LEARNING OUTCOMES:

1. Identify various aspects of financial statements, persons entitled to receive financial statements and consequence and remedies for breach.
2. Identify the procedure for appointment, duties and liabilities, resignation and removal of Auditors and who can be an Auditor.
3. State the composition and function of an Audit Committee.
4. Filing of Annual Return forms, and
5. Discuss the consequences of failure to file Annual Returns.

 

ACCOUNTING RECORDS

 S 331(1),(2),(3) &(4) ; 332, 333 of the Companies and Allied Matters Act (“CAMA”).

It is mandatory for every company to keep accounting records. Only the officers have access to the accounting records.

 

Such accounting must be sufficient to show and explain transaction of the company:

• Disclosewith reasonable accuracy, at any time, the financial position of the company; and
• Enable the directors to ensure that any financial statements prepared under this part comply with the requirements of this act as to the form and content of the company’s financial statements.

 

Content of accounting records – s 331(3),(4)

Location and duration of accounting records – s 332(1),(2)

• Registered office or such other place in Nigeria as decided by the directors
• Open for inspection by the officers of the company
• To be preserved for 6 years (subject to s 515 on disposal of records given under winding up rules)
• Note the penalties in s 333

 

Powers of the directors to determine the financial year of a company s334(4)

• Directors at their first meeting determine to what date financial statement shall be made up
• Give notice to Corporate Affairs Commission (“CAC”) within 14 days of determination

 

Note: CBN direction to all banks for harmonization of their financial year to begin and end within a calendar year – not later than December 31 of each year

 

FINANCIAL STATEMENTS - S 334 of CAMA

It is mandatory for every company to make a financial statement.

The directors in respect of each year of the company, prepare financial statement.  It is mandatory for every company.

Note the required financial statements are s 334(2)(a) –(j)

• Also note the matters that need not be in the financial statement of private company – s 334(3)(a),(g),(h) and (i) of sub-section (2)

 

Form and content of financial statement – s 335

Comply with:

• The requirements of schedule 2 of CAMA; and
• Accounting standards laid done in the statements of accounting standards issued form time to time by the Nigerian accounting standards board.
• Now financial reporting council of Nigeria

 

Balance sheets contain assets on one hand and liabilities on the other hand. There are current liabilities.

 

Directors report should contain a fair view of the development of the business of the company over the year. see s342

Auditors – they are meant to be independent of the company especially the board.

 

Persons entitles to receive financial statements – s 344

Every company not less than 21 days before the date of the meeting at which they are to be laid sent to:

• Every member of the company (whether or not so entitled to receive notice of general meeting)
• Every holder of the company’s debentures (whether or not so entitled)
• All other persons other than members and debenture holders, being persons entitled

Note (2) for company not having a share capital and sub,(3)

 

Note: When a company issues shares to people that’s equity, when its debt that’s a debenture

Persons entitled to receive notice to general meeting – see s 219

Members who are entitled to attend and vote at the meeting can agree that the financial statements be sent less than 21 days – s 344(4)

 

Section 349(1) – certain persons can demand for the financial statement of the company

• Any member of a company, whether or not he is entitled to have been given the financial statements
• Any holder of the company’s debenture (whether or not so entitled)
• Upon such demand, without charge a copy of the financial statements
• Mna

 

Director’sduty to lay and deliver financial statements – s 345

Directors to lay before the company in general meeting copies of the financial statements of the company made up of a date not exceeding nine months previous to the date of the meeting – sub (1)

• Each year – not later than18 months after incorporation
• Subsequently, once at least in every year.

Note the penalties in s 346,347,348

 

Also auditors report – sub sec(2)

Auditors report is open to inspection by members.

It is also included in the financial statement to be sent to the members.

Deliver with the annual return to the CAC, a copy of the balance sheet, profit and loss account et al

 

AUDIT

Financial inspection/ examination/ investigation of accounting records/ accounting books of a company by an independent body/ external experts for the purpose of:

• Ascertaining its compliance with the accounting policies of the company and accounting standard rules
• Show the financial status of the company

Livestock Feeds Plc V Igbino Farms Ltd (2000) 5 NWRL – the case says that the audited statement of account of the company is the best way of showing the financial position of a company at any given time.

