Accounting And Reporting Requirements Of Close Corporations

Companies and close corporations (CCs) must keep the following: records showing assets and liabilities; a register of fixed assets; records containing daily entries of all cash received and disbursed; records of all credit purchases or sales and services received or rendered on credit, in sufficient detail to identify the nature of the transactions and the parties concerned; statements of annual stock taking; records enabling the value of stock at the end of the year to be determined and vouchers supporting entries in the accounting records.A corporation must also keep records of members’ contributions, un-drawn profits and revaluations of fixed assets and amounts of loans to and from members, in sufficient detail to identify the nature and purpose of the individual transactions clearly.These records must be kept in such a manner as to provide adequate precautions against falsification and to facilitate the discovery of any such falsification. A corporation that fails to keep such accounting records and every member who fails to take all reasonable steps to prevent falsification is guilty of an offence. However, if the members entrusted the duty of keeping the accounting records or maintaining a system of internal control to a ‘competent and reliable person’, this would be sufficient defence.

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The financial year of a CC is its annual accounting period. A CC must specify the date of the end of its financial year in its founding statement. As is the case with other information in the founding statement, the date of the end of the financial year may be changed by, registering an amended founding statement.The members of a corporation must, within a maximum of nine months after the end of every financial year, have financial statements prepared. The financial statements must be approved and signed by or on behalf of every member of the corporation and must consist of an accounting balance sheet and notes thereto and an income statement or any similar financial statement, where such form is appropriate and any notes thereto.The financial statements must disclose separately the aggregate amounts at the end of the accounting financial year and any changes in these amounts during the year of contributions by members, un-drawn profits, revaluations of fixed assets, amounts of loans to members and amounts of loans from members.The Close Corporation Act does not require a directors’ report or an auditors’ report and also does not contain a schedule, which lays down specific requirements for the preparation of annual financial accounting statements. The financial reports of a CC must, in conformity with Generally Accepted Accounting Practice (GAAP) appropriate to the business of the corporation, fairly present the state of affairs of the corporation at the end of the financial year concerned and the result of its operations for the year.

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In determining what constitutes generally acceptable accounting policy for the business of a particular corporation, the needs of the members and the primary users of the financial statements should be taken into account.Over the years accounting practices in the various economic and industrial environments have developed in such a manner as to record and fairly present transactions and occurrences specific to these environments. In deciding what is ‘suitable for the business’, consideration should also be given to the commercial and management activities of the corporation and the accepted accounting practice in the working environment of the corporation.