CORPORATE LAW PRACTICE WEEK 13- CORPORATE GOVERNANCE 4: FINANCIAL STATEMENTS, AUDITS AND ANNUAL RETURNS.
WEEK 13- CORPORATE GOVERNANCE 4: FINANCIAL STATEMENTS, AUDITS AND ANNUAL RETURNS.
GENERAL OVERVIEW OF AUDIT, FINANCIAL STATEMENTS AND ANNUAL RETURNS.
Every company should keep accounting records which should contain daily entries and receipts and a record of assets and liabilities of the company such that can explain/disclose its financial position and activities as a going concern. Section 331. Should be ordinarily kept in registered office and preserved for up to 6 years from date made.
:: IDENTIFY VARIOUS ASPECTS OF FINANCIAL STATEMENTS. 336 334. It should give true and fair view of state of affairs. It is an offence to lay false FS.
Financial Statement comprise:
– Statement of Accounting Policies.
– Balance Sheet (as at the last day of the year);
– Profit and Loss Account (for non profit company it would be income and expenses for the year);
– Auditor’s Report.
– Directors’ Report.
– Statement of Source and application of Fund;
– Value Added Statement for the year;
– Five year Financial Summary.
– Group financial statement (for a holding company).
Private cos do not need to show Accounting policies, statement of application of funds or Five year financial summary.
:: PERSONS ENTITLED TO RECEIVE FINANCIAL STATEMENT, CONSEQUENCES AND REMEDIES FOR BREACH.
The directors must (not later than 18 months from incorporation and subsequently at least every calendar year) lay before the company in general meeting copies of the financial statement. Shareholders, debenture holders and other persons that may be entitled have a right to obtain a copy and can demand in this regard which should be complied within 7 days.
On publication of financial statements see Section 345 and 355 CAMA.
:: APPOINTMENT OF AUDITORS: first auditors can be appointed by the directors (usually in BOD first meeting) to hold office until conclusion of the First AGM where co may replace them with another who has been nominated for appointment by any member and notice of whose nomination was given to the members not less than 14 days before the date of the meeting.
Auditors as used here refers to independent external persons who verify financial status of the co. As distinct from internal auditors. Auditor has right to attend the company’s meetings.
Auditors hold office till conclusion of next AGM-357 to be automatically reappointed except he is not qualified for reappointment or resolution appointing another person in his stead or rejecting his re-appointment, or he has given the co notice of his unwillingness to be re-appointed. 357.
Special notice is required for a resolution at general meeting for appointment of new auditor, filing casual vacancy, re-appointing director appointed by directors to fill casual vacancy, removing an auditor before the expiration of his term of office.
Auditors are not paid by the company but entitled to sitting allowance.
:: DUTIES AND LIABILITIES OF AUDITORS. Sequel to the inspection and examination, the auditors are to make an auditor’s report which would be laid before the members of the company which should not be negligent else liability may arise. For public co, similar report should be made to the audit committee. 359.
:: RESIGNATION AND REMOVAL OF AUDITORS. Section 362, 365 and 366. Can be done by auditor giving notice to registered office of co or ordinary resolution of which special notice was given. In all, CAC be notified within 14 days. Removal is by ordinary resolution of which special notice was given and CAC be notified within 14 days. He may be entitled to compensation/damages for termination of his employment.
:: COMPOSITION AND FUNCTION OF AUDIT COMMITTEE (359)
Made up of directors and shareholders on equal representation subject to maximum of six members. Mandatory in public companies. A member of the committee may be re-elected annually.
FUNCTIONS include: – authorise auditors to carry out investigation, scrutinise auditor’s report and make recommendation thereon, -ascertain accounting and reporting policies are ethical and in compliance with legal requirements, -look at external auditors findings/reports, –ascertain effectiveness of the company’s system of accounting and internal control, – make recommendation to the board on appointment, remuneration authorization and removal of external auditors. The CCG 2011 advocates for integrity and diligence.
:: FILING OF ANNUAL: Annual returns should be completed within 42 days after the AGM and a copy (signed by both a Director and Secretary) must be filed with CAC once at least in every year except company did not hold meeting in the said year. 213 CAMA Form CAC 10 (Annual Returns Form).
:: ANNUAL RETURN FORMS: Are provided in Schedule 8, 9 and 10 for companies having share capital, small company, co. ltd by guarantee respectively.
Annual return should contain address of registered office (certificate number), situation of register of members and register of debenture holders, summary of share capital and debentures, particulars of indebtedness, list of past and present members, particulars of directors and secretary.
Other than ultd and small companies, Section 77 requires The following documents to be annexed to the annual return;
– CTC of every balance sheet certified by Director and Secretary, Profit and Loss account laid before company in GM held in the year to which the return relates, auditor’s report (certified by director and secretary) and the report of the directors accompanying the balance sheet.
Annual returns of private companies would be accompanied by certificate by director and secretary to the effect that the co has not since the date of incorporation or last annual return issued any invitation to the public to subscribe for any share or debentures of the company. Anonther certificate should be given if the number of members exceeds 50.
:: CONSEQUENCES FOR FAILURE TO FILE ANNUAL RETURNS: Penalty fine of N1000, – It is an offence to which the veil may be lifted on Directors. – Striking off a company’s name for being defunct,- CAC can enforce compliance by giving 14 days notice and petitioning the court to compel the company to comply, – Petition from Members and Creditors to company to comply.
:: FILL ANNUAL RETURN FORMS.
:: ETHICAL ISSUES ON PUBLICATION OF FINANCIAL STATEMENT.
 The obligation to file is also on BN, IT to confirm that they are a going concern. IT files every June 30th or December 31st.
 CAC first writes to the co to confirm whether it is still a going concern within one month then a second letter allowing one month again and referring to the first letter and stating that it would publish a notice in the Gazette with a view to striking off the name from the register and actually do so if no response letter. An application can be made to the FHC within 20 years from striking out for an Order restoring after convincing the court that the company was carrying on business