Article by listed accountant Liza Wood, Audit Manager of Lucro Auditing and Consulting
Are you aware that the Companies Act (No71 of 2008 section30) requires companies to prepare Annual Financial Statements within six months after the end of its financial year? It is not uncommon, for a number of reasons, for companies to fail in this regard. However, failure to comply with this requirement is a breach of the Companies Act and can have a number of dire consequences.
When preparing an Audit or Independent Review opinion the auditor needs to consider this breach (defined as an unlawful act or omission) and whether it constitutes a Reportable Irregularity in terms of the Auditing Profession Act. Although not all breaches of this section result in a Reportable Irregularity, there are circumstances that the auditor is obliged to report. Receiving a Reportable Irregularity can have serious implications for a business. In the event that it is not a Reportable Irregularity, the auditors is still required to consider and document such, resulting in additional audit time required.
It is therefore encouraged to ensure that the Companies Act requirement is adhered to and the 6 month deadline met.
Examples of when failure to prepared Annual Financial Statements within 6 months could result in a Reportable irregularity:
This has caused or is likely to cause material financial loss to the entity or to a partner, member, shareholder, creditor or investor to the entity in respect of his, her or its dealings with the entity.
The draft Annual Financial Statements (or accounting records) reflect material operating loss or liquidity problems such that the company would breach external debt covenants and an external financier or other creditor with right of access to financial statements may incur material financial loss as a result of withholding the information.
All shareholders, including minority shareholders, have not obtained the appropriate access to alternative financial information that is not materially different to the information presented in the Annual Financial Statements
It is possible the company/board is purposefully withholding the Annual Financial Statements to conceal fraud or theft.
We therefore urge you to be mindful of this deadline and communicate with us if you feel that your financial statements will not be finalised by the due date.
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