Accounting records are documents which are relevant information and data to be used in preparing financial statements and audited account of the company.
The provision of S374(1) of the Companies and Allied Matters Act of 2020 include a mandatory duty for every company to keep accounting records. These accounting records are required to:
- show and explain the transaction of the company
- disclose with reasonable accuracy, at any time, the financial position of the company
- enable the directors to ensure that financial statements, comply with the requirements of CAMA in forms and contents. S.374(2).See Nigerian Wire Industries PLC v. European Trade & Finance PLC (1997) 6NWLR (Pt. 510) 632
What must Accounting Records Contain?
The accounting records shall contain:
- Entries from day of all sum of money received and expended by the company
- The matters in respect of the receipt & expenditure took place
- A record of the assets and liability of the company S.374 (3)
The Accounting records of a company dealing in goods contains S.374(4)
- Statements of stocks held at the end of the year of the company;
- Statements of stocks from which the annual statement of stocks in (a) above are prepared; and
- Statements of all goods sold and purchased other than by retail trade.
According to S375(1), the accounting records of a company shall be kept at its registered office or such other place in Nigeria as the director think fit, and shall at all-time be open for inspecting by the officers of the company. Section 375(2) also provides that these records are also mandatorily required to be preserved for a period of 6 years from the date on which they were made, after which the company is free to destroy it.
Any Room for Electronic Storage of Accounting Records?
•YES …. By S.375(3)) A company may, in addition to original hard copies, keep electronic copies or registers of any document or record it is obliged to keep or maintain under this Act,
•The company shall give sufficient consideration to the quality of the hardware and software to be used, and technical specifications such as protocol, security, anti-virus protection or encryption.
WHO HAS POWER TO FIX FINANCIAL YEAR FOR COMPANY
•Generally the BOD ..Section 377 (1) states that for every company, the BOD shall in respect of each year of the company, prepare financial statements for the year.
•At the first meeting of the board after incorporation, the BOD must determine what date in each year the financial Statements shall be made.
•Notify CAC within 14 days of such resolution. S.377 (4)
•Members in General Meeting
what of BANKS under CORP. GOVERNANCE?
•Take Note of Regulatory Influence
• CBN acting pursuant to it regulatory power may direct Banks to fix a period to make financial Statements which may not accord with the period agreed by board resolution of the Bank. As such, the financial year for all Banks in Nigeria spans from the 1st of January to 31st December.
WHAT Constitutes FINANCIAL Statements
By S377(2) (3) CAMA, The following constitute the financial statement of a Nigerian company:
- Statement of the accounting policies [not compulsory for private company]
- The balance sheet as at the last day of the year
- A profit and loss. Nonprofit organization and Limited by Guarantee shall prepare Income & Expenditure)
- Notes on the account
- The Auditor’s reports
- The director’s report
- A statement of the source and application of fund (not compulsory for private company)
- A value added statement for the year (not compulsory for private company)
- A Five years financial summary;
- In the case of a holding company, the group financial statement.
- Changes in Equity (not compulsory for private company)
Form and Content of Financial Statements
•The combination of provisions of Ss 374, 375, 376,377 & 378 CAMA stipulate the contents of a financial statement of a Nigerian company Nig. Accounting Standard Board By S.378 (1) the financial statement of a company shall comply in form and content with the accounting statements laid down in the statements of accounting standards issued from time by the Nig. Accounting Standard Board
•S.378 (2) requires that the balance sheet shall give a true and fair view of the state of affairs of the company as at the end of the year; and the profit and loss account shall give a true and fair view of the profit or loss of the company for the year.
•S.378 (3) CAMA stipulates that the statement of the source of application funds shall provide information on the generating and utilization of funds by the company during the year
•S.378 (4) CAMA providers that the value added statement shall report the wealth created by the company during the year and its distribution among various interest groups such as the employees, the Government, creditors, proprietors & the company
•S .378 (5) CAMA requires that the five years financial summary shall provide a report for a comparison over a period of five years or more of vital financial information.
WHAT IS THE POSITION ON GROUP FINANCIAL STATEMENT ?
