Must Financial Statements Be Drafted For A Company Or Close Corporation

Ensuring compliance with financial reporting requirements is a critical responsibility for company directors. The South African Companies Act, 2008 (Act No. 71 of 2008) (“the Act”) sets out specific provisions regarding when financial statements must be prepared and the minimum requirements for their drafting. Here is a concise overview to help you remain compliant and uphold good governance practices.

1. When Must Financial Statements Be Prepared?

The Act stipulates that companies must prepare annual financial statements within six months after the end of their financial year. The requirement to prepare financial statements applies to the following entities:

• Public Companies (Ltd) – Must prepare and file audited financial statements annually.
• State-Owned Companies (SOC Ltd) – Must prepare and file audited financial statements annually.
• Private Companies (Pty) Ltd) – Must prepare financial statements annually. Whether they need to be audited or independently reviewed depends on the company’s Public Interest Score (PIS).
• Non-Profit Companies (NPCs) – Financial statement requirements depend on their PIS and whether they are required to be audited by law or their Memorandum of Incorporation (MOI).

2. Minimum Requirements for Financial Statements

Section 29 of the Act outlines the minimum standards for financial statements. The financial statements must:

• Present a True and Fair View of the company’s financial position and performance.
• Be prepared in accordance with International Financial Reporting Standards (IFRS) or IFRS for Small and Medium Enterprises (IFRS for SMEs) where applicable.
• Include at least:
  • A statement of financial position (balance sheet)
  • A statement of comprehensive income (income statement)
  • A statement of changes in equity
  • A statement of cash flows
  • Notes to the financial statements, including accounting policies
• Be approved and signed by the board of directors before being issued.
• Where applicable, contain an audit report or independent review report, depending on the company’s PIS and statutory requirements.
• Clearly state whether the financial statements are audited, reviewed, or internally compiled.

3. Key Compliance Considerations for Directors

• Ensure Timely Preparation: Financial statements must be prepared within six months of the financial year-end.
• Determine Audit or Review Requirements: Assess the company’s Public Interest Score to understand the level of assurance required.
• Maintain Proper Records: The Companies Act requires companies to maintain accounting records for at least seven years.
• Approve and File Where Required: Companies that are required to file their financial statements with the Companies and Intellectual Property Commission (CIPC) should do so within the prescribed deadlines.

Failure to comply with these requirements may lead to regulatory penalties, director liability, and reputational risks. Directors are encouraged to work closely with accountants, auditors, or financial officers to ensure adherence to the Act.

Should you have any questions or require further guidance, please do not hesitate to reach out.

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