Importance of Financial Statements

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS Financial Statements of a company show the annual state of affairs of a company and they are important not only to members of the company but to the public, so as to decide whether to invest or de-invest

FINANCIAL STATEMENTS From the company. Examples, Profit and Loss Account, Balance Sheet, etc. S.331 of CAMA provides that, every company must keep accounting records that will be

FINANCIAL STATEMENTS Sufficient to show and explain the transactions of the company, so as to (a) disclose with reasonable accuracy, at any time, the financial position of the company;

FINANCIAL STATEMENTS (b) enable the directors to ensure that financial statements comply with the requirements of the Act. CONTENTS OF ACCOUNTING RECORDS:-

FINANCIAL STATEMENTS It must contain; (a) entries from day to day of all sums of money received and expended by the company; (b) a record of the assets and liabilities of the company; and

FINANCIAL STATEMENTS (c) statements of all goods sold and purchased. LOCATION AND PRESERVATION OF ACCOUNTING RECORDS:- The accounting records shall be kept at the company s registered

FINANCIAL STATEMENTS Office or such other place in Nigeria as the directors think fit and will be open at all times for inspection by officers of the company. The company is required to preserve the accounting records

FINANCIAL STATEMENTS For a period of six years though subject to any directive with respect to the disposal of records given under winding up rules.

FINANCIAL STATEMENTS DIRECTORS DUTY TO PREPARE ANNUAL ACCOUNTS:- The directors of a company must yearly prepare financial statements. At the first board meeting of a

FINANCIAL STATEMENTS Company, the directors must determine the date each year, when financial statements shall be made up and notify CAC within 14 days of the determination. This date is known as the Accounting

FINANCIAL STATEMENTS Reference Date. CONTENTS OF FINANCIAL STATEMENT:- By the provision of S.334(2) of CAMA, financial statements shall include;

FINANCIAL STATEMENTS (a) statement of the accounting policies, (b) the balance sheet as at the last day of the year, (c) profit and loss account or an income and expenditure account

FINANCIAL STATEMENTS For a company not trading; (d) notes on the accounts; (e) the auditor s report; (f) director s report which accompanies annual account. (g) a statement of the source and

FINANCIAL STATEMENTS Application of fund; (h) value added statement for the year which is the wealth created by the company during the financial year. (i) a five year financial summary;

FINANCIAL STATEMENTS And; (j) in the case of a holding company, the group financial statements i.e, consolidated profit and loss account and balance sheet.

FINANCIAL STATEMENTS It must be noted that , the financial statements of a private company need not include matters stated in paragraphs a, g, h and I above. See S.334(3) of CAMA. See also, SS 335, 336,337, 340

FINANCIAL STATEMENTS And 341 of CAMA that deals with additional contents of a financial statements as the circumstances permit. DIRECTORS REPORT:- The directors of a company must

FINANCIAL STATEMENTS Prepare a report yearly which is annexed to the balance sheet; Containing a fair view of the development of the business of the company and its subsidiaries during the year and

FINANCIAL STATEMENTS Stating the amount, if any, which they recommend should be paid as dividend and the amount if any, which they propose to carry to reserves. See S. 342(1). PERSONS ENTITLED TO RECEIVE FINANCIAL STATEMENTS:-

FINANCIAL STATEMENTS The following are entitled to receive financial statements; Every member of the company; Every debenture holder; All persons other than members and debenture holders, being

FINANCIAL STATEMENTS Persons so entitled; and With respect of company not having share capital, only members and debenture holders entitled to receive notices of AGM of the company. See S. 344 of CAMA.

FINANCIAL STATEMENTS THOSE NOT ENTITLED:- Members or debenture holders who are not entitled to notices of general meeting and members whose addresses are unknown; More than one of the joint

FINANCIAL STATEMENTS Holders of shares and debentures, who are not entitled to receive notices of meeting; and Other joint holders of shares and debentures not entitled to

FINANCIAL STATEMENTS receive such notices. See S. 344(3). S. 349 provides for sending of financial statements on demand to members and debenture holders who as of right are not entitled to receive them.

