FINANCIAL STATEMENTS

Like management accounts, financial statements allow you to see the bigger picture. They show you the health of your business so you’ll be able to create smarter business goals and initiatives that will pay off in meeting your short term and long-term personal goals.

When applying for bank loans, overdraft facilities, financing of assets, credit facilities with suppliers or applying for government tenders, financial statements are a vital part of the evaluation process on the amounts and conditions to be attached to financing or success of the tender application. If your financial statements show that you can meet your financial responsibilities and operate at a profit, they’ll be more likely to finance you.

It is a legal requirement for companies and close corporations to prepare annual financial statements in South Africa and it is a criminal offence not to do so. The legislation requires that the financial statements must be prepared in the “prescribed format” within 6 months of the financial year end.

Most importantly, you must prepare annual financial statements as at the end of the financial year so as to complete your entity’s annual income tax return, both of which must be submitted to SARS according to the Tax Administration Act.  Therefore, it is the figures on your annual financial statements that are used to prepare your entity’s annual income tax return.

It is a further requirement that the annual financial statements, once completed and signed, must be kept for a minimum of 5 years following the date of the last income tax assessment by SARS or 15 years in terms of the Company’s Act.

And there you have it, now you know why you must prepare annual financial statements, no matter how small your business is.