As 2020 wraps up and we prepare for another year, hopefully set to bring with it improved financial success as we adjust to a new post-corona normal, companies must submit Annual Financial Statements (AFS) as required by the Companies Act (Act 71 of 2008). Although such an important step in rounding up a company’s financial year, many small business owners fail to prepare the adequate information needed for the submission and miss the deadline (within 6 months after the end of a company’s financial year) altogether.
The inability to comply with this basic business requirement can have several serious consequences as it is a breach of the Companies Act, so we have created this article to provide further information on the importance of preparing AFS for your business that abides by the stipulations of the Companies Act. Before we dive into how businesses can develop adequate AFS, let’s take a closer look at the objectives of AFS to further showcase its importance to closing a company’s financial years.
Purpose of AFS for Financial Reporting
The main reason companies prepare AFS is so that users of the financial statements can better understand a businesses financial situation and, thus, allocate resources to that entity. In saying so, financial reporting is an essential part of business because it allows companies to make adjustments to their operations and improve their value offerings to all company shares and stakeholders. A company’s AFS is needed for several reasons, which we have listed below, that further highlights the necessity of preparing one before the end of the financial year:
Applying for financial support from banks or investors
Making management decisions regarding company growth
Mergers and acquisitions
While the importance is clear, why do companies still fail to deliver AFS before the required deadline? Some suggest that the cost to draft them plays a significant role in many failing to submit the appropriate documentation. Let’s look into how companies could streamline this process and what kinds of documentation they will need, to provide ample time to acquire the relevant information.
How to Prepare AFS and What You Will Need
Part of the problem with businesses failing to prepare AFS is linked to the idea that the process is time-consuming and costly. This may have been the case several years ago, however, new technological advancements are making the mundane jobs intertwined with preparing AFS easier and more streamlined than ever before. The accounting processes are becoming cloud-based and manual labour is being nullified in the wake of systems that are designed to aid the bookkeeping process.
While these systems will never eliminate the need for quality accountants, they can take the simple jobs out of their hands and free up their time to focus on other aspects of a company’s financial success. While working with this software can be difficult in itself without dedicated staff willing to learn and adjust to them, third-party companies can be sourced to handle this process to make things even easier. Seeking the services of a reliable third-party, such as MBS, would save a company time and money through the outsourcing of affordable AFS management solutions and should be considered a worthy investment for all small business owners.
Whether developing an AFS with your staff, using tailored software, or outsourcing the job, below is a list of some of the key documentation you will need to acquire to complete an AFS submission:
Customer invoices and statements
Supplier invoices and statements
Other useful financial reporting information. E.g: Fixed Asset Schedules
Companies need to ensure that their AFS is up to date and they have access to previous AFS documentation should an entity ever be required to showcase this. These documents must be filed every year as the process of working back multiple years to provide old AFS can be an extremely cumbersome one.
Should You Submit AFS?
All companies are required to submit AFS and comply with the Companies Act. Furthermore, there are benefits for doing so beyond avoiding the consequences of failing to do so. The allocation of resources gleaned from information provided in the reporting statements is one such driver for preparing AFS on time. As such, your company should begin readying its AFS to stay ahead of the game as 2021 rolls around.
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