What is the meaning of the term ‘annual?’
The term ‘annual’ refers to an event, happening or recurring once a year, or an event or process that relates to a period of one year.
Annual is also referred to as yearly or twelve-monthly.
The article’s goal is to explain the following thirteen ways in which the term ‘annual’ is used in the context of accounting, business, or finance.
- Annual accounting period
- Annual audit
- Annual auditor’s report
- Annual equivalent rate (AER)
- Annual financial statements (AFSs)
- Annual general meeting (AGM)
- Annual income
- Annual percentage rate (APR)
- Annual report
- Annual return
- Annual salary
- Annual tax return
- Annual turnover
What is an annual accounting period?
In accounting, an annual accounting period refers to a twelve-month period used by businesses, corporations, and governments to compile and record financial information in order to formulate financial statements and reports.
When the accounting period covers the period 1 January to 31 December, it is called a calendar year. An annual accounting period ending on a date other than 31 December is referred to as a fiscal year. Examples of fiscal years are 1 March – 28/29 February, 1 April – 31 March, 1 July – 30 June, and 1 September – 31 August.
In South Africa, the annual accounting period of the National Treasury stretches from 1 April to 31 March.
What is an annual audit?
An annual audit refers to a process that takes place annually in which a company, government, or other entity’s financial records, systems, and statements are verified.
Put differently, it is an annual process during which an individual auditor or audit firm determines whether the financial statements of a company are in accordance with generally accepted accounting principles (GAAP), ensuring that a company or organisation comply with applicable tax laws and regulations.
In South Africa, the Companies Act (Act 71 of 2008) requires that a public company or a state-owned company’s financial statements be audited annually. Certain private companies are also obliged to have annual audits.
What is an annual auditor’s report?
An annual auditor’s report is an external and independent report of an entity’s auditor, published yearly with the entity’s financial statements.
The report states whether the entity’s financial statements comply with generally accepted accounting principles (GAAP).
An auditor’s report is presented in a standard format, comprising the following items:
- The directors’ responsibility regarding the financial statements.
- The auditor’s responsibility, including the scope of the audit.
- The auditor’s opinion of the entity’s financial statements.
The audit opinion
The audit opinion is an important item of the audit report because it presents an opinion about an entity’s financial status.
The opinion is based on aspects such as the availability of financial data, the opportunity to follow all the prescribed procedures, and the level of materiality, which indicates that an audit did not detect any material misstatements that could significantly impact the contents of the financial statements.
The different types of audit opinions are as follows:
- A clean opinion, also called an unqualified opinion, is issued when the financial statements of an entity are a fair representation of its financial position, devoid of any material misstatements.
- A qualified opinion is an indication that the auditor could not give a clean audit opinion due to the absence of specific financial records or information, or insufficient assistance from directors and/or other managers.
- An adverse opinion can be issued by an auditor due to various reasons. For example, a company’s financial statements:
- are misrepresented,
- are misstated,
- are not a true reflection of the company’s financial performance and financial health, or
- do not adhere to generally accepted accounting principles (GAAP).
- A disclaimer of opinion means that an audit firm (or individual auditor) is distancing itself from issuing any opinion at all concerning the financial statements.
Reasons for a disclaimer of opinion are, amongst others:
An auditor:
- Could not get satisfactory explanations for questions asked.
- May have been unable to solve problems regarding the true nature of some financial transactions.
- Could not secure ample evidence that supports sound financial reporting.
- Is not convinced that the entity will be able to carry on with its business operations – the going concern principle.
What is the annual equivalent rate (AER)?
The annual equivalent rate (AER) refers to the interest rate for a loan, investment product, or savings account, reflecting what the actual interest rate will yield after accounting for compounding.
The AER enables investors to determine what they will actually earn on their investments when the interest rate compounds more than once a year. Contrarily, the AER indicates what amount borrowers will be obliged to pay on their loans when taking into consideration the effects of compounding.
