Navigating the Transition: Accounting Policies in Financial Statements Amidst IAS 1 Amendments

The preparation of financial statements is a crucial aspect of financial reporting, offering stakeholders a clear narrative of an entity’s financial health and performance. Central to this process is the disclosure of accounting policies, which provides context to the figures presented. Significant changes were made to the International Accounting Standard IAS 1, which now requires entities to disclose “material accounting policy information” instead of “significant accounting policies.” This change, effective for annual reporting periods beginning on or after 1 January 2023, marks a pivotal shift in how accounting policies are communicated in financial statements. We have however noticed, that preparers of financial statements are still hesitant to update the accounting policies to effect this change and rather still disclose the previous year accounting policies and did not make any adjustments to incorporate this change.

Understanding Material Accounting Policy Information

The amendments to IAS 1 underline the importance of disclosing material accounting policy information, which can significantly influence users’ understanding of the financial statements. Material accounting policy information is crucial if, without it, users would struggle to comprehend other material information in the financial statements.

Conversely, the standard also clarifies that immaterial accounting policy information need not be disclosed. However, if disclosed, it should not obscure material information, ensuring that the focus remains on what is truly important for the users.

To further support these amendments, the International Accounting Standards Board (IASB) also updated IFRS Practice Statement 2, “Making Materiality Judgements”, providing detailed guidance on applying the concept of materiality to accounting policy disclosures. This guidance is instrumental in helping entities assess which information is truly material.

Key Areas of Focus in Practice Statement 2

IFRS Practice Statement 2 offers valuable insights into the concept of materiality, particularly in the context of accounting policy disclosures. Four key areas are highlighted:

Materiality Definition: Information is considered material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions made by the primary users of financial statements. Materiality is entity-specific, based on the nature or magnitude of the items in the context of the entity’s financial statements.
Primary Users: Primary users of financial statements are assumed to have a reasonable knowledge of business and economic activities. They include existing and potential investors, lenders, and creditors. Entities must consider whether these users need the disclosed information to understand other material aspects of the financial statements.
Qualitative and Quantitative Factors: In determining materiality, entities must consider both qualitative and quantitative factors. This assessment is critical in ensuring that the disclosed accounting policy information is relevant and useful.
Entity-Specific Information: One of the most challenging aspects of applying the new requirements is ensuring that accounting policy information is specific to the reporting the preparers, who must tailor the information to reflect the entity’s unique circumstances.

Practical Implications of the Changes

The shift from significant to material accounting policy information requires a careful reassessment of the content and structure of accounting policy disclosures. Entities must ensure that their disclosures are tailored to their specific circumstances, avoiding boilerplate or generic statements that do not add value for users.

The key to success in this transition lies in the principles applied during the revision process. These principles include:

Compliance with IFRS: Ensuring that required disclosures are included.
Relevance: Avoiding unnecessary disclosures that do not apply to the entity’s specific transactions or events.
Avoidance of Duplication: Preventing the repetition of information within the accounting policies.
Clarity and Judgment: Making complex or judgmental areas of accounting policy clear and understandable.

Conclusion

The amendments to IAS 1 represent a significant shift in the approach to accounting policy disclosures, moving towards a more focused and materiality-driven approach. Adapting to these changes is not just about compliance, but about improving the clarity and relevance of the financial information provided to stakeholders. By focusing on disclosing material accounting policy information, entities can offer users deeper insights into their financial statements, improving overall transparency.

As we move into new reporting periods, it’s crucial for preparers of financial statements to revisit their disclosures and make the necessary adjustments to align with the updated IAS 1 requirements. Don’t fall behind in meeting these new standards – review your accounting policies to ensure they meet the expectations of your users and the evolving regulatory landscape.

July 25, 2024July 25, 2024

Mastering the Annual Financial Statement Process: Best Practices and Execution Strategies for Corporate Firms

When it comes to corporate governance and financial disclosure, preparing and executing annual financial statements are crucial milestones for any company, especially in South Africa, where statutory adherence and transparency are paramount. This article explores best practices in preparing these statements, considering South Africa’s regulatory landscape and addressing relevant issues from recent reports.

