Companies function with the basic aim of profit making; to have an efficient tracking of revenue and expenses, companies engage professionals to assist in the creation of accounting records that show the true financial successes or failures of the company in business.
The financial records of a company are so significant that they are provided for in the CAMA to be a compulsory requirement for all companies registered in Nigeria to possess. This article offers all the insight there is to know about financial statements.
What are financial records?
The financial records of the company, also known as accounting records are the various accounting records that display the true financial position of the company with detailed accuracy.
The directors of the company are responsible for creating and ensuring the company’s financial records conform with the provisions of the law.
What is a financial statement?
The financial statement is the final totality of the company’s financial records including certain statements as to profits and loss and the general performance of the company.
Contents of financial records
Companies’ financial records must contain certain information that is of necessity to the shareholders and/or creditors of the company. Nonetheless, every company’s financial records must contain:
- Daily entries of transactions/profit and loss account: Companies’ financial records must contain a daily entry of all transactions undertaken by the company in the last year. In addition, all revenues received and every expense made must also be detailed in the records. If the company trades for a profit, the daily entries should also contain detailed information on the profits and losses of the company.
- Balance sheet: The balance sheet is a financial document detailing information relating to the company’s assets, liabilities, and so on. The balance sheet is all that is needed to understand the true financial position of the company.
- Statement of stocks: This is required to be kept by companies dealing in goods. These companies are expected to keep the statement of stocks of goods held at the end of every financial year. The statement is expected to contain a precise description of the buyer, the seller, and the goods bought and sold by the company.
Contents of the financial statements
- All items under the financial records.
- Statement of accounting policies: this is a statement from the company’s directors showing the standards and policies followed in creating the company’s accounting records. These statements include measurement systems, accounting procedures and others.
- Other contents include the auditor’s report, the directors’ report, the notes on the account, the value-added statement for the year, the statement of the source and application of funds, a five-year financial summary and the group holding account for a holding company.
Exceptions for a private limited company (Ltd)
Private companies in Nigeria need not have certain information contained in their financial statements, these are the statement of the source and application of funds, the value-added statement for the year, the statement of the accounting policies and the five-year financial summary.
Location and preservation of financial records
The financial records of the company are a significant document to its operations, the documents must be kept in the registered office address of the company, with due protection and confidentiality. The financial statement can also be kept at any location the directors of the company think fit, so far as it is kept in Nigeria.
Accounting records must also be preserved; a company’s annual financial records must be maintained for at least six years from the date they were made before they can be destroyed or dispensed with. This allows the persons entitled to inspect the financial records ample time to clarify any doubt they had earlier buttressed on them before they are financially destroyed.
Inspection of accounting records
The financial records of a company is a confidential documents that must be kept away from the public, with exceptions to quoted public limited companies. Nonetheless, only the officers of the company are generally allowed to inspect the company’s financial records.
Shareholders do not qualify as officers of the company and therefore have no right to the inspection of the financial records of the company. In addition, a director of the company who has been denied the right to inspect the financial records of the company can file an action in court for a ruling to inspect the financial records of the company.
Laying of financial statement
The directors of the company must at least once a year lay the financial statement of the company for the shareholders in the general meeting. The directors are also to forward to the Corporate Affairs Commission (CAC) together with the annual return, the company’s balance sheet, profit and loss account and the notes on the account which had been laid before the shareholders at the general meeting.
Receiving financial statements
Certain persons are entitled to receive the financial statement of the company not less than 21 days before the general meeting of the company at which the financial statement would be laid. These are:
1. Every member of the company;
2. Every creditor of the company holding the company’s debenture; and
3. Other persons entitled to receive.
Auditing financial statements
The duties of auditors (external auditors) are to review financial statements and report to the shareholders and the creditors if the figures are authentic and should be trusted. The auditors follow around the clock with the varying skill to accomplish this, check out our article on auditors to find out more.
The company’s finances are powerful records that disclose credible information on the finances of a company. When conducting due diligence on a company’s finances, all investors require to undertake this diligence in the financial statement of the company.
The details to be contained in a company’s financial records must be as original as possible showing the true circumstances of the business, a failure to adopt this practice would see the auditors inquire into the discrepancies and alert the shareholders and debenture holders of the company.
Frequently Asked Questions (FAQs)
Yes, the secretary classifies as an officer of the company and can therefore inspect the financial records of the company.
No, the financial records of the holding company and its subsidiaries are a single consolidated financial statement.