The annual equivalent rate allows investors or borrowers to compare investments, saving accounts, and loans that have different compounding periods to identify which one generates or saves them the most money.
Typically, the AER will be higher than the nominal interest rate when a year comprises more than one compounding period.
The AER is also referred to as the effective annual interest rate, the annual percentage yield (APY), or the effective interest rate.
The AER can be calculated as follows:
- Divide the stated interest rate (the rate specified on a loan, savings account, or investment instrument) by the number of times that interest is compounded or paid yearly and add one (1).
- Raise the result to the number of times a year that interest is compounded.
- Deduct one (1) from the result obtained in step 2.
The AER is displayed as a percentage.
What are annual financial statements (AFSs)?
Annual financial statements are financial reports based on a 12-month consecutive period of time, such as a calendar year (1 January – 31 December) or a fiscal year – a financial year ending on any month-end except December.
International Accounting Standard 1, Presentation of Financial Statements, requires a complete set of financial statements for a given financial period, such as a year, including:
- ‘a statement of financial position (balance sheet) at the end of the period
- a statement of profit or loss and other comprehensive income for the period
- a statement of changes in equity
- a statement of cash flows
- notes, comprising a summary of significant accounting policies and other explanatory notes
- comparative information prescribed by standard’
In addition, IAS 1 requires that ‘all financial statements be presented with equal prominence.’
(Accentuations in quotations from IAS 1 are by the article writer.)
Furthermore, IAS 1 states that the objective of general-purpose financial statements is ‘to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions.’
The South African Companies Act specifies in section 29 (1) that any annual financial statements of a company have to, amongst other requirements:
- ‘satisfy the financial reporting standards as to form and content, if any such standards are prescribed,’
- ‘present fairly the state of affairs and business of the company, and explain the transactions and financial position of the business of the company,’
- ‘show the company’s assets, liabilities, and equity, as well as its income and expenses, and any other prescribed information.’
(Accentuations in quotations from the Companies Act are by the article writer.)
What is an annual general meeting (AGM)?
An annual general meeting (AGM) occurs when the shareholders of a company assemble once a year to deal with specific matters regarding the company.
In South Africa, the Companies Act requires a public company to convene an annual general meeting (AGM) of its shareholders within 18 months of its date of incorporation (section 61 (7)).
After its first AGM, a public company is required to convene an annual general meeting once in every calendar year and no later than six months after the end of its financial year.
Matters to be attended to during AGMs:
At the first AGM
- Appointment of an auditor.
- Election of board of directors.
- Election of audit committee.
- Any matters raised by shareholders, with or without advance notice to the company.
- Decisions concerning the future business of the company.
- Take minutes of what was discussed and agreed upon at the meeting.
At all the subsequent annual general meetings
- Appointment of an auditor for the ensuing financial year.
- Presentation of the following:
- the directors’ report,
- the audited financial statements for the immediately preceding financial year, and
- an audit committee report.
- Election of directors in terms of the Companies Act or the Memorandum of Incorporation of the company.
- Election of an audit committee.
- Decisions relating to the business and activities of the company.
- Take minutes of the meeting.
In addition, activist shareholders may use an AGM as an opportunity to discuss their concerns about specific issues, such as climate change.
What is an annual income?
Annual income refers to the amount of money an individual earns, or a business makes, in a calendar, fiscal or tax year.
The years mentioned above cover the following periods of time:
- Calendar year: Stretches from 1 January to 31 December.
- Fiscal year: Covers any twelve-month period that ends on a date other than 31 December.
- Tax year: A period of twelve months which is used by a government as a basis to calculate taxes of individuals, companies, and trusts.
The South African tax year covers the twelve months from 1 March to 28/29 February.
Annual income is referred to in two different ways:
- Gross annual income is the amount earned in one year before deductions.
- Net annual income refers to the yearly amount of income left after deductions.
In business, net income is referred to as net profit.
Annual income comprises, inter alia, items such as:
- Wages or salary (including from a second job).
- Income derived from overtime work.
