UNIT 8

FINANCIAL STATEMENTS IN CORPORATE GOVERNANCE

Financial statements play a critical role in corporate governance as they offer stakeholders a transparent view of a company's financial health. Nigerian corporate law mandates that companies maintain accurate and timely financial records to ensure accountability, detect fraud, and provide essential information for decision-making. The preparation and disclosure of financial statements are governed by the companies and allied matters act (CAMA) 2020 and relevant accounting standards. The statements must comply with the international financial reporting standards (IFRS), which Nigeria adopted in 2012. Key sections of CAMA 2020 highlight the responsibilities of directors and auditors in preparing and reviewing financial statements and they include the following:

1. Requirement to prepare financial statements: See section 377 of CAMA 2020 which requires every company to prepare financial statements annually. These financial statements must include the following:
   
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   1. A statement of financial position, that is, the balance sheet.
   2. A statement of profit or loss and other comprehensive income.
   3. A statement of changes in equity.
   4. A statement of cash flows.
   5. Notes to the financial statements.
2. Content of financial statements: See section 378(1) of CAMA 2020 which provides that the financial statements must provide a true and fair view of the company’s affairs at the end of its financial year. This entails that the accounts must accurately reflect the financial position and performance of the company. See the case of Okomu Oil Palm Co. Ltd v. Iserhienrhien (2001) 6 NWLR (Pt. 710) 660 where the court emphasized the need for accurate financial reporting, holding directors liable for discrepancies in financial statements.
3. Approval and filing of financial statements: Once financial statements are prepared, section 377(3) of CAMA 2020 requires that they be approved by the company's board of directors before being presented to the members at the annual general meeting (AGM). The directors must sign the statements, indicating their responsibility for the accuracy of the financial reports. Furthermore, section 379 of CAMA 2020 mandates that companies file their financial statements with the corporate affairs commission (CAC) within 42 days after the AGM where the statements were presented. Failure to comply can lead to penalties under section 389 of CAMA 2020.
4. Auditors report: An essential aspect of financial governance is the auditing of financial statements. See section 407 of CAMA 2020 which requires every company to appoint an auditor to examine its financial records. The auditor must give an independent opinion on whether the financial statements provide a true and fair view of the company’s financial position and the case of Bolarinwa v. Oguntayo (2007) 14 NWLR (Pt. 1055) 478 where the court highlighted the role of auditors in maintaining transparency, noting that an auditor’s failure to detect or report irregularities could amount to professional negligence.
5. Role of directors in financial statements: Directors have a fiduciary duty to ensure that financial statements are prepared according to the law. Failure to comply with these requirements can lead to personal liability for directors. See section 405 of CAMA 2020 where directors are required to include a report alongside the financial statements and the case of Afribank Nigeria Plc v. Akwara (2006) 5 NWLR (Pt. 974) 619 where directors were held accountable for misleading financial disclosures. This report must include the following:
   
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   1. A fair review of the company's business.
   2. A description of the company’s principal activities.
   3. Information on the company’s dividends, if any.
   4. Any significant changes in the company's fixed assets.
6. Presentation at annual general meetings: The financial statements must be laid before the members at the AGM in compliance with section 383 of CAMA 2020. At the AGM, the shareholders discuss the financial performance of the company and either approve or reject the financial statements. The approval by shareholders allows the company to distribute dividends. See section 427 of CAMA 2020 and the case of Awojugbagbe Light Industries Ltd. v. Chinukwe (1995) 4 NWLR (Pt. 390) 379 where the court held that shareholder approval of financial statements at an AGM is an essential part of corporate governance as it reinforces accountability and transparency in the management of the company’s resources.

CONSEQUENCES OF NON-COMPLIANCE

Failure to comply with statutory requirements regarding financial statements can attract serious consequences, both for the company and its officers. See section 389(1) of CAMA 2020 which provides that companies that fail to file their financial statements with the CAC are subject to penalties. Additionally, directors can be held personally liable for any losses suffered due to inaccurate or misleading financial statements and also the case of Ogunbanjo v. Pan African Bank Ltd (2001) 6 NWLR (Pt. 710) 560.

CRIMINAL LIABILITY

CAMA 2020 also provides for criminal sanctions where false financial statements are presented. See section 414 of CAMA 2020 which states that any officer who prepares or assists in preparing false financial statements is guilty of an offence and liable to a fine or imprisonment for a term not exceeding two years and see also the case of Fidelity Bank Plc v. Okwuowulu (2012) 1 NWLR (Pt. 1281) 1 where the court demonstrated the court's stance on criminal liability for false financial disclosures.

CONCLUSION

Financial statements are a cornerstone of corporate governance, ensuring transparency, accountability, and trust between a company and its stakeholders. Compliance with the relevant provisions of CAMA 2020 and proper auditing procedures are essential for companies operating in Nigeria. By enforcing these requirements, Nigerian law seeks to protect shareholders, creditors, and other stakeholders from fraudulent or negligent financial reporting, promoting a more stable and reliable business environment.