Introduction
This article gives some insights into the requirements of the Companies and Other Entities Act (Chapter 24:31) (or “the COBE Act”) of 2020 on financial accounts of companies. This is based on sections 182, 183 and 184 of the Act.
Keeping of financial records
According to section 182(1) the COBE Act it is a requirement for a company to keep in English or any officially recognized language financial records with respect to:
- All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place.
- All sales and purchases of goods by the company.
- The assets and liabilities of the company.
In terms of section 182(2) financial records shall not be deemed to be kept with respect to the matters mentioned above if there are not kept such records as necessary to give a true and fair view of the state of the company’s affairs and to explain transactions.
Section 182(3) requires the financial records to be kept at the registered office of the company or at such other place as the directors think fit and shall always be open to inspection by the directors. Section 182(4) requires such records to be kept for at least 8 years after which they may be destroyed.
Section 182(5) makes a director liable for civil penalty in the event of failure to ensure compliance. It shall be no defence to a civil penalty for a director to prove that he or she had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that the requirements of this section were complied with and was able to discharge that duty.
General provisions as to contents and form of financial statements
These are regulated by section 184 of the COBE Act and are summarised below.
According to section 184(1) every statement of financial position shall give a true and fair view of the state of affairs of the company as at the end of its financial year, and every statement of comprehensive income of a company, shall give a true and fair view of the profits and losses (or income and expenditure) and other items of comprehensive income of the company for the financial year.
Section 184(2) requires a company’s statement of financial position, statement of comprehensive income, and income and expenditure account to comply with any requirements that may be prescribed with regards to their form and content and any additional information to be provided by way of notes.
The registrar of Companies and Other Business Entities (“registrar”) may, on application or with the consent of the company’s directors, modify in relation to that company any of the requirements of this Act as to the matters to be stated in a company’s statement of financial position or statement of comprehensive income, except those in section 184(1), for purposes of adapting them to the circumstances of the company.
There are in terms of section 184(6), civil penalties if a director of a company fails to take all reasonable steps to secure compliance by the company as respects any financial statements required to be laid before the company in general meeting with the provisions of section 184 or other requirements under the Act.
According to section 184(7) it shall be partial defence to a civil penalty order or proposed civil penalty under section 184(6) for a director to prove that he or she had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that the requirements of this section were complied with and was in a position to discharge that duty.
Section 184(9) is fundamental in that it requires that financial statements made in terms of this section (184) to comply with international financial accounting standards (also known as international financial reporting standards or IFRS in short) adopted by the Public Accountants and Auditors Board (“PAAB”) constituted under the Public Accountants and Auditors Act (Chapter 27:12).
Financial statements for holding company and subsidiary
These are regulated by section 183 of the COBE Act as explained below.
Section 183(1) requires directors of a company to cause to be made out in respect of every financial year of the company, and to be laid before the company at each annual general meeting (“AGM”) held in terms of section 167, a statement of financial position and a statement of comprehensive income as at the end of the financial year which shall comply with the requirements of section 184.
According to section 183(2) a holding company’s directors shall ensure that, except where there are good reasons against it, the fiscal year of each of its subsidiaries shall coincide with the company’s own fiscal year.
In terms of section 183(3), in addition to the requirements of section 183(1) directors of a public company shall cause to be presented at each AGM the report of the board’s audit committee giving a descriptive review of the nature of the business of the company and any subsidiaries and any changes therein, and the total remuneration paid to and value of any benefits received by each director or former director during the financial year last ended.
Directors are liable for civil penalty in the event of non-compliance with the requirements of this section.
Conclusion
Financial accounting and reporting are central to a business and are regulated by the COBE Act. Space permitting audit of companies will be covered.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA (EBS, UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant and consultant in deal structuring and is an experienced director of companies. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