- Commissions or tips.
- Bonusses of some sort.
- Financial support (for ex-spouse and/or children) ordered by a court.
- Rental income.
- Income from business operations.
- Interest and dividends received from investments.
What is the annual percentage rate (APR)?
The annual percentage rate (APR) refers to the annual rate of interest that a borrower is required to pay on a loan, or that an investor (individual or entity) is entitled to on an investment.
Express differently, the APR expressed as a percentage, indicates the actual annual cost of funds of a loan or income received on an investment.
(Cost of funds is the interest rate paid by financial institutions, such as banks, for the funds they use as loans for borrowers.)
Contrary to the annual equivalent rate (AER), also called the annual percentage yield (APY), the APR does not take compounding into account.
The APR can be fixed or variable:
- A fixed APR means that the APR stays consistent throughout the entire period of a loan or investment.
- A variable APR implies the opposite of a fixed APR. Variable APRs are inconstant, fluctuating, and changing from time to time.
APR, applicable to credit cards, car loans, and mortgages, provides investors and borrowers with a comparable figure, enabling them to compare the costs of different loans, as well as the return on different investment products.
Financial institutions are obliged to disclose the APR of a loan before any agreement is signed by a borrower.
What is an annual report?
An annual report is a comprehensive document, providing shareholders and potential investors annually with details about a company’s operations and financial performance over the preceding financial year.
The annual report is primarily a visually appealing document, including graphics, illustrations, photos, graphs, narrative text, and diagrams, allowing stakeholders to get an overview of a company’s overall performance during the past fiscal year.
Typically, an annual report, include, inter alia, the following subjects:
- A letter from the chief executive officer (CEO), and/or chairperson.
- Performance and financial highlights.
- Annual financial statements.
- Auditor’s report.
- Outlook for future years, discussing new products, markets, and innovations.
What is an annual return?
An annual return is an indication of how much an initial investment has increased on average over a year during a given period of time.
An annual return is calculated as a percentage of the principal amount of investment. If the return is positive, it indicates a gain. Conversely, a negative return is an indication of a loss on the investment.
The level of risk involved affects the rate of return. The higher the return, the higher the risk, and vice versa.
The formula for the annual return over a twelve-month period is as follows:
Annual return = ((Final value of investment – Initial value of investment)/Initial value of investment) x 100
Where the final value of investment includes all the dividends and interest received during the period of twelve months.
What is an annual salary?
An annual salary is the amount of money an employer pays an employee over the course of a year for duties done and/or work performed. Usually, an annual salary does not include non-cash compensations.
Gross annual salary refers to the amount before deductions and net annual salary is the salary an employee receives after deductions, such as income tax and UIF (unemployment insurance fund).
How to convert an hourly wage rate to an annual salary:
Let us say, an employee earns R100 per hour and works 38 hours per week. His or her annual salary will be calculated as follows:
Annual salary = 52 weeks x 38 hours x R100
= R197 600
Regarding the average annual salary in 2025 in South Africa, Salary Explorer provides the following information:
- Average annual salary: R374 000 (R31 167 monthly).
- 75% of employees earn an average annual salary of R359 000 (R29 916 monthly) or less.
- 25% of employees earn an average annual salary of R204 000 (R17 000 monthly) or less.
What is an annual tax return?
An annual tax return is a document that a taxpayer (individual or entity) is required to yearly submit to a tax authority of a country.
A tax return reports income, expenses, and other tax-related information.
What is annual turnover?
Annual turnover is an indicator of a business’s financial strength. It is expressed as a gross figure, indicating the sales or production figure before the deduction of the cost of goods sold (COGS) and any other related expenses. In addition, indirect income is excluded.
Annual turnover is a term that describes the following occurrences during a specific calendar or financial year:
- Total sales or receipts of a trading company.
- Total products manufactured by a manufacturing company.
- Total investments held by, amongst others, mutual funds, and exchange-traded funds (ETFs).
- Total receipts of a service-providing firm.
