What are Annual Financial Statements?
Annual Financial Statements (AFS) are formal financial reports that provide an overview of a company’s financial performance and position over a specific period, typically a financial year.
They are prepared in accordance with established accounting standards and serve as a key tool for assessing the financial health of an organization. These statements help stakeholders understand the company’s revenues, expenses, assets, liabilities, and overall financial stability.
Nooshin Jeeva, CEO of NJ Adam Inc, says, “If you are uncertain whether your organisation requires Annual Financial Statements then you need to chat to an accounting firm such as ours.”
In South Africa, the Financial Reporting Standards Council (FRSC) is the legally constituted financial reporting standard-setter, while the Accounting Standards Board (ASB) focuses on public sector accounting standards.
Why are Annual Financial Statements Necessary?
Annual Financial Statements are essential for various reasons:
- Regulatory Compliance – In South Africa organisations are required to prepare and submit financial statements to the South African Revenue Services (SARS), regulatory bodies, and other oversight organizations such as the Johannesburg Stock Exchange (JSE) to ensure transparency and adherence to financial regulations.
- Stakeholder Confidence – Investors, shareholders, and lenders rely on these statements to assess the company’s performance, making them crucial for maintaining trust and credibility.
- Financial Decision-Making – Business leaders use financial statements to evaluate performance, identify trends, and make informed strategic decisions.
- Tax and Audit Requirements – These statements form the basis for tax calculations and are often subject to audits to ensure accuracy and reliability.
- Facilitating Growth and Investment – A well-prepared AFS can help a company secure funding, attract investors, and demonstrate its financial health to potential partners.
Nooshin adds, “Every organisation needs to understand their financial position to ensure their survival. Financial statements provide a wealth of information that can assist your organisation when it comes to managing costs and cashflow and in expanding your operations.”
What Do Annual Financial Statements Include?
Annual Financial Statements typically consist of the following key components:
- Balance Sheet (Statement of Financial Position) – Provides a snapshot of a company’s assets, liabilities, and equity at the end of the financial year.
- Income Statement (Profit and Loss Statement) – Summarizes the company’s revenues, expenses, and net profit or loss over the financial year.
- Cash Flow Statement – Details the cash inflows and outflows from operating, investing, and financing activities.
- Statement of Changes in Equity – Shows changes in ownership equity throughout the year, including retained earnings and issued capital.
- Notes to the Financial Statements – Provides additional explanations, accounting policies, and details on specific financial transactions and figures.
“Not all organisations are required to produce all this information. However, having a balance sheet and income statement are essential for taxation and maintain a cashflow statement can help your organisation survive difficult times,” says Nooshin.
Who Signs Off on Annual Financial Statements?
The sign-off process ensures that financial statements are accurate, reliable, and prepared in accordance with applicable accounting standards. The following individuals are typically responsible for approving and signing off on AFS:
- Directors and Management – Company directors and senior management are accountable for the preparation and accuracy of financial statements.
- External Auditors – In cases where a company is subject to an audit, an independent auditor will review and certify the financial statements, ensuring compliance with accounting standards and regulatory requirements. In South Africa all listed companies and state owned companies must be audited.
- Company Secretary – In some jurisdictions, the company secretary may also be required to sign the financial statements, confirming their accuracy and authenticity.
Who Uses Annual Financial Statements?
Annual Financial Statements serve a broad range of stakeholders, including:
- Investors and Shareholders – To evaluate the company’s profitability, growth potential, and financial stability.
- Lenders and Creditors – To assess creditworthiness before extending loans or credit facilities.
- Regulatory Authorities – Government agencies and tax authorities use AFS to ensure compliance with legal and tax obligations.
- Company Management – To analyze financial performance, set strategic goals, and make informed business decisions.
- Employees and Unions – To understand the financial health of the organization, particularly in relation to job security and salary negotiations.
- Potential Buyers or Mergers – Prospective buyers or companies looking for acquisition opportunities rely on financial statements to assess the value of the business.
“If your organisation hopes to expand or requires significant capital equipment or wishes to own property or if you are at retirement age and wish to sell your business then Annual Financial Statements are essential,” concludes Nooshin.
What do Annual Financial Statements cost?
In South Africa, expect to pay between R150 and R750 per hour for financial statement drafting, with an average of R450 per hour. However, costs can vary based on the size and complexity of the entity.
The cost factors include the size of a business, the complexity of the business and the level of assurance required.
Large and complex businesses may require more complex financial statements and therefore higher costs. If an audit (highest level of assurance) or review (lower level) is required, this will affect the overall cost too.
For more information contact Nooshin Jeeva on +27 (0) 41 001 0184 or email info@njadam.com