FINANCIAL STATEMENT

AUDITS
ANNUAL RETURNS
 KEEPING OF ACCOUNTING RECORDS:
IS IT MANDATORY OR DISCRETIONARY?

IT IS MANDATORY under CAMA

Every company has a DUTY to keep accounts
Se 374 (1) CAMA
“Every company shall cause accounting
records to be kept in accordance with this
section”
 What must accounting records show?
The accounting records shall be sufficient:
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 IS THE ESSENCES OF ACCOUNTING
RECORDS

Accounting records forms the basis of

relevant information and data to be
used in preparing financial
statements and audited account of
the company
 WHAT MUST ACCOUNTING RECORDS CONTAIN?

The accounting records shall, in particular, contain

 Entries from day of all sum of money received and
expended by the company, and
 The matters in respect of the receipt & expenditure
took place; and
 A record of the assets and liability of the company
S.374 (3)
 What of Accounting records of a company dealing in goods?

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
 Where should the Accounting Records of a company be kept?

• 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 S.375 (1)
How Long must the Accounting records be
preserved?

Accounting records of a company is

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. S.375 (2)
 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.
• All Banks are 1ST JAN. to 31 DEC.
 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.
 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 31 st 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