Companies Act allowed them to use this cheaper option in place of an audit of their financial statements, because banks favour audits.
This was the conclusion by accounting professionals interviewed last week.
Vested interests of the accounting and auditing profession, and the impression that the independent review does not offer the same credibility and assurance as the traditional audit, were some of the reasons attributed to the lack of uptake.
The amended Companies Act became effective in May 2011 and offered the opportunity for small- and medium-sized entities to have an independent review.
The main consideration in opting for an independent review has been the possibility of a reduction in the cost of doing business, but according to the South African Institute of Business Accountants (Saiba) Chief Executive Nicolaas van Wyk, this was not the case.
Van Wyk said there was a big difference between the amount of work done for an audit and the work done for an independent review. As a result, the assumption is that an independent review should be considerably cheaper, but in practice this was not the case.
Faith Ngwenya, Technical Executive at the South African Institute of Professional Accountants (Saipa) said some financial institutions still required audited financial statements even if a company was below the audit threshold.
"Perceptions of the standing of the independent review in the market remained a challenge," said Ngwenya. "It is the devil that nobody knows, and as a result you will find that banks, for example, will still insist on having audited financial statements, even if the entity is below the audit threshold.
"There is still the perception that an audit is better than an independent review. Once everyone gets used to the independent review, and it has gained a standing in the market that it offers sufficient assurance, then one will see a reduction in the perception," she said.
Van Wyk said the use of independent reviews would increase with better understanding by the markets of the value of such a review.
Source: Business Day via I-Net Bridge
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