Public interest score - What is it, what does it mean and why is it important?

What is a Public Interest Score?

Public Interest Score (“PI Score”) is the measure of public interest in a specific company, determined by considering the potential social footprint of the company and it's potential impact on the public. The PI Score determines whether an independent audit or independent review is required by a company.

In terms of Regulation 26 of the Companies Act 71, 2008 (“Companies Act”), the PI Score is calculated through an accumulation of points, based on the number of employees under the employ of the company, third party liabilities owed by the company, the annual turnover of the company and the number of shareholders of the company, each of these factors accounting to the aggregate total of a company's PI Score.  All companies have a PI Score, which is calculated at the end of a company’s financial year.

Simply put, each company’s PI Score determines who should undertake the financial reporting and auditing function for the company, and who should be tasked with the compilation of the company’s financial statements.

At the end of each financial year, the following factors are considered in the calculation of the  the PI Score. Below is a breakdown of how points may be assigned to each factor to determine the PI score of a company.

• Employees: One point is assigned to each employee of the company. In instances where the number of employees is inconsistent and fluctuates, then the average number of person employed by the company during the financial year is relied on for the calculation.
• Third Party Liabilities: At the financial year end of the company, the total amount of third party liabilities is calculated. Thereafter, one point is duly assigned to every one million rand or a portion thereof in third party liabilities owed by the company.
• Turnover: One point is allotted to every one million rand or a portion thereof in the gross annual turnover of the company.
• Stakeholders: One point is assigned to the total number of the company’s stakeholders, who are identified at the end of each financial year. For non-profit companies, stakeholders include its members. Whereas, in the case of profit companies, stakeholders extend to parties that have a direct and an indirect beneficial interest in the issued securities of the company.

Companies with a PI Score of  less than 100 (one hundred) are not compelled to have their financial statements independently audited, unless if otherwise stated in the Memorandum of Incorporation of the company. If an audit is not mandated by the company’s Memorandum of Incorporation, then the company may elect to voluntarily have their financials independently audited.

Companies with a PI Score of 100 (one hundred) or more, but less than 350 (three hundred and fifty), must have their financial statements audited, if they are compiled internally.

Companies with a PI Score of greater than 350 in a financial year must have its financial statements audited. Furthermore, these financial statements must be submitted to the Companies Intellectual Property Commission in XBRL format, when the company’s annual return is due.

Finally, companies that have achieved a PI Score of 500 (five hundred) or greater, in any 2 (two) of the previous 5 (five) financial years, as well as all state-owned companies are obligated to appoint a Social and Ethics Committee, as required in Regulation 43 of the Companies Act.

The King IV principles embody values of good corporate governance standards, which guide companies that meet or exceed a PI Score of 350 (three hundred and fifty) to stringent levels of accountability, regulatory and financial reporting standards. It is important for companies to know their respective PI Scores, as this will ensure that good corporate governance standards are upheld, and that there is accuracy in financial reporting. With this knowledge, companies know whether an audit or independent review of their financials is required, and whether or not a Social and Ethics Committee must be established.

The PI Score can be calculated by an Auditor, compiler of Financial Statements or an Independent Reviewer. It is important to note that the calculation of the PI score may be subject to variables that are uniquely applicable to each company, such as whether the company is owner managed or not. RSM South Africa’s experts are skilled to accurately calculate the PI Scores for our clients, and to assist companies in setting-up their Social and Ethics Committees.

Prepared by the RSM Corporate Statutory Team.

Read more about our Corporate Statutory capabilities here

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