Understanding Regulatory Requirements in South Africa

South Africa’s regulatory framework for financial disclosure is governed primarily by the Companies Act, 2008 (Act No. 71 of 2008), and regulatory authorities such as the Companies and Intellectual Property Commission (CIPC). The IFRS Accounting Standards or IFRS for SMEs Accounting Standard adopted by the country ensure consistency, comparability, and transparency in financial disclosure across all entities.

Best Practices in Preparation of Annual Financial Statements

Early Planning and Preparation:

Establish a timeline for the preparation process, ensuring adequate time for gathering financial data, reconciliations, and reviews.
Facilitate the installation of the latest Caseware Working Papers and relevant templates, ensuring the appropriate number of licenses are available to the team.
Assign responsibilities to qualified personnel who understand the appropriate regulatory requirements and accounting standards.
Coordinate Caseware training for any new staff members.

Compliance with Accounting Standards:

Adhere strictly to the IFRS Accounting Standards or IFRS for SMEs Accounting Standard when preparing financial statements.

Prepare the Caseware Working Paper file as follows:

Initiate a roll forward of the file.
Run an update and read the release notes to understand the compliance changes available in the latest template.
Map the trial balance to obtain insights on additional disclosures required for the current year.
Maintain consistency in the application of accounting policies and disclosures across reporting periods where compliance changes are required.

Transparency and Disclosure:

Provide clear and comprehensive disclosures on material accounting policies, estimates, and judgments made in the preparation of financial statements.
Provide detailed working papers for calculations (e.g., Cashflow worksheet), along with lead sheets available in Caseware Working Papers to help users understand the underlying balances.

Quality Assurance and Review:

Conduct internal reviews and quality assurance checks to identify and rectify errors or inconsistencies.
Seek external audit advice or peer reviews to validate the accuracy and completeness of financial statements.

Communication and Stakeholder Engagement:

Engage with stakeholders, including shareholders, regulators, and investors, to ensure that their information requirements and expectations are well understood and adequately represented.
Communicate financial results and disclosures clearly and effectively to enhance transparency and trust.

The preparation and execution of annual financial statements in South Africa require adherence to rigorous regulatory standards and best practices. Addressing issues highlighted in reports, such as those from Business Live, underscores the importance of governance, transparency, and accountability in maintaining investor confidence and statutory adherence in South Africa’s dynamic business environment.

Learn more about how Caseware’s IFRS Financial Statements and SME Financial Statements can empower your financial statement preparation process.

November 11, 2022August 31, 2023

Caseware Africa’s new application will revolutionise how SMEs create financial statements

Kenya, 30 August 2022: Caseware Africa, a division of Adapt IT, has introduced a new cloud-based app in Kenya: SME Financial Statements. The new solution, which will be rolled out to various African regions, has been completely redesigned to leverage the benefits of the cloud, as well as everything Caseware has learned from its clients over the past decades, says Nienke Krüger, Product Manager: Financial Reporting at Caseware Africa.

“This new cloud-based application has been designed from the ground up to revolutionise the way that preparers create financial statements. We have leveraged our extensive experience over many years with our clients to design a process that is user-friendly and streamlined,” she says. “The new approach takes into account regulators’ growing insistence that only material information is presented in the financials – something that can prove quite tricky for inexperienced or infrequent users.”

SME Financial Statements uses checklists, questionnaires and integrated queries that expand and collapse, only displaying content relevant to the current engagement. This will enable users to work much more efficiently by empowering them to focus their time only on relevant items and will greatly assist them in streamlining the process to produce the financial statements as the final output document.

Another big advantage of SME Financial Statements is that it enables users to integrate the trial balance information directly from the company’s accounting package. This eliminates the tiresome, error-prone, and manual process of exporting and importing data via spreadsheets. Currently, direct integrations from Xero, QuickBooks and Sage Business Cloud Accounting are supported, with more packages to be added in line with market demands.

These features provide users with significant timesaving and greatly reduces room for error, Ms Krüger says. A built-in workflow ensures that information is entered only once, reducing the risk of inconsistencies, duplication, and errors. The solution also allows users to insert logos and graphs into the financial statements and save external documents in the same file.

“SME Financial Statements is powered by Caseware Cloud and can be accessed from any device at any location, completely secure, at any time. It enables multiple users to work on the same document at the same time, thus supporting greater collaboration between team members across both the client and accounting firms. That makes for huge productivity gains,” Ms Krüger says. “It’s also much easier to update the application as new functionality is added.

