Companies

International Accounting Standards (IAS) are set by the International Accounting Standards Board (IASB). In South Africa the Accounting Practices Board (APB) issues these standards as Generally Accepted Accounting Practice (GAAP), which replaces the ‘AC’ standards. The GAAP standard (also referred to as ‘SA GAAP’) is the required accounting standard for companies.

The Companies Act expresses a requirement for all companies to produce annual financial statements. Additionally, all companies will appoint an auditor that will report on such annual financial statements with regards to fair presentation. During 1999 an amendment to Schedule 4 of the Companies Act included specific disclosure requirements for companies, and the requirement to disclose where the company has departed from the standard, as well as the impact and reasons for doing so. This amendment left the accounting profession with strong legal support for its standards; however, there was no enforcement mechanism. Listing requirements for JSE Securities Exchange was introduced that all listed companies should comply with GAAP when preparing and presenting their annual financial statements. In addition, for financial years beginning on or after 1 January 2005 it was compulsory for listed companies to comply with IFRS. The Corporate Laws Amendment Act of 2006, which became effective on 17 December 2007, gives legal backing for financial reporting standards. This Act makes a distinction between widely held companies and limited interest companies and prescribes different reporting requirements for each of these. The amendments to the Companies Act now extends liability, as where financial statements of a company is incomplete or do not comply with the requirements of the Companies Act, the company and every director or officer of the company who is a party to circulation, issue, or publication of these financial statements, will be guilty of an offence. Also, where financial reports of companies are proved false or misleading in a material respect, any person who is a party to the preparation, approval, publication, issue, or supply of that report and who knows or ought reasonably to suspect that it is false or misleading, will be guilty of an offence. Furthermore, if a widely held company issues a financial report that fails to comply with a financial reporting standard, the company and every director who has signed or was party to the preparation or approval of the financial report, will be guilty of an offence. Any non-compliance with financial reporting standards should be reported to the Financial Reporting Investigations Panel will be investigated and recommendations of appropriate measures for rectification will be proposed.

A ‘widely held company’ is a company with one of the following characteristics:

• its articles provide for an unrestricted transfer of its shares; or
• it is permitted by its articles to offer shares to the public; or
• it is a subsidiary of a widely held company.

A widely held company:

• must comply with financial reporting standards (‘financial reporting standards’  refer to the complete Statements of Generally Accepted Accounting Practice; being IFRS);
• must comply with the provisions of the Companies Act and Schedule 4 requirements that are applicable; and
• must prepare financial statements that fairly present the financial position and the results of the operations of the company in accordance with financial reporting standards.

A ‘limited interest company’ is a company that is not a widely held company;

and its reporting requirements are as follows:

• A limited interest company must comply with the accounting standards developed for limited interest companies (this refers to IFRS for small and medium-sized entities);
• must comply with the provisions of the Companies Act and the whole of Schedule 4; and
• must prepare financial statements that fairly present the financial position and the results of operations of the company in accordance with accounting standards developed for limited interest companies.

SAICA issued a notice (October 2007) that expresses the following with regards to the application of IFRS for small to medium-sized entities:

Accordingly, the APB has decided that the Statement of GAAP for SMEs may be applied as follows:

• For companies: The Statement of GAAP for SMEs may be applied by ‘limited interest companies’, as defined in the Corporate Laws Amendment Act, 2006, if they do not have public accountability as defined in Section 1 of the Statement of GAAP for SMEs.
• For entities other than companies where legal provisions or other regulations require compliance with a specific financial reporting framework (other than Statements of GAAP): Such entities cannot apply the Statement of GAAP for SMEs even if they do not have public accountability as defined in Section 1 of the Statement of GAAP for SMEs.
• For entities other than companies whose financial reporting framework is not set out by legal provisions or other regulations: If such entities do not have public accountability, as defined in Section 1 of the Statement of GAAP for SMEs, they should assess whether it is appropriate to apply the Statement of GAAP for SMEs.

For ‘limited interest companies’, within the scope as set out above, the Statement of GAAP for SMEs may only be applied to annual financial statements for financial years ending on or subsequent to 31 December 2005 that are issued on or after 1 October 2007. For entities other than companies whose financial reporting framework is not set out by legal provisions or other regulations, the Statement of GAAP for SMEs may be applied to annual financial statements that are issued on or after 1 October 2007.

Optional financial statement items

(many of these additional items meet the King Report disclosure requirements):

• Chairperson’s report.
• Employees’ report.
• Environmental and social report .
• Corporate governance report.