Where a company (holding company) has subsidiaries, the directors shall prepare their individual accounts for the year as well as a group financial statement which deals with the statement of affairs and profit or loss of the company and the subsidiaries.
See exceptions to the above in S.379(3)
•MEANING OF HOLDING COMPANY AND SUBSIDIARIES See section 381 CAMA
Who and Who are Persons Entitled to receive financial statement ?
●All members of the company
●Debenture holders
●Other person apart from members/debenture holders, that may be entitled
When is the Financial Statement to be sent?
•The financial statement for each year [copies there to] shall be sent to the above person not less than 21 days before the date of the meeting at which they are to be laid. S.387(1)
•In the case of a company not having a share capital, subsection (1) shall not require a copy of the financial statements to be sent to a member of the company who is not entitled to receive notices of general meetings of the company, or to a holder of the company’s debenture who is not so entitled. S.387(2)
Any implication in case of Failure to deliver copy to those entitled?
•Any person entitled but not given can demand for it and the company is obliged to give him a copy within 7 days of demand otherwise the company and every officer in default is guilty of an offence S.392 CAMA
•NB= failure to deliver financial statement only attracts penalty but does not affect the validity of the meeting or resolution reached thereat. WHAT OF NOTICE OF MEETING?
Who has the Duty to Deliver Financial Statement at AGM?
In respect of each year, the director shall at a date not later than 18 months after incorporation and subsequently, once at least in every year, lay before the company in general meeting copies of the financial statement of the company made up to a date not exceeding nine months to the date of the meeting S 388(1)
Any Implication of False or defective Financial Statement?
•By 391 CAMA, it is an offence to lay defective of false financial Statement before the shareholders or have its delivered to Corporate Affairs Commission, every person who at the time when the copy is laid or delivered is a director of the company is, in respect of each contravention, liable to a penalty as the Commission shall specify in its regulations. S.379(1)
Publication of Financial Statements
•The publication by a company of full individual or group financial statements required by section 388 to be laid before the company in general meeting and delivered to the Commission, including the directors’ report. S.398
Shareholders’ right to obtain copies of financial statements
Any member of a company, whether or not entitled to have copies of the company’s financial statements sent to him, and any holder of the company’s debentures (whether or not so entitled) is entitled to be furnished on demand and without charge with a copy of the company’s last financial statements. If, when a person makes a demand for a document with which he is entitled by this section to be furnished, default is made in complying with the demand within seven days after its making, the company and each officer are liable to a penalty as the Commission shall specify in its regulations, unless it is proved that the person has already made a demand for, and been furnished with, a copy of the documents. S.392
AUDIT IN CORPORATE GOVERNANCE
•Audit deals with the examination of the books of accounts of the company by external experts with a view to ascertaining its compliance with the accounting policy of a company and accounting standard rules.
•It is a process of ensuring that a company accounting records, financial statements and practice comply with the law.
•The audited account must also show the financial status of the company. Audited statement of account of a company is the best way of showing the financial position of the company at any given time.
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APPOINTMENT OF AUDITORS
•Section 401 (1) CAMA Every company must at each AGM appoint an auditor or auditors to audit the financial statement of the company. Such auditors hold office from the conclusion of that meeting, until the conclusion of the next AGM
IS IT INTERNAL or EXTERNAL AUDITORS?
•An auditor in this Class is an external person who verifies the company’s internal record of account to ensure they are properly harmonized.
•They are distinct from the internal auditors who regularly work for the company. Thus, a company has internal and external auditors
Who appoints first auditors?
•The first auditors of a company may be appointed by the BOD at any time before the company commences business and such auditors shall hold office until the conclusion of the next AGM Section 401 (5)
•However, such auditors appointed by the BOD may be removed by the members at General Meeting.
• The members can replace the affected auditor with any other person who has been nominated for appointment by any member of the company.
• Notice of his nomination must have been given to the members not less than 14 days before the date of the meetingS.401 (5) (a
What happen where the directors fail to appoint first auditors?
•Where the Board of Directors in the first BOD meeting fails to appoint first auditors, the members may in a General Meeting convened for that purpose appoints first auditors.