“This app has been carefully designed based on Caseware Africa’s vast experience and intellectual property to assist preparers to create accurate SME compliant statements as quickly and painlessly as possible” says Ms Krüger.

Ms. Krüger confirms that this is a significant development for Africa’s SMEs. “In due course, post the introduction of SME Financial Statements in the Kenyan market, the app will be rolled out to other regions across the continent, which presents an exciting opportunity for practices and SMEs to enhance their business efficiencies as they continue to strive for growth.”

February 15, 2022August 31, 2023

Integrating monthly, interim, and annual financial statements for efficiency gains

By Nienke Krüger, Product Manager: Financial Reporting, Caseware Africa

Annual financial statement reporting is a process with which finance professionals are very familiar. As this is a statutory requirement, a lot of the yearly planning is built around it, and rightly so. However, the process can be an onerous one, particularly since queries and corrections might relate to transactions from up to a year ago.

Additional reporting is also required throughout the year, and management may need reports at shorter intervals in order to stay abreast of the organisation’s financial status.

In many organisations, the annual, interim, and monthly reports are approached as independent reporting processes, resulting in a disjointed approach that duplicates effort and consumes a great deal of time.

This begs the question of whether we are missing an opportunity to streamline all reporting processes by integrating them.

What is defined as the interim financials?

Different industries use different terminology for financial reporting that is not prepared on an annual basis.

Interim financial statements are defined by IAS 34 and although this standard does not prescribe who must prepare interim financials, it does provide the requirements of how they must be prepared. They are mostly performed by listed entities, but also by some specific industries that are regarded as more volatile.

Management accounts or monthly board packs

These are not legislatively regulated and are normally produced for management and other stakeholders who might not be intimately involved in the detail of the business on a daily basis. Management accounts originated from the manufacturing sector where there was a need to prepare a profit and loss statement on the basis of cost accounting rather than IFRS/SME standard.

Other industries adopted this procedure also but more from a monthly balance sheet and income statement perspective with the same grouping as that of annual financial statements.

Integration benefits

By integrating and aligning the reporting requirements, organisations are essentially preparing their annual and interim statements throughout the year, as they prepare monthly reports.

This is perhaps where the biggest efficiency gain will be for an organisation, not only on a monthly basis, but also enabling management during the audit period to get back to running their businesses a lot quicker as there are no surprises at year end.

As you are preparing management accounts on a monthly basis, you will stay close to the numbers, and therefore, any adjustment or analysis of the transactions can be done with the details at the forefront.
The grouping of the accounts is also performed monthly, and as such, the audit can commence with no changes required to the line items on the financials. This also helps to avoid duplication of work due to rework on audit packs as groupings are amended.
Adjustments can be made throughout the year for depreciation; expected credit loss calculations etc., and this increases the predictability of more accurate final numbers.
Provisional tax calculations are more accurate and therefore, the risk of incurring interest and penalties is less likely.
Then for the issue that is perhaps the most relevant to businesses – cash! This will enable you to have more accurate cash flow projections and make more informed operational decisions.

At Caseware Africa, we encourage the principle of one data source as this empowers our clients to have one version of the truth. This in turn enables you to have greater confidence in the information presented and make operational decisions that are right for your business. We believe if you use the annual solution, on a monthly basis, you can achieve the monthly board packs you require and if you need a more robust solution, you can also use the Interim template. But all emanating from the same data source and building on the work performed on a monthly basis for the efficient preparation of your annual financial statements.

July 12, 2021February 10, 2023

The Future of Financial Reporting in the Public Sector

Proposed amendments to Kenya’s Public Finance Management (PFM) Act, giving Chief Financial Officers only one month to submit their Annual Financial Statements to the Auditor General after the end of the financial year, are sending shockwaves through the public sector accounting community in Kenya, reports international auditing and financial reporting software company, Caseware Africa.

CPA Rexon Wachira, a public sector consultant at Caseware Africa’s Nairobi office, says the process of compiling and reviewing these entities’ Annual Financial Statements typically takes public sector financial professionals three months or longer, challenged by the fact that in the fourth quarter in a year, reports must be submitted in the same period as well. “There is grave concern that it may not be possible to produce Annual Financial Statements so quickly,” he says.

