INTRODUCTION TO COMPANY FINANCIAL STATEMENTS

FAC2601
LEARNING UNIT 1

INTRODUCTION TO
COMPANY FINANCIAL
STATEMENTS




Financial Accounting
for Companies

,CONTENTS
Page
LEARNING UNIT 1: INTRODUCTION TO COMPANY FINANCIAL STATEMENTS ............. 1
1.1 Introduction ...................................................................................................... 4
1.2 Company background ....................................................................................... 4
1.3 History of companies act .................................................................................. 6
1.4 Different reporting frameworks ....................................................................... 7
1.4.1 Full IFRS (International Financial Reporting Standards) ................................... 7
1.4.2 IFRS for SME’s (Small and medium-sized entities) ........................................... 7
1.4.3 GRAP ................................................................................................................. 10
1.5 Annual financial statements ............................................................................. 12
1.6 CA 2025 Competency Framework .................................................................... 14
1.6.1 Professional values and attitudes..................................................................... 14
1.6.2 Acumens ........................................................................................................... 15
1.7 Companies Act Requirements .......................................................................... 18
1.7.1 Capitalisation of profit companies ................................................................... 18
1.7.2 Governance of companies ................................................................................ 19
1.7.3 Application and general requirements regarding enhanced accountability
and transparency .............................................................................................. 20
1.7.4 Transactions (shareholders and directors) ....................................................... 21
1.8 Share transactions ............................................................................................ 22
1.8.1 Introduction ...................................................................................................... 22
1.8.2 Share capital structures .................................................................................... 22
1.8.3 Types of shares ................................................................................................. 23
1.8.4 Issue of capitalization shares ............................................................................ 24
1.8.5 Rights issues and options ................................................................................. 26
1.8.6 Underwriting of share issues ............................................................................ 27
1.8.7 Dividends .......................................................................................................... 28
1.9 Self-reflective exercises .................................................................................... 28
1.9.1 Adopt a professional attitude........................................................................... 28
1.9.2 Relational acumen ............................................................................................ 28




2

,Learning outcomes
• Learners must have the basic knowledge and background of the theory behind
annual financial statements (as covered in Accounting I). They must also
understand the goal of IFRS.

Assessment criteria

After having studied this learning unit, you should be able to
 record the accounting entries applicable to the issue of shares.
 record the issue of capitalisation shares.
 know the types of companies.
 name the users of annual financial statements.
 understand the background of companies, the Companies Act and IFRS.

Overview

This learning unit will be discussed under the following sections:
1.1 Introduction
1.2 Company background
1.3 History of companies act
1.4 Different reporting frameworks
1.4.1 Full IFRS (International Financial Reporting Standards)
1.4.2 IFRS for SME’s (Small and medium-sized entities)
1.4.3 GRAP
1.5 Annual financial statements
1.6 CA 2025 Competency Framework
1.6.1 Professional values and attitudes
1.6.2 Acumens
1.7 Companies Act Requirements
1.7.1 Capitalisation of profit companies
1.7.2 Governance of companies
1.7.3 Application and general requirements regarding enhanced
accountability and transparency
1.7.4 Transactions (shareholders and directors)
1.8 Share transactions
1.8.1 Introduction
1.8.2 Share capital structures
1.8.3 Types of shares
1.8.4 Issue of capitalization shares
1.8.5 Rights issues and options
1.8.6 Underwriting of share issues
1.8.7 Dividends
1.9 Self-reflective exercises
1.9.1 Adopt a professional attitude
1.9.2 Relational acumen




3

, STUDY


Below study material.


1.1 INTRODUCTION
In Accounting I you were introduced to company annual financial statements. You studied
aspects such as the format and layout of a statement of financial position, statement of profit
or loss and other comprehensive income, statement of changes in equity and cash flows. In
Accounting II you will be studying the above aspects in greater detail and you will be acquiring
knowledge of International Financial Reporting Standards (hereafter called IFRS). IFRS are
being developed by the International Accountants Standards Board (IASB) and will form part of
your study material in future.


What is IFRS?
IFRS is a set of international accounting standards stating how particular types of
transactions and other events should be recognized, measured and reported in annual
financial statements.

Goal of IFRS?
From your Accounting I studies you’ll remember that the goal of IFRS is to provide a global
framework for how public companies prepare and disclose their annual financial
statements. IFRS provides general guidance for the preparation of annual financial
statements, rather than setting rules for industry-specific reporting.

Having international accounting standards is especially important for large companies that have
subsidiaries in different countries. Adopting a single set of world-wide standards will simplify
accounting procedures by allowing a company to use one reporting language throughout. A
single standard will also provide investors and auditors with a cohesive view of finances.

1.2 COMPANY BACKGROUND
In general, a company can be described as an association between persons that work together
with the aim to make a profit. A company as an entity is a legal person which is incorporated
in terms of the Companies Act 71 of 2008. The entity exists independently from its owners,
the shareholders.

Companies as a form of entity were established in order to fulfil the following needs:
• the acquisition of more capital, as it is normally not possible in a sole entity
• to ensure the continued existence of the company
• to provide an easy way to exchange owners
• to provide a procedure to limit the financial liability of the owners




4