Understanding your company’s Public Interest Score (PI Score), how to measure it, and its implications is not only relevant to big corporates or public entities. All companies are statutorily mandated by Regulation 26 of the Companies Act Regulations (the Regulations) to calculate the Score to determine, amongst other things, its financial reporting and corporate governance obligations for each financial year.
What is a PI Score and why is it important?
A PI Score is a statutory metric which allows your company to determine the level of compliance required with certain provisions of the Companies Act and the extent to which financial reporting and auditing is necessary. Different factors will impact your PI Score, including the number of employees and shareholders, its annual turnover and its indebtedness.
The rationale behind a PI Score is to ensure that companies with a high public impact are held to a higher standard of financial transparency, oversight and accountability. In essence therefore, it aims to strengthen good corporate governance practices, protect shareholders and creditors and promote greater transparency.
The Score must be revisited annually, and while business structures often remain relatively stable from year to year, your PI Score can, in theory, trigger different reporting and corporate governance obligations each year. In practice, however, obligations relating to your PI Score will remain unchanged barring major structural changes.
How does your PI Score impact on your compliance requirements?
Your PI Score will result in the following compliance requirements:
If your company has a PI Score below 100 points: Your financial statements do not need to be audited but may require an independent review if stipulated in your Memorandum of Incorporation (MOI).
If your company has a PI Score of between 100-349 points: Your financial statements must be independently reviewed but there is no requirement for an audit unless an audit is required arising from other legal obligations, including for example, if it is stipulated in your MOI.
If your company has a PI Score of 350 points or more: Your financial statements must be audited.
If your company has a PI Score of over 500 points (in any two of the previous five years): Importantly, in addition to having your financial statements audited, you must establish a Social and Ethics Committee as part of your Board structure. This forms part of your company’s enhanced corporate governance obligations.
How do you calculate your PI Score?
Your PI Score is calculated using four key factors: the average number of employees during the financial year, the third-party liability at the financial year end, the annual turnover, and the number of shareholders (in the event of private companies) or members (in the event of non-profit companies). Each factor is allocated a number of points, as illustrated in the example below:
Factor | Points allocated to the factor | Hypothetical company profile | Calculation based on the hypothetical company profile |
Number of Employees | 1 point is allocated to each employee in the company | 75 employees | 75 points |
Third-Party Indebtedness | 1 point is allocated for every R1 million (or portion thereof) in third party liability of the company | R25 million indebtedness | 25 points |
Annual Turnover | 1 point is allocated for every R1 million (or portion thereof) in turnover during the financial year | R80 million turnover | 80 points |
Number of Shareholders | 1 point is allocated for every individual who, at the end of the financial year, is known by the company to be a Shareholder | 8 shareholders | 8 points |
Score | 188 points |
Why is monitoring your PI Score important?
Monitoring your PI Score is crucial for ensuring that your company meets its regulatory obligations and maintains good corporate governance practices which align to the King Code IV. Not only may failure to comply lead to penalties, but it also compromises your company’s reputation amongst key stakeholders, including shareholders, investors, clients and top talent.
Therefore, based on the scores, you have an obligation to ensure that your company’s financial statements are properly reviewed and audited, where necessary. In the event that it triggers further governance requirements, it is important to speak to a corporate governance specialist to ensure compliance.
For further information on your company’s corporate governance obligations, see our article on enhanced corporate governance or call 010 109 1055 to arrange a consultation.
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