Section 620 of the Companies Act defines Annual Financial Statement as a company’s individual statement for a financial year. For a parent company, this includes the group financial statement prepared by the company for that year.
The Annual Financial Statements comprises of;
- A balance sheet as at the last day of the financial year
- A profit and loss account
- A statement of cash flow; and
- A statement of change in equity
The balance sheet should provide a true and fair view of the financial position of the company as at the end of the financial year. The profit and loss account should provide a true and fair view of the profit or loss of the company for the financial year. Additional information may be given in the form of notes to enhance the true and fair view of the company’s financial statement.
The Annual Financial Statement should comply with the prescribed financial accounting standards relating to the form and content of the balance sheet and of the profit and loss account. The additional information provided in form of notes should also conform to the prescribe standards. If this would prevent the company from giving a true and fair view of the company’s financial position, then, the companies are allowed to depart from it. The directors should however provide a note indicating the extent of the departure, the reasons for departure and the effect of the departure on the Financial Statement.
WHO PREPARES THE ANNUAL FINANCIAL STATEMENT
It is the duty of the company directors to prepare the Annual Financial Statements of a company for each financial year. If the directors fail to prepare the Annual Financial Statement, and in a manner that complies with the required standards; each of the directors at fault commits an offence and is liable for a fine upon conviction. It is important to note that even after such conviction and fine, if a director still fails to prepare the Annual Financial Statement, the director commits an offence and he may be fined for each day he has failed to prepare the Financial Statement.
It is also the duty of the directors to approve the Annual Financial Statements. Before the approval, the directors have a duty to ensure the Financial Statements gives a true and fair view of the company. Failure to do so amounts to an offence. After approval, one of the directors should sign the Financial Statement.
It is the duty of the directors of a parent company to prepare a group financial statement for all the subsidiary companies. It is an offence for directors of the parent company to fail to ensure that the group financial statement complies with the set standards and gives a true and fair view of the undertakings comprising the consolidation as a whole.
NOTES TO THE ANNUAL FINANCIAL STATEMENT
If the balance sheet and profit and loss account departs from the prescribed financial accounting standards, there should be notes on the extent of the departure, reasons for the departure and the effect of the departure.
If a company is not subject to the small companies regime, the directors of the company should include in notes to the Financial Statement the average number and costs of employees for that financial year.
Except in the case of a company that is subject to the small company regime, the directors should include notes on the benefits that they have received during that financial Year.
Annual Financial Statement should include notes on advances and credits given by the company to its directors and guarantees of any kind entered into by the company on behalf of its directors.