FINANCIAL STATEMENTS Failure to send after demand attracts penalty. DIRECTOR S DUTY TO LAY AND DELIVER FINANCIAL STATEMENTS:- S.345(1) provides that, the

FINANCIAL STATEMENTS Directors must at a date not later than 18 months after the incorporation of the company and subsequently once at least in every calendar year, lay before the company in general meeting, copies of the financial

FINANCIAL STATEMENTS Statements of the company, made up to a date not exceeding 9 months, previous to the date of the meeting. Also, the directors shall in each year, deliver the notes on the

FINANCIAL STATEMENTS Statements which were laid before the general meeting .See S. 345(3). MODIFIED FINANCIAL STATEMENTS BY SMALL COMPANIES:-

FINANCIAL STATEMENTS A small company may deliver to CAC, modified financial statements in accordance with Part 1 of Schedule 7 and SS. 350 353. The modified balance sheet shall be an abbreviated version of the

FINANCIAL STATEMENTS Full balance sheet. In this circumstance, the profit and loss account, director s report and auditor s report need not be delivered to CAC as annexure to the balance sheet. The abridged balance sheet must be

FINANCIAL STATEMENTS Signed by 2 directors. By the provision of S. 351(1), a small company is one that; (a) is a private company having share capital; (b) the amount of its turnover

FINANCIAL STATEMENTS For that year, is not more than N2 million or such amount, as maybe fixed by CAC. (c) its net assets value is not more than N1 million or such amount as maybe fixed by CAC;

FINANCIAL STATEMENTS (d) none of its members is a government or a Government Corporation or agency or its nominee; and (e) the directors between them hold not less than 51% of its

FINANCIAL STATEMENTS equity share capital. PUBLICATION OF FINANCIAL STATEMENTS:- SS 345 & 355 provide for publication of financial statements of a company.

FINANCIAL STATEMENTS Publication refers to laying the account before the general meeting of the company, reading auditor s report before the company in general meeting and delivering to CAC, a copy each of the balance sheet, profit and loss

FINANCIAL STATEMENTS Account and notes on the statements laid before the company in general meeting along with annual return of the company. Note that, an Unlimited Company is exempted from

FINANCIAL STATEMENTS Delivering to CAC, its financial statements and the annexures unless, it is a subsidiary or a holding company of a limited liability company. S 345 deals with publication of full financial statements while,

FINANCIAL STATEMENTS S.355 deals with publication of abridged financial statements.

AUDITOR An auditor is a person appointed and saddled with the responsibility of examining company s books and accounts, make a report to the members on the accounts examined by him including every balance

AUDITOR Sheet, profit and loss account and all group accounts, laid before a company in general meeting, during his tenure of office. APPOINTMENT OF AUDITORS:-

AUDITOR Every company must at each annual general meeting, appoint an auditor or auditors to audit the financial statements of the company. See S. 357(1) of CAMA. APPOINTMENT OF AUDITORS BY DIRECTORS:-

AUDITOR The directors have the powers to appoint auditor(s) for the company under the following circumstances; (a) the first auditor(s) usually at the 1stboard meeting to hold office till the conclusion of the

AUDITOR 1stAGM. See S. 357(5) of CAMA. Any auditor(s) appointed by the directors may be removed by the company at a general meeting and the company appoint in his place, any other person(s) who has been nominated for

AUDITOR Appointment, by any member of the company and notice of whose nomination, has been given to the members, not less than 14 days before the date of the meeting S. 357(5)(a);

AUDITOR (b) the directors may fill any casual vacancy in the office of the auditor 357(6); and (c) if members at AGM fail to appoint or re-appoint auditor(s), the directors may appoint a person to fill the vacancy 357(3).

AUDITOR Members at AGM also have powers to appoint auditor(s) under the following circumstances; (a) where the directors fail to exercise their power to appoint the 1stauditor(s) 357(5)(b);

AUDITOR Subsequent appointments of auditor(s) are made by members at each AGM with the exception of filling casual vacancies S.357(1). At any AGM, a retiring auditor however appointed, shall be re-

AUDITOR Appointed without any resolution being passed unless; (a) he is not qualified for re- appointment; or (b) a resolution has been passed at the meeting appointing some

AUDITOR Other person instead of him or expressly providing that, he should not be re-appointed; or (c) he has given the company written notice of his unwillingness to be re-appointed S.357(2).