Audit vs Review – The “employee” debate
One of the major factors that will have an impact on whether an entity is required to have an audit or an independent review will be the number of employees that are in the employ of that entity. The Companies Regulations, 2011 makes provision for the calculation of a Public Interest score. Depending on a company’s Public Interest Score, an audit or independent review may be required. One of the items making up the Public Interest Score is the average number of employees that a company has in its employ during the year under review.
The question arises as to what constitutes an employee. The Companies Regulations, 2011 states that an employee is defined in terms of the Labour Relations Act, 1995. In terms of this Act it is the employment contract that forms the basis for the relationship between the employer and the employee. It is the employment contract that must link an employee and an employer. The essential elements of an employment contract are:
- A voluntary agreement.
- Between two parties (employee and employer).
- In terms of which an employee places labour potential at the disposal of and under the control of the employer.
- In exchange for some remuneration by the employer.
Therefore an employee could consist of casual, temporary, and permanent employees. The Labour Relations Act does not in include or cover labour brokers.
This raises the prospect of companies due to the nature of their business requiring an audit because the number of employees ensures that these companies’ Public Interest Score is in excess of the threshold required to have an audit. Take the farming industry for example: Farmers may be required to hire additional employees specifically to harvest their crops. These would not be permanent employees, but could consist of casual or temporary staff hired for harvest purposes. The farmer at this point does not have any income as there is normally a lengthy time between harvesting and converting the crop into a condition that it could be sold. So just based on the number of employees, a farmer may require an audit even though he does not have any income.
This may have the prospect of directors restructuring their companies to ensure that they are not required to be subject to an audit. The question also arises as to whether in fact an audit is not the correct assurance for an entity with 350 points. Could it be said that an entity that employees 350 points is deemed to be in the public interest? The number of employees is clearly in my opinion an adequate indicator of whether the entity is in the public interest. Whether it should be set at 350 is a different debate. However I think quite correctly that if one can employ a vast number of employees the entity has sufficient need of an audit to ensure that the rights of these employees are protected.
Professor Steven Firer
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