Contrary to popular belief, the compilation of Annual Financial Statements (AFS) of small businesses is not only necessary for a company’s tax compliance needs, but also a requirement of the Companies Act, 2008 and Close Corporation Act, 1984 of South Africa.
The Companies Act and Close Corporations Act compel companies and Close Corporations (CCs) to prepare Annual Financial Statements (AFS) within six months after the end of its financial year. The Companies and Intellectual Property Commission (CIPC) recently won a High Court order permitting them to penalise (10% of the entity’s annual revenue) companies that fail to prepare AFS within the prescribed period. Three companies have already been slapped with this penalty with another 20 under investigation.
These Acts go on to prescribe when a company or CC’s AFS should be compiled, compiled and audited, or compiled and independently reviewed. This is determined by calculating the company or CC’s Public Interest Score (PIS). This calculation must be performed annually. Without going in to too much detail, an entity’s PIS is basically a calculation that is performed by using financial information such as turnover, third-party liabilities, number of shareholders or members and employees of the entity. The outcome of the business’ calculated PIS will then place it in a category of either an audit or independent review.
When to audit, independently review or compile AFS?
The rules are simple:
- In the case of CCs, if the corporation is not required to be audited, then it will also not be required to be independently reviewed.
- In the case of companies, all companies that are not required to be audited in terms of a Law, the company’s Memorandum of Incorporation or its PIS calculation, are required to be independently reviewed. There is however one exception; companies of which all shareholders are directors that are involved in the day-to-day activities of the company, are exempt from the requirement of having its AFS independently reviewed, and may only be required to have its AFS compiled.
- All CC’s and Companies should have its AFS compiled annually. Please note that a CC’s AFS should always be accompanied by an Accounting Officer’s report, regardless of whether the AFS is audited or not. It is only certain professionals that can be appointed as a CC’s Accounting Officer.
Is a compilation of financial statements really that simple?
The short answer is no. South Africa currently has two recognised accounting frameworks, IFRS & IFRS for SME’s. An accounting framework is the accounting standards used when compiling AFS. Although there are many software solutions available in the market, the fact remains that if you are not familiar with these reporting standards, you will have a hard time compiling AFS that are in accordance with these standards.
The Tax Shop, as accounting professionals, are adequately qualified to compile AFS that are of a standard and quality as required by the Companies Act, Close Corporations Act and the requirements of South Africa’s accounting standards.
Ensuring that your business becomes and stays compliant with the relevant laws and regulations could be as easy as 1, 2, 3:
- Visiting the Tax Shop Website at www.taxshop.co.za.
- Requesting for our professional services by completing the “contact us” form.
- Letting us guide you on your path to compliance.
If you require assistance with your business’ PIS calculation, financial statement compilations and other compliance needs, contact the Tax Shop to make your life easier.