•Such appointment of the auditor by the General Meeting terminates the powers of the BOD to appoint auditor S.401 (5) (b)
Can a retiring Auditor be Re-Appointed?
S 401 (2) At any AGM a retiring auditor however appointed shall be re-appointed without any resolution being passed unless
•he is not qualified for re-appointment; or
•A resolution has been passed at that meeting that some other person instead of him has been nominated; or
•The resolution expressly bars him from re-appointment; or
•He has given the company notice in writing of his unwillingness to be re-appointed
what happen in case of Vacancy based on non-appointment of auditor?
•Where at an AGM the auditors are not appointed or re-appointed the BOD may appoint a person to fill the vacancy. S.401 (3) However, the company shall within one week of such vacancy notify the CAC of that fact and then proceed to fill the vacancy S.401 (4)The directors may fill any casual vacancy in the office of auditor but while any such vacancy continues, the surviving or continuing auditor or auditors, if any, may act. S.401(6
Who is Qualify to be an AUDITORS?
•auditing is a specialized branch of accounting Auditors are qualified accountants since.
•There is no specific qualification of an auditor in term of the professional accounting body he should belong.
•However, any audit or investigation being carried out pursuant to CAMA must be in accordance with the provision of the Institute of Chartered Accountants of Nigeria (ICAN).
Who is PROHIBITED to act as an auditor?
Section 403 (1), 2, 5, CAMA has made provisions prohibiting the following persons:
•An officer or servant of the company;
•A person who is a partner of or in the employment of an officer or servant of the company
•A body corporate
•An auditor must be a person who is independent of the company, such that any officer, employee or person connected with the company in any manner or former employee connected with audit while in the employment is disqualified.
•NB: BANKS IN NIGERIA: para. 8 (2) CCG for Banks 2010 = 10 years . Until another ten years.
What is the implication of A Disqualified Auditor in a Firm employment?
•NB= A FIRM is qualified for employment as auditor of a company if, but only if, all the partners are qualified for appointment as auditors .S. 403 (4)
• It is an offence to take appointment or fail to vacate office as auditor when disqualified – S. 403(5) (6)
AUDITOR’S RIGHT TO ATTEND COMPANY MEETING
•Although an auditor is not a member of the company and must be truly independent of the company; the auditor has right to attend company’s meeting . S 410 (1) CAMA
•An auditor of a company who has been removed shall be entitled to attend the General Meeting at which his term of office would otherwise have expired and any General Meeting at which it is proposed to fill the vacancy caused by his removal and to receive all notice communications as stated above S.410(2)
RESIGNATION OF AUDITORS
•According to Section 412, CAMA, an auditor of a company may resign his office by depositing a notice in writing to that effect at the company’s registered office. Such notice shall bring his office to an end on the date of which the notice is deposited or a later date specified in it. S.412 (1) A copy of the notice must be submitted at CAC within 14 days of the deposit S.412 (3)
•An auditor may state the reason for his resignation in the notice for resignation.
•READ SECTION.S.365 (2) where the auditor’s notice of resignation contains a statement as mentioned above, the notice & statement shall be sent to CAC and every person entitled to receive financial statement of the company within 14 days – S.365 (3)
•Defamatory Notice of Resignation?
•The company or any other person aggrieved over the statement made by the resigning auditor, may in 14 days of the receipt of the notice, apply to the Federal High Court on the ground that the auditor is using the resignation notice to source 4 needless publicity/ it is defamatory. The court where satisfied may order that copies of the notice should not be sent out and that the cost of the application be borne by the auditor -S.412 (4) (5)
•Requisition for Extra Ordinary Meeting
•NB= Where an auditor indicates the statement of a Circumstances which will be of interest to the creditor or member in Notice of resignation: he may accompany the notice with a requisition calling on the directors to convene an Extra-ordinary general meeting for the purpose of attending and considering the explanation of these circumstances connected with his resignation.
Is Auditor entitle to Remuneration?
•Very well
•According to Article or terms of Contract
•S. 408
•(a) in the case of an auditor appointed by the directors, may be fixed by the directors; or
•(b) be fixed by the company in general meeting or in such manner as the company in general meeting may determine.
