Accounting Records & Financial Statements in South Africa

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Accounting Records & Financial Statements in South Africa

Accurate accounting records are the foundation of reliable financial reporting, tax compliance and sound business decision-making.

Accounting should not simply be an exercise completed at year-end. Properly maintained records allow a business to understand its financial position throughout the year and provide the information required for tax calculations, statutory reporting and financial statements.

Why proper accounting records matter

South African companies are required to maintain accurate and complete accounting records. CIPC confirms that these records must be kept and accessible as required by the Companies Act.

From a tax perspective, taxpayers must also maintain records that enable them to comply with the applicable tax legislation and allow SARS to establish whether those requirements have been met.

Good accounting records therefore support both business management and statutory compliance.

What should accounting records include?

The records required will depend on the nature and complexity of the business.

They commonly include information and supporting documents relating to:

  • sales and other income;
  • purchases and operating expenses;
  • bank and credit-card transactions;
  • customer and supplier balances;
  • assets and financing arrangements;
  • loans and shareholder or director accounts;
  • payroll;
  • VAT and other taxes;
  • journals and accounting adjustments; and
  • supporting invoices, contracts, statements and reconciliations.

SARS describes accounting records as including accounting entries together with supporting records such as electronic transfers, invoices, contracts, ledgers, journals, adjustments, worksheets and reconciliations.

Bank and balance-sheet reconciliations

Recording transactions is only one part of maintaining reliable accounts.

Bank accounts and important balance-sheet accounts should also be reconciled so that differences, omissions or incorrect allocations can be identified.

For example, loan accounts, VAT control accounts, payroll liabilities, trade debtors, creditors and fixed assets may require reconciliation or supporting schedules.

Leaving these matters unresolved until financial statements are prepared can result in unnecessary year-end corrections and delays.

Management accounts and financial reporting

Up-to-date accounting records can provide considerably more value than simply meeting a compliance requirement.

Management information can help business owners assess:

  • profitability;
  • operating expenses;
  • cash flow;
  • amounts owed by customers;
  • amounts payable to suppliers;
  • tax liabilities;
  • loans and financing; and
  • the overall financial position of the business.

This allows accounting information to support actual business decisions rather than being prepared only after the financial year has ended.

Annual financial statements

Annual financial statements provide a structured record of an entity’s financial performance and financial position for a particular financial year.

The precise reporting requirements depend on the type and circumstances of the entity. Certain companies are subject to audit or independent-review requirements depending on factors prescribed under the Companies Act and regulations.

Financial statements may also be relevant for SARS income-tax submissions. SARS currently requires signed annual financial statements on the first submission of an ITR14 for companies classified as small or medium-to-large businesses, subject to the classifications and exceptions specified by SARS.

Preparing for year-end

A well-maintained accounting file can make the financial-statement process considerably more efficient.

Before year-end accounts are finalised, matters commonly requiring review include:

  • bank reconciliations;
  • debtors and creditors;
  • fixed assets and depreciation;
  • loans and finance agreements;
  • director or shareholder loan accounts;
  • payroll balances;
  • VAT and tax accounts;
  • accruals and other year-end adjustments; and
  • supporting documentation for material transactions.

The exact procedures required will depend on the particular business.

How long should accounting and tax records be retained?

Record-retention requirements vary according to the applicable legislation and circumstances.

For tax purposes, SARS states that records covered by the Tax Administration Act are generally required to be retained for five years from the relevant submission date, or from the end of the relevant tax period where no return is required. Longer retention may apply in circumstances such as an ongoing audit, investigation, objection or appeal.

Businesses should therefore maintain an organised accounting and document-retention system rather than relying solely on bank statements or information reconstructed at year-end.

How MVA can assist

MVA Tax and Corporate Advisory assists businesses with:

  • bookkeeping and accounting records;
  • bank and balance-sheet reconciliations;
  • management accounts and financial reporting;
  • annual financial statements;
  • year-end accounting adjustments;
  • fixed-asset and supporting schedules;
  • director and shareholder loan accounts;
  • accounting review and corrections; and
  • ongoing accounting and compliance support.

Reliable financial statements begin with reliable underlying records. Where accounting records are incomplete or have not been maintained during the year, the records should first be reviewed and reconstructed where necessary before the financial reporting process is completed.

Need assistance with bookkeeping, accounting records, reconciliations or annual financial statements? Contact MVA Tax and Corporate Advisory.