Financial Accounting
ACCESS FOR SUCCESS IN
ACCOUNTING
FINANCIAL ACCOUNTING
Unit 1: SOUTH AFRICAN REPORTING
REQUIREMENTS
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REGENT BUSINESS SCHOOL
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ACCESS FOR SUCCESS IN ACCOUNTING
Financial Accounting
Table of Contents
1. Learning outcomes and activities, competence and knowledge levels .......... 2
1.1 Learning outcomes competence and knowledge areas ............................. 2
1.2 Learning activities.......................................................................................... 2
2. Prescribed Reading.............................................................................................. 2
3. Prior Learning ....................................................................................................... 2
4. Integration............................................................................................................. 2
5. Introduction .......................................................................................................... 3
6. Unit elements ........................................................................................................ 3
6.1. The Companies Act....................................................................................... 3
6.2. JSE Requirements / King Report ................................................................. 4
6.3. The International Financial Reporting Standards (IFRS) ........................... 4
6.4. IFRS for SMEs ............................................................................................... 4
7. Unit summary ....................................................................................................... 5
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Financial Accounting
1. Learning outcomes and activities, competence and knowledge levels
1.1 Learning outcomes competence and knowledge areas
Learning outcomes Competence &
Knowledge level
1 Understand the South African reporting requirements, Advanced
including the following:
1.1 Statute; Advanced
1.2 International Financial Reporting Standards; (IFRS and IFRS Advanced
for SMEs)
1.3 The JSE Limited requirements for listed companies. Basic
1.2 Learning activities
• Read, highlight and flag the relevant statement in the SAICA student’s handbook.
• Read the relevant chapter in the prescribed text, in conjunction with this unit guide.
• Do all illustrative examples contained in the relevant chapter of the prescribed text.
• Attempt the key concept questions as and when recommended in the unit study guide and
then compare your attempt with the suggested solution to get feedback on whether or not
you have understood the concept being tested.
• Attempt each tutorial question in the order suggested and carefully review your attempt
against the suggested solution making sure you understand where you went wrong.
• Note down your key learning points for each tutorial question attempted.
• Raise queries with your lecturer and resolve any misunderstandings you may have.
2. Prescribed Reading
A Guide to International Financial Reporting, L Stainbank, M Razak, and
R Jankeeparsad, 12th Edition:
• Chapter 1 - South African reporting requirements;
• Chapter 3 - The International Financial Reporting Standards:
A Synopsis
3. Prior Learning
Undergraduate knowledge of the South African reporting requirements
4. Integration
Forms the basis of all further modules
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Financial Accounting
5. Introduction
External financial reporting by reporting entities in a jurisdiction is governed by a set of
authoritative pronouncements, regulations or legislation in that jurisdiction. Up until 1
December 2012, South Africa utilised its own reporting framework which was known as SA
GAAP. The enactment of the Companies Act, 71 of 2008 resulted in the mandatory use of
IFRS or IFRS SMEs for all South African companies, effectively replacing the need for SA
GAAP. In South Africa, the three basic sources of authority governing financial reporting are:
• Statute, including the Companies Act, Companies Amendment Act, Close Corporations
Act, Insurance Act and Banks Act (in respect of affected reporting entities only).
• The Johannesburg Securities Exchange (JSE) (in respect of listed companies only) (and
including King 4); and
• International Financial Reporting Standards (IFRS and IFRS for SMEs)
6. Unit elements
6.1. The Companies Act
Financial reporting in South Africa is regulated by various statutes, the most important being
the Companies Act, 71 of 2008. The implementation date of the Companies Act, 71 of 2008
was 1 May 2011. Essential matters you should know about the Companies Act, 71 of 2008:
• Provides for 2 basic categories: Profit Companies and Non-Profit Companies
• Profit companies may be a:
o public company (Ltd),
o private company ((Pty) Ltd),
o personal liability company (‘Inc’)
o State-owned company (SOC Ltd)
• S 28 requires ALL companies to keep the prescribed accounting records
• S 29 requires all companies to prepare annual financial statements and these statements
must:
o Satisfy the financial reporting standards as to form and content
o Present the state of affairs and business of the company fairly
o Explain the transactions and financial position of the business of the company
o Show the company’s assets, liabilities and equity as well as its income and expenses
and other prescribed information
o Set out the date on which the statements are produced and the accounting period to
which the statements apply
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Financial Accounting
• The regulations requires that Profit Companies that are to be audited must comply with
IFRS and Profit Companies required to be reviewed must comply with IFRS for SMEs
• S 40 sets out the requirements for statutory audits while some companies may want to be
audited voluntarily or others may have to be independently reviewed.
