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What are your legal obligations when it comes to financial statements in your business?

by , 20 November 2015
If you run a registered company or a close corporation, you have a legal obligation to prepare financial statements. And you have to present your financial statements to SARS.

If you don't prepare them correctly, you may declare incorrect income and incur penalties and fines from SARS. Or you could present a false picture to any person who relies on your financial statements to make business decisions.

So read on as I tell you what your legal obligations are when it comes to your business' financial statements.

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Why do you need financial statements?
 
Financial statements present your company's financial information in a structured way that's easy to understand. They should give a clear picture of the financial results and status of your company, both to internal and external users.
 
2 Minimum financial statements you need to prepare are your income statement and balance sheet, which you'll get from your trial balance. You can also prepare other financial statements like a cash-flow statement depending on your company requirements.
 
To prepare your financial statements you must first create a trial balance. But be careful, if your trial balance isn't correct, it could wreak havoc for your financial statements. Here's what your trial balance can tell you about your accounting errors…
 
Read on to understand your legal accounting reporting obligations.
 
 
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How sure are you that your trial balance is error free?
 
If it isn't, your financial statements will also be incorrect. This means
 
  • Your accounting practices won't meet IFRS;
  • You could declare incorrect taxable income to SARS, which means fines and penalties;
  • Your company won't be compliant with the Companies Act of 2008 and the Income Tax Act; and
  • You'll give an incorrect picture of your company's finances – and look guilty of fraud!
 
But don't despair. We'll help you tackle the problems in drawing up an income statement and balance sheet with this one tool.
 
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Your legal accounting reporting obligations

In South Africa, your accounting practices should normally comply with International Financial Reporting Standards (IFRS) or IFRS for SMEs (referred to as the financial reporting framework), depending on the size and type of entity. And to do this, you should draw up a trial balance, at least once every financial year.

The form and content of the prescribed (statutory) financial statements is determined by the legislation that applies to your specific type of entity. For example, the Companies Act, 2008 for companies.

At the end of the financial year, you must prepare your annual financial statements. Make sure these statements meet the standards set out in your financial reporting framework, the Companies Act and the Income Tax Act.
 
If you don't use the correct accounting methods, you could declare the wrong taxable income. Or submit an inaccurate balance sheet. Don't let that happen to you, here's everything you need to know about financial statements…
 
P.S. Make sure your financial statements meet the new auditing requirements under the Companies Act. Here's how…
 
P.P.S. Discover the Excel functions and formulas you need right now to reduce stressful and tiring work within minutes of data processing. The Practical Guide to Excel will help you draw up your financial statements.


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