Annual financial statements

What annual financial statements are for

Annual financial statements are the formal year end record of a company's financial position and performance. They serve four audiences, and each one reads them differently.

• SARS. The ITR14 company tax return is completed from them, and SARS will ask for them during a verification.
• Your bank or funder. Credit decisions, facility reviews and covenant testing all run off them.
• Shareholders and directors. The Companies Act requires them to be prepared, and directors carry responsibility for their accuracy.
• A buyer or investor. If you ever sell the business, three years of clean statements is what a valuation is built on. Statements that were assembled hastily lower the price, because a buyer discounts what they cannot verify.

What we prepare

A full set comprising a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, accounting policies and notes, and the directors report. Behind them sit the supporting schedules that make the numbers defensible: the fixed asset register with additions, disposals and depreciation, provisions and accruals, the loan and director account reconciliations, deferred tax where applicable, and the tax computation reconciling accounting profit to taxable income.

Statements are prepared in accordance with IFRS for SMEs, which is the applicable framework for most South African private companies and close corporations. Where a different framework applies we say so and use it.

Audit, independent review, or neither

Which applies to your company depends on its Public Interest Score, calculated under the Companies Act regulations from your turnover, employee numbers, third party liabilities and shareholder count.

1. Audit required where the score is 350 or above, or where the score is 100 or above and the statements were internally compiled, or where the company holds assets in a fiduciary capacity above the prescribed threshold, or where the Memorandum of Incorporation requires it.
2. Independent review where the score is between 100 and 349 and the statements were independently compiled.
3. Neither for most owner managed companies with a low score where all shareholders are also directors, though statements must still be prepared.

We are not registered auditors and we do not pretend otherwise. Where an audit or a review is required, we prepare the file to the standard the reviewer needs and manage the process with an independent firm. A well prepared file keeps their fee down substantially, because they are reviewing rather than reconstructing.

Why year end is painless when the monthly work is done

The reason annual financial statements are expensive and slow for most small businesses is that the year's bookkeeping is being done at the same time. Twelve months of transactions get captured, reconciled and queried in one exercise, in the middle of tax season, from memory.

Where PayStream does your monthly bookkeeping, the accounts are already reconciled twelve times over. Year end becomes a review, the tax computation, and the statements themselves. It is faster, it costs less, and the numbers have been looked at throughout the year rather than once at the end of it.

Trusts, close corporations and multiple entities

We prepare statements for private companies, close corporations, trusts, non profit companies and body corporates. Where a group of entities is involved we reconcile the inter entity loan accounts so both sides agree before anything is finalised, which is where group year ends usually stall.