(Refer to the table in Section 2.1 of Chapter 1 of the prescribed text for additional detail)
6.2. JSE Requirements / King Report
Every listed company in South Africa must comply with the JSE Listings Requirement which
includes, amongst others, detailed and specific disclosure requirements in listed company
financial statements. These requirements are summarised in Section 3 of Chapter 1 of the
prescribed text. The JSE listing requirements require companies to apply the requirements of
King 4. The King Report sets out the requirements relating to ‘integrated reporting’. Integrated
reporting requires that an entity incorporate environmental, social and financial aspects into
its strategic decision-making processes. King 4 contains 16 principles that can be applied by
any entity to achieve good corporate governance.
6.3. The International Financial Reporting Standards (IFRS)
South African financial reporting is based entirely on International Financial Reporting
Standards (IFRS) promulgated by the IFRS Foundation and consequently, of the International
Accounting Standards Board (IASB). The IFRSs consist of a number of principles that govern
how the financial aspects of an entity are recognised, measured and disclosed. These
standards are adopted internationally and includes 166 jurisdictions (as of February 2021)
such as Australia, the UK, France, Russia and New Zealand. The most significant country
that has not adopted IFRS is the United States of America where US GAAP remains the
primary set of accounting standards.
The IFRSs, which is the largest source of authority for financial reporting in South Africa can,
in the South African context, be said to comprise:
• IFRSs and IASs of the IASB
• IFRICs or SICs of the IASB (Interpretation standards)
• FRGs and Circulars published by SAICA (dealing with items peculiar to the need of South
African reporting entities)
6.4. IFRS for SMEs
In July 2009, the IASB issued the standard IFRS For Small and Medium-Sized Companies
(IFRS for SMEs) which has been wholly adopted by the South African Institute of Chartered
Accountants (SAICA).
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Financial Accounting
SMEs are entities that:
• Do not have public accountability; and
• Publish general-purpose financial statements for external users.
An entity has public accountability if:
• It files or is in the process of filing its financial statements to a regulatory organisation for
the purpose of issuing its equity / debt instruments in a public market; or
• It holds assets in a fiduciary capacity for a broad group of outsiders, e.g. bank/pension
fund.
The essential aspects regarding IFRS for SMEs you should note are:
• IFRS for SMEs apply to companies in South Africa that do not have public accountability.
• IFRS for SMEs is a separate, self-contained (free-standing) standard of approximately 230
pages that sets out the financial reporting requirements of small and medium enterprises.
IFRS for SMEs is a simplified version of ‘full IFRSs’ that aims to lessen the reporting
burden and responsibilities for SMEs. It generally contains fewer recognition and
measurement principles and requires less disclosure requirements of SMEs.
• An entity cannot pick and choose between the requirements for IFRS for SMEs and ‘full’
IFRS. It chooses one of the two models, i.e. full IFRS or IFRS for SMEs.
• IFRS for SMEs also has a ‘Concepts and pervasive principles’ framework.
• Set of financial statements required under IFRS for SMEs same as for ‘full’ IFRS (but
statement of changes in equity not required if only change to equity arise from profit or
loss, dividends, correction of errors or change in accounting policy).
7. Unit summary
This Unit has covered the authoritative pronouncements, regulations or legislation which
govern the reporting of financial information in South Africa. Students need to understand the
South African reporting requirements and list the existing regulatory requirements which form
the three basic sources of reporting authority as they are relevant to all corporate entities in
South Africa.
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Financial Accounting
Key points to remember
South African reporting requirements
▪ The three basic sources of authority for financial reporting are statute,
the JSE and IFRS (and IFRS for SMEs when applicable)
▪ The JSE requires companies to comply with King 4
▪ Listed companies must use IFRS.
▪ Unlisted companies must use IFRS or IFRS for SMEs provided they meet
the scoping requirements for IFRS for SMEs.
▪ Companies which have a PI score of < 100 have a choice of financial
reporting frameworks depending on whether their financial statements
are independently compiled or internally compiled.
JSE requirements
▪ The JSE requires full compliance with IFRS.
▪ The JSE requires listed companies to disclose HEPS.
▪ FRIP pro-actively monitors listed companies’ annual reports.
▪ The JSE requires companies to comply with King 4.
Other requirements in SA reporting
▪ SAICA issues circulars of interest to accountants (such as Headline
Earnings per Share).
▪ CIPC has announced a programme to require companies to submit their
financial reports using XBRL.
▪ Public companies must publish a summary of their Employment Equity
Plan in their annual financial statements.
The International Financial Reporting Standards (IFRS)
▪ The IASB has issued The Conceptual Framework for Financial
Reporting, IFRS, IFRS for SMEs and A Guide for Micro-Sized Entities
Applying the IFRS for SMEs (2009).
▪ IFRS for SMEs is applicable to entities that do not have public
accountability, and publish general purpose financial statements for
external users.
▪ IFRS for SMEs allows an ‘undue cost or effort’ exemption for some of its
requirements; entities making use of this exemption must disclose that
fact and the reasons why applying the requirement would involve undue
cost or effort.
Source: A Guide to International Financial Reporting, Stainbank, Razak and Jankeeparsad.
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