Stephan van der Merwe (CA) SA, Specialist in Public Sector Solutions at Caseware Africa, notes that audit opinion is typically used to measure the entity’s performance. “The better your audit opinion is, the better the assessment of your entity’s performance, which is another reason why these Annual Financial Statements can take a long time to prepare; every entity wants to be very thorough to ensure they get a good audit opinion. Now with the proposed tighter deadlines, this could pose a huge risk for entities, and therefore, introducing efficiency into the process is now more important than ever before,” he says.

While the amendment is still in the pipeline, Caseware Africa says now is the time for public sector entities to review their processes and do away with time-consuming and error-prone manual systems to ensure that their reporting is more efficient, accurate and compliant.

Caseware’s IPSAS and IFRS Financial Statement solutions enable public sector finance professionals to automate the preparation of compliant financial statements on either International Public Sector Accounting Standards (IPSAS) or International Financial Reporting Standards (IFRS), whichever is required. This includes flexible lead sheets and a centralised document manager to organise all working paper collateral. Both these solutions simplify collaboration, consolidation and assure preparers of compliance with international standards.

Mr. van der Merwe notes: “In the East African public sector, several entities have successfully implemented either Caseware Africa’s IPSAS or IFRS Financial Statements solutions for process efficiency, data integrity and compliance. In the past, the focus among Kenya’s public sector customers was mainly on harnessing Caseware Africa to reduce manual processing, but we now see a sharp surge in interest in using our solutions to achieve compliance in terms of both international standards and reporting deadlines.”

January 14, 2021February 10, 2023

iXBRL Reporting – What Is XBRL?

Caseware’s iXBRL reporting eases the process of manual reporting and collection of data. As a business, you probably find yourself having to send out a lot of reports every year and often have to manually collect all the data. When it comes to analysing and comparing the data, you find yourself reading a lot of paper-based reports, which increases your chance of making mistakes.

The logical step to overcome this would be to use digital reporting tools. Problem is, everyone uses different software tools. This means nothing is consistent and makes it just as difficult to compare and analyse various reports.

This is why CIPC has made XBRL reporting mandatory and why Caseware Africa has made sure that our solutions give you everything you need to be compliant.

What Is XBRL?

Essentially, XBRL is a structured way of digital reporting. It’s an open, international way of structuring information, managed by a global consortium. It enables software such as Caseware Africa to tag all financial items in business reports with relevant taxonomy.

First, you tag the data you want to report on, for example: financial statements and the various line items they’re in.
The data is then automatically extracted from your Caseware Working Papers file.
All you then have to do is send it.

Because of the fact that everyone is using the same tags and format, as set up by your reporting frameworks taxonomy, it’s easy to use and compare the data.

At Caseware Africa, we help our clients to meet their mandatory deadlines quickly and easily.

December 14, 2020February 10, 2023

Interim Financial Statements – Automated Financial Reporting

Automate your interim’s with Caseware Africa‘s interim financial statement template. Automation is one of the key strategies driving financial reporting, because it reduces manual intervention and makes the process both more streamlined and accurate.

Until now, the market has lacked an automated solution to easily prepare interim financial statements. Our new interim financial reporting template will help you to ensure that you are compliant.

Benefits Of Interim Financial Statements

Simplify the importing of data from multiple periods.
Unify the reporting process across an entity with seamless integration into our IFRS template.
Consolidate multiple entities quickly and easily.
Increase consistency and efficiency across the financial reporting process.
Prepare IAS 34 compliant interim, condensed, financial statements.
Create explanatory notes as required by the IAS 34 standard as well as easily including specific requirements for exchanges like the JSE, NSE, and other listing requirements and market trends.

When you use both Caseware’s interim and IFRS financial reporting templates together, the same data sets prepare both the interim and annual financial statements, which significantly reduces the risk of errors and the time needed to create the engagements. The template can be adjusted to produce semi-annual, quarterly, 5 monthly, and monthly financial statements.

Chat to us today about interim financial statements and how you can use them for your business.

November 14, 2020February 10, 2023

Does XBRL Affect Me?

If you had read our recent post about XBRL, you will know that it stands for eXtensible Business Reporting Language and is a global standard that was developed to improve how financial data is communicated and that it also enables digital financial reporting.

Wondering If Your Company Is Affected By XBRL?