AUDITOR’S REPORT OR LIABILITIES OF AUDITOR
•The auditor of a company shall make a report to the members on the account examined by him, and on every balance sheet, and profit or loss account and on all group financial statements. Copies of these reports are to be laid before the company in GM during the auditor’s tenure of office. Se 404 (1) CAMA
•In addition; an auditor shall in the case of a PLC also make a report to an audit committee established by S.404 (3)
On LIABILITY OF AUDITORS
•Section 415 CAMA provides that a company’s Auditor in the performance of his duties must exercise all such care and skill as is reasonably necessary in the circumstance. Where a company suffers damage or loss because of auditor’s breach of fiduciary duty, the auditors shall be liable for negligence.
Who can sue an Auditor for his negligence?
•The director may institute action for negligence against him. S.415 (2) What if the BOD FAILS TO INSTITUTE ACTION?
•Where the directors fail to institute the action against the auditor, any member may do so after the expiration of 30days notice to the company of his intention to institute such action S.415 (3)
IMPLICATION OF GIVING FALSE STATEMENT TO AUDITORS
•An officer of a company who conveys information which is misleading, false or deceptive in a material particular to an auditor knowingly or recklessly, shall be liable to a penalty as the Commission shall specify in its regulations.S 416 CAMA
• AUDIT COMMITTEE
•Every public company should have audit committee; audit committee should be formally constituted and have written terms of reference. Sec 404(3 & 4) CCGN 2003
•McKesson & Robbins was under investigation, AICPA 1967
•Canada Business Corporation Act 1973
Membership of Audit Committee
The audit committee shall consist of five members comprising of three members and two non-executive directors, the members of the audit committee are not entitled to remuneration, and are subject to election annually. S.404 (3)
REAPPOINTMENT/REMUNERATION
•Any member may nominate another member of the company to the audit committee by giving written notice of such nomination to the secretary of the company at least 21 days before the annual general meeting and any nomination not received prior to the meeting as stipulated is invalid. S.404(6)
•Members shall not be entitled to remuneration-S.404 (3)
What are the Objectives and Functions of the Audit Committee
•Subject to other additional functions and power that the company’s articles of association may stipulate, the objectives and functions of the audit committee shall be to-
•Examine the auditor’s report and make recommendation there on S-404 (4)
•Ascertain that the accounting and reporting policies of the company is in accordance with legal requirement and agreed ethical practices.
•Review the scope and planning of audit requirements
•Review findings on management matters in conjunction with the external and departmental responses
•Make recommendation to the BOD in regard to appointment, removal and remuneration of external auditors
•Authorise internal auditor to carry out investigation into any activities that may be of interest or concern to the committee to sustain corporate governance
Provisions of the Codes of Corporate Governance in Nigeria on Audit Committee
•The Committee should meet at least three times in a year
•Quorum should be specified in terms of reference of the Committee.
•Non Executive as Chairman
•Company Secretary as secretary of the committee.
•Rule 42(5) b SEC rules & regulation (as amended) 3years break of 3 years again.
•Codes of Corporate Governance Nigeria
•Nigerian companies to have Audit Committee with objective of raising standard of corporate governance
•Audit committee should not act as barrier between auditors, executive directors and BOD.
•Audit Committee should be comprised of strong, independent persons; however the committee shall not obstruct executive management.
•No influence of any dominant personality on the BOD.
•Audit committee should be NOT construed as abdication of BOD responsibilities of reviewing and approving financial statement.
• Annual Returns
•Every company shall, once at least in every year, make and deliver to the Commission an annual return but the company need not make a return in the year if the company does not hold a meeting in that year under review. (S.417)
•CAC form 19 (Annual Returns Form) while CAC Form 22 is for annual report of exempted company (unregistered company).