 

Auditor – s 357

External auditors 

Every company at each annual general meeting appoint an auditor(s) to audit the financialstatement of the company.

Such appointed auditor is to holdofficefrom the conclusion of the AGM until the conclusion of the next AGM

 

Legal position of an auditor?

An officer of the company? – s 567 (definition of officer) ,

Offences in respect of winding up of the company can be extended to an auditor. s 502,504,507 & 508

Agent of company?

 

Who can appoint an auditor – s357(1) members at an annual general meeting that appoints auditors, however there are exception for first auditors and casual vacancy

 

Who can appointan auditor?

• First auditor – s 357(5): Directors have been given the discretion to appoint first auditors, where the directors fail to exercise that power the members shall appoint (5)(b)
• Subsequent auditors/ re-appointment – s 357(2)
• Casual vacancy – s 357(3), (6)

 

Note the proviso to s 357(2)

 

Casual vacancy

The directors may appoint a person to fill the vacancy at an AGM if no auditors are appointed or re-appointed – subsection (3)

The company within one week of the powers of the directors becoming exercisable give notice to CAC.

• If the company fails to give notice, the company and every officer in default shall be guilty of an offence liable to a fine of N1000 for everyday the default continues (4)

Where an auditor resigns there will also be a casual vacancy. Issues that can give rise to a casual vacancy – death, resignation, removal

 

Qualification – s358

This is now based on the independence of the auditor to the company. Emphasis is on independence of the person appointed as an auditor of a company and not professional qualification.

 A person disqualified as an auditor of subsidiary or holding company of a body corporate is also disqualified for appointment as auditor if the body corporate were a company. Sub-sec(3)

 The following persons are disqualified from being appointed as an auditor:

1. An officer or servant of the company
2. A person who is a partner of or in the employment of an officer or servant of the company;

• A body corporate

However a firm can be an auditor of a company (4)

 

A person commits an offence if he knows his is disqualified from acting as an auditor and continues to act as an auditor for the company (5)&(6)

 

Auditors report  - s 359 (1),(2), (3)

The auditors of a company shall make a report to the members of the company on:]

 

Powers, duties, rights of auditors – s360 (1)(a)(b)

• Carry out investigation

 

If contrary opinion to the above, state so in the auditor’s report. 360(2)

 

Auditors are to consider whether the information given in the directors report for the year for which the accounts are prepared is consistent

 

Auditors right to attend general meetings

Auditors have right to attend any general meeting of the company

• Receive all notices and other communications which members are entitled to receive s363(1)
• Heard at the general meeting on any part of the meeting which concerns them as auditors

 

If an auditor has been removed, he is entitled to attend – s363(2)

• The general meeting at which his term of office would otherwise have expired; and

 

Remuneration of auditors  - s361 (1), (2)

• If appointed by the directors may be fixed by the directors; or
• By the company in a general meeting in such manner as the company determines

 

 Removal of auditors – section 362

A company may be ordinary resolution remove an auditor before expiration of his term of office notwithstanding anything in any agreement between the company and the auditor.

 Notice is to be given to the CAC within 14 days of passing the resolution.

 Penalty for failure to comply with the notice requirement.

 

Note sub-sec (3) on auditor’s right to compensation and damages in respect of termination of his appointment as auditor.

 Note s. 364(1), requirement of special notice  for removal of an auditor before the expiration of his term 

 

Resignation of Auditors  - s 365(1)

An auditor may resign his office by depositing a notice in writing at the company’s registered office.

 The notice shall operate to bring his term to an end- (1)

The auditors notice shall not be effective unless it contains a statement to the effect that:

• There are no circumstances connected with his resignation which he considers should be brought to the notice of members: or
• Such circumstances – (2)

The company within 14 days of deposition of the notice:

• Send a copy of the notice to CAC; and
• Person entitled to be sent copies of the financial statements - (3)

 

The company within 14 days of receiving the auditors notice containing the statement apply to the court for an order.

Any person aggrieved can also apply to the court for the order.