XBRL Reporting has many different uses and is used by a variety of people across different roles. All companies required to submit Annual Financial Statements (AFSs) as part of the Companies Act should be taking note of XBRL.

Similarly, any company that needs to provide information to financial regulators, securities regulators, stock exchanges, business registrars, tax authorities, and statistical and monetary policy authorities is affected by XBRL. Enterprises that regularly move information around in a complex grouping or supply chains that exchange information to manage risk and measure activity will be impacted by XBRL.

Where Is XBRL Applicable?

According to the Companies and Intellectual Property Commission (CIPC), XBRL can be applied to a wide range of business and financial data. Below are a few examples of the data XBRL can handle:

- Internal and external financial and business reporting;
- Reporting and exchange of information in all types of regulators such as tax and financial authorities, central banks, and even government;
- Filing of loan reports and applications;
- Credit risk assessments; and
- Authoritative accounting literature, providing a standard way of describing accounting documents provided by authoritative bodies.

Who Will Benefit Most From XBRL?

- Regulators, analysts, and investors: XBRL allows for enhanced distribution and usability of existing financial statement information. It enables automated analysis and less rekeying of information from one form to another.
- Data aggregators and financial publishers: More efficient data collection lowers operating costs, boosts traction capacity, and adds value to data to minimise errors.
- Independent financial software developers: Any software that handles financial information can use XBRL for importing and exporting data. This increases the potential for full interoperability for other applications.
- Companies that prepare financial statements: The value of XBRL is that companies can create financial statements more efficiently because they only need to do so once.

At Caseware Africa, we provide a full range of professional services and “best of breed” software solutions to thousands of customers. Our solutions automate financial statements and assurance engagements, streamline tax management processes, enable simplified times and billing, and also takes care of secretarial duties. To find out more about how we can help you on your XBRL reporting journey, get in touch.

September 15, 2020November 15, 2024

Caseware Working Papers – Financial Reporting Solution

Whether it’s financial reporting, auditing, or tax, the core platform and beating heart of any Caseware solution is Caseware Working Papers. Our premium financial reporting solution allows you to easily import your financial data from Excel, CSV, or hundreds of general ledger systems such as Sage and Quick Books, or you can type a TB straight in. Follow a simple once-only mapping routine and our Caseware financial reporting solution will automatically produce an array of automated lead schedules using your nominal code structure.

What Can This Financial Reporting Solution Do For You?

Get total visibility and control with drill-down functionality from the face of your financial statements, right down to individual transactions and summarised lead schedules, which can be annotated with notes or cross-referenced to supporting evidence.
Caseware Working Papers allows you to store and manage all your supporting evidence in one secure, archivable place. Adding documents to the document manager couldn’t be easier with simple drag and drop.
Use electronic sign-off to control workflow and add milestones to track changes, giving you total confidence in the accuracy of the numbers on your report.
Review points are created and cleared in the customisable issues pane, making the whole process simple to manage and ensuring nothing is missed, even in teams working in different offices or time zones.
Save anything in Working Papers to PDF or Excel, or use complementary tools such as Caseware Connector to automate Excel and Word documents.

Caseware Working Papers gives you the whole story behind your engagement. The incredible reporting power and accuracy of CaseWare Working Papers eradicates misreporting risks and significantly reduces both production and review times. For a financial reporting solution that removes administration and the possibility of errors, look no further.

CaseWare Africa, a division of Adapt IT, the leader in financial reporting solutions

September 2, 2020February 10, 2023

mSCOA Specimen Financial Statements

National Treasury Illustrative Automated using Caseware

mSCOA Specimen Financial Statements enable municipal finance professionals to automate the preparation of financial statements in accordance with the National Treasury issued specimen.

Caseware Africa has all your accounting and financial reporting needs covered, with over 20+ years of experience in the industry, and over 200 municipalities that trust Caseware with their reporting.

Why trust Caseware for your mSCOA Specimen Financial Statements needs?

Many of our clients have successfully produced a full set of GRAP-compliant financial statements
We are here to help you every step of the way with additional support services
We can help you update your version of Caseware to the latest update
Assist with importing a set up of your Financial Statements
Help upskill your staff to be self-sufficient when using Caseware

If you need to create a new file based on the new mSCOA template, you’ll enjoy the following benefits:

Import datasets to Caseware
Speed improvements
No mapping required

Category: News/FinancialStatements