In matric accounting, we learn mainly about companies as a form of ownership as in previous years we learnt about sole proprietorship and partnerships. A company is a form of a business enterprise which is created by a group of people that all share a profit motive. A company can either be public or private, and for it to operate it must be registered with CIPC.
I will be discussing a few concepts that are unique to companies.
1. The Companies Act
The purpose of the companies act is to promote compliance with the Bill of Rights as provided for in the constitution in the application of company law. The companies act also provides for protection of the company’s shareholders, potential shareholders and any other stakeholders by means of:
• Proper…show more content… What may be important to a small company might be less important to a bigger company. Materiality covers the treatment of items that are of importance to the readers of financial statements.
Effect of GAAP on financial information
The Generally Accepted Accounting Principles are guidelines on how companies must prepare and present their income and expenses, assets and liabilities on their financial statements. The GAAP concepts are a combination of authoritative standards set by policy boards that are commonly accepted ways of recording and reporting financial statements. This brings me to the International Financial Reporting Standards.
The IFRS are accounting standards designed to create a common global language for business affairs so that company financial statements are understandable and comparable across international boundaries. These standards are developed by the International Accounting Standards Board ( IASB). Topics that the IASB has addressed through IFRS include: inventory valuations, treatment of tangible and non tangible assets, leases…show more content… There is not a consistent set of standards a company must follow but each company has their own code of ethics that sets out what is expected from the employees. Ethical standards are not always easy to enforce as they are frequently vaguely defined and open to own interpretation.
The King Code and corporate governance
Corporate governance refers to the system of control that should be in place in the corporate environment. The need for control in the corporate world is primarily due to the separation of owners and managers. One of the methods used to implement control is that certain information should be disclosed in the annual report that is viewed by stakeholders. Fr example, the King Code requires all payments to the directors must be disclosed in the annual report. By doing this, the shareholders can prevent the directors from abusing their power and authorising incorrect salaries to themselves.
The King Code also sets out the following responsibilities for directors:
• The category of each director must be explained in the annual report
• The board must have full control of the