 

Auditors right to requisition for a general meeting – s 366(1) , (4)

• A resigning auditor can requisition an extraordinary general meeting
• Directors are to convene the meeting within 21 days of a deposit of a requisition
• Where the directors fail, they will be guilty of an offence and liable to a fine (4)

 

S 366 (7)

 

Auditor’s special notice

Special notice – s236

 

 S 364 sets out where the special notice is required for a resolution in respect of an auditor

 

 Liabilities of auditors - s368, 369

 The auditor owes the company a fiduciary duty and where he breaches that duty and the company suffers a loss, the directors can decide to sue the auditor on behalf of the company. If the directors decide not to sue, any member upon giving a notice to the director, can sue on behalf of the company upon 30 after the giving of such notice.

 

Audit committee  - s 359 (4), (5), (6)

An audit committee is only required for a public company. A private company can have an audit committee if they desire to, CAMA does not make it mandatory for them to do so.

Members of the audit committee are not entitled to remuneration but they are subject to r-election annual.

Composition – maximum of 6, equal representation by the board and the members

Any member may nominate a shareholder as a member of the audit committee. – Written notice of such nomination is to be given to the company secretary at least 21 days before the annual general meeting

Audit committee have a duty to examine the auditors report and make relevant recommendations to the annual general meeting.

See (6) on other duties

FRCN Suit on the chairman of the audit committee 

 

Annual Returns  - s 370

Every company shall once at least in every year make and deliver to the CAC.

A company need not make a return in the year of its incorporation, or if not required to hold an annual general meeting during the following year.

 Note section 213

 Annual returns are to be completed within 42 days after the annual general meeting

 

Forms of annual return

• Annual return by a companyhaving shares other than a small company – s 371 /schedule 8
• Annual return by a small company

 

A small company – s 376

Requirement to file a certificate signed by a director and company secretary along with the annual return:

• Since the last annual return or incorporation that it has not issued invitation to the public to subscribe to the securities of the company
• Where members exceed 50, excess consists only person permitted under s22(3)
• A certificate signed by a director and company secretary stating matters in sub-section (2)

All the conditions for a company to be a small company have to be in existence not just one of them.

Definition - Net asset and turnover

 

Content of annual return

• FORM CAC 10 (Annual return for small company)
• FORM CAC 10A (Annual return for a company having shares other than a small company)
• FORM CAC 10B (Annual return fora company limited by Guarantee)

 

Documents to be annexed – S375, regulation 40

 

Failure to file Annual Returns

Penal Sanction- company and every director or officer who is in default – liable N1000 (for plc.’s)

 

Additional Filing

Statement of affairs – S 553 filing, regulation 50

Banks and insurance companies

Meant to be filed first Monday in February , first Tuesday in august every year

Note penalties for failing to comply

 

Annual returns for business names and incorporated Trustees

Business name- s 587, reg.64

• Not later then 30^th June in each year

Incorporated trustee – section 607, reg. 73

• Not earlier 30^th June or later than 31^st December each year (other than the year of corporation)

 Note the particulars

 

Turnover is different form authorized share capital

Annual return must be in respect of the accounts of the previous year

 

 

FORM CAC 10C – there is no RC number because its not registered

 

Classwork

1) List the content of ABC limited for their financial statement 

According to s 334 It would contain:

• Balance sheet,
• A profit and loss account;
• Notes on the accounts;
• The auditors report,
• The directors report

 

• List documents that ABC plc would include in its Financial Statement

For ABC plc it would contain:

• A statement of the accounting polices,
• A statement of the source and application of fund,
• A value added statement for the year,
• A five year financial summary
• Balance sheet,
• A profit and loss account;
• Notes on the accounts;
• The auditors report,
• The directors report

 

 

For ABC holding limited

 

S345

The last day of that account must not be more than the last day from 9 months before the meeting

 

S 364

Bank and public companies. See the code of corporate governance

 Financial reporting council act – it defines auditors

 

Assignment – read ss 379-385 CAMA

 

Draft the notice of resignation of an auditor. Reason: refusal of the company to produce upon request the financial statements of the company

See S365

Egbe & Co chartered Accountants

NOTICE OF RESIGNATION PURSUANT TO S365 OF THE COMPANIES AND ALLIED MATTERS ACT

 

Interpretation section 77 defines auditor to define accountant

 

Regulation 64 – requirement for filing business name annual return.

Read Requisition meeting by auditor