What the Face of the Financials Isn’t Telling You

30 Apr

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If you’ve ever skimmed through the back pages of a client’s Annual Financial Statements and thought, “Do I really need all these notes?” — the IFRS for SMEs answers with a resounding yes. Section 8, titled “Notes to the Financial Statements”, may seem like the supporting act to the big five (Income, Financial Position, Equity, Cash Flows, and Comprehensive Income), but it’s where much of the important stuff lives.

Let’s unpack what this section says, in plain English, and why it matters if you’re a business accountant trying to keep clients compliant, avoid SARS headaches, and look like a rockstar during your next review.

So What’s the Point of Section 8?

Think of Section 8 as the “why” behind the “what.” It’s not just about listing numbers — it’s about explaining them. The notes to the financial statements provide background, assumptions, and additional detail that help users understand what the numbers really mean. They also include important disclosures required across almost every other section of the IFRS for SMEs.

Put simply: if the face of the financials tells the story, the notes explain the plot twist.

What Exactly Must Be Included in the Notes?

Here’s what the IFRS for SMEs says you must do:

State the Basis of Preparation

You need to clearly say the financials were prepared in line with the IFRS for SMEs.
This isn’t a “nice to have” – it’s non-negotiable. If you leave this out, you're opening yourself (and your client) up to potential compliance issues or reviewer queries.

Disclose Material Accounting Policies

You’re not just ticking a box here. You need to explain any accounting policies that are material – in other words, information that could change how a user makes decisions based on the financials.
Example: If you’re depreciating vehicles over three years instead of five, and it significantly affects the bottom line — tell us why and how.

Judgements and Assumptions Must Be Clear

Section 8 wants transparency on the decisions that impact recognition and classification — especially when it’s subjective.
For example:

Why did you classify that investment as significant influence?
How did you decide you control that subsidiary?
What basis did you use to determine fair value categories?

Key Sources of Estimation Uncertainty

This is where you highlight risk.
If there’s a valuation that could swing wildly based on future assumptions (think: doubtful debts, warranty provisions, fair value estimates), flag it.
You must include:

What it is (nature of the estimate)
How much it is (the carrying amount)
And the risk (the potential for material adjustment in the next year)

How Should You Structure the Notes?

The standard encourages a systematic and logical flow. And no, that doesn’t mean “throw everything in and hope for the best.”

Here's the suggested order:

Compliance Statement

“These financial statements were prepared in accordance with the IFRS for SMEs Accounting Standard.”

Material Accounting Policies

Only what matters — don’t copy-paste your entire accounting textbook.

Line Item Detail

Follow the same order as the face of the financials. If you show "Trade Receivables" in your Statement of Financial Position, the supporting note should come in the same sequence.

Other Disclosures

Anything that’s relevant but didn’t find a home in the main statements.

Also, cross-referencing is essential. If you’ve got a note explaining an item, make sure there’s a clear trail from the face of the statement to the note — reviewers and readers mustn’t have to hunt for it.

Why This Matters for You (and Your Clients)

For accountants in practice, these notes are more than a compliance exercise:

✅ They protect you. If SARS or a client ever questions a treatment, having clear, well-documented notes can be your shield.

✅ They position you as the expert. Want to charge more for AFS preparation? Start producing financials that actually explain, not just report.

✅ They reduce review queries. If your Independent Reviewer is coming back with ten questions per set of financials, chances are your notes need work.

✅ They let you sleep better at night. Disclose the judgments, flag the risks, and you’re less likely to be blamed if something later goes wrong.

Avoiding the Common Mistakes

❌ Boilerplate policies: Tailor your accounting policy notes. Copy-pasting from another client’s set of financials won’t cut it — it’s not just lazy, it’s risky.

❌ Omitting key judgements: If management made a significant call (say, not impairing a slow-moving debtor), explain it.

❌ Skimping on estimation uncertainty: These are red flags for SARS, auditors, and anyone else with a regulatory clipboard. Be thorough.

Final Thought

Section 8 is your chance to show that the numbers weren’t just tossed onto a spreadsheet, but carefully considered, supported by good judgement, and transparently disclosed.

When done right, your notes aren’t just footnotes — they’re the proof that your financial statements stand on solid ground. And when you’re offering AFS prep as a service, that’s the kind of thing clients will pay for.

Join CIBA for a CPD on Changes in Accounting Estimates in compliance with IFRS and IFRS for SMEs here

🚨 Accounting Estimates Got You Guessing?
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📅 7 May 2025 | 2 CPD Units | Live Webinar & Recording
💻 Free for CIBA members | Nonmembers R345 VAT incl.

Join us for a high-impact, practically focused webinar on Changes in Accounting Estimates under both IFRS and IFRS for SMEs.

In just 2 hours, you’ll walk away with:
✅ The confidence to distinguish estimates from errors and policy changes
✅ Step-by-step guidance on prospective application and disclosure
✅ Real-world examples to apply the standards immediately
✅ Exclusive CIBA resources, templates, and quick-reference guides

🎯 Whether you’re deep in IFRS or navigating the SME framework, this session is designed to elevate your judgement, sharpen your disclosures, and ensure full compliance.

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