Contents of A/R of a Company having Share Capital other than Small Company
•Name and registered certificate number (RC No) of the Company
•Address of the registered office
•Situation of the registration of member and register of debenture holders,
•Summary of share capital and debentures
•Particulars of indebtedness
•List of past and present members
• particulars of director and secretary
Document to be Annexed to Annual Returns
•Subject to the provision of S.422 CAMA exempting unlimited companies and small companies; the A/R must have annexed to it
•A written copy, certified by a director and the secretary of the company to be a true copy of every balance sheet, and profit and loss account laid before the company in general meeting in the year to which the return relates
•A copy certified by a director and the secretary of the company of the auditor’s report and the report of the directors accompanying the balance sheet
•Where the balance sheet, contains amendments, the fact that the copy has been so amended shall be stated on it. S 422(2)
•In the case of a private company
•Annual Returns shall be accompanied by a certificate by a director and the secretary. The effect that the company has not since the date of incorporations or last A/R, issued any invitation to the public to subscribe for any share or debenture of the company; if application accompany a certificate stating that number of members exceeds 50.
•Banks end their financial years 31st December of every year by the CBN’s Directive.
OBLIGATION TO FILE ANNUAL RETURNS
•The obligation to file Annual Returns starts after incorporation.
•The A/R shall be completed, signed by both a Director and a secretary and filed at CAC within 42 days after the AGM for the years, whether or not that meeting is the first or only ordinary general meeting of the company in that year. S.421 It does not apply to companies with only one member.
• Every company must at list once every year make and deliver to the Commission. An Annual Returns have in the form and containing the special matters relating to the company.
Form of Annual Returns by Companies
•The annual return shall be in the form stated in the following schedule of PART of (AMF)
•Schedule 7 – Company having share capital other than small company. S.418
•Schedule 8- Small Company S.419
•Schedule 9- Company limited by guarantee S.420
For a Small Company
•In addition to the document required, it shall deliver to CAC a certificate signed by a director and the secretary that: -
•It is a private company limited by shares
•The amount of its term over for that year is not more than N 2 million or such amount as fixed by CAC
•It net assets value is not more than N 1m or such amount as fixed by CAC
•None of its members is an alien
•None of its members is a Government agent or nominee
•The directors among them hold not less than 51% of the equity share capital of the company. S 423 (2)
Consequences of Failure to File Annual Returns
i If a company, having made default in complying with any provision of this Act requiring it to file with, deliver or send to the Commission any return, account or other document, or to give notice to it of any matter, fails to make good the default within 14 days after the service of a notice on the company requiring it to do so, the Court may, on the application of any member or creditor of the company or of the Commission, order the company and any officer to make good the default within the time as may be specified in the order.
ii it is an offence and every director or officer of the company are liable to a penalty as may be prescribed by the Commission. S.744(1)
iii Striking off a defunct company: Failure to file annual returns for a consecutive period of 10 years is a ground for striking the name of a company off the companies’ register
SEE SECTION 425(3).
•ENFORCEMENT OF RETURNS
•By S 744 CAMA within 14days after Service on the company by CAC a Notice to file its Annual Returns as requireda Member, Creditor or CAC can apply to the Federal High Court to order the company to comply.
CAC STRIKE OFF DEFUNT COMPANY
CAC sends letter inquiring whether the company is in operation and requesting the company to reply within month.
• if within the month no response is made by the company to CAC, CAC shall Within 14days of expiration of the one month send a second letter referring to the first letter and giving one month to respond, and
•CAC would publish a list with intention to strike off the name of this company off The Register of Companies.
•If within one month, CAC receives/ confirm that company is not in business or the company fails to respond after expiration of the one month (the 2nd) on CAC may publish.
•The company by that at the expiration of 3 months from the date of the Notice shall proceed to strike off the name of the company from the register and the company shall be dissolved.
PROCEDURE TO RESTORE STRUCK OFF COMPANY
•By where a company’s name is struck off Register of companies by CAC it can be restored if application made to the FHC within 20 years of publication to the Register.
• If the court is convinced, it would make an Order restating the company in the Register of Company.
WHO MAY MAKE THE APPLICATION/POWER OF COURT?
•The application may be made by:
•A.) the company
• (B) a member or
•(C) creditor
•The court may give order placing the company or other persons in as the same position if the name had not been struck off the Register. The Restoration takes effect upon delivery to CAC a CTC of the court order
WHAT HAPPEN TO EXISTING LIABILITIES IF A COY IS STRUCK OFF?
•Any existing liability incurred by the Directors and officers subsists.
• The court can still formally wind up the company
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