The Audit Exemption That Did Not Apply
Greenfield Foods Limited is a private company incorporated in 2016. Its 2023 financial statements showed turnover of N480 million and net assets of N180 million. It has 19 shareholders, one of which is a company registered in Ghana holding 12%, and 46 employees. At the 2024 board meeting the finance director proposed to dispense with the external audit for 2024, relying on the small company exemption, and to treat the 2023 accounts as properly filed even though no auditor's report accompanied them. The company did not hold a 2023 annual general meeting, and its last annual return filed with the Corporate Affairs Commission was for 2021. The chairman has asked the company secretary to confirm the position and to set out the exposures before a 2025 annual general meeting is convened.
1. Determine whether Greenfield Foods qualifies as a small company and can dispense with an audit.
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Test. Under CAMA 2020 a small company qualifies for the audit exemption only if it satisfies all the prescribed conditions: turnover not exceeding N120 million (or the amount fixed by the Corporate Affairs Commission), net assets not exceeding N60 million, no foreign member, and - for a company incorporated for mining - no mining licence. The exemption is lost if any single condition fails.
Application. Turnover of N480 million is four times the ceiling; net assets of N180 million are three times the ceiling; and the 12% holding by a Ghanaian company makes Greenfield a company with a foreign member. It fails on all three counts. The 46 employees are irrelevant to the test. It is therefore not a small company for 2024 and cannot dispense with the audit.
Conclusion. The 2024 accounts must be audited, and the 2023 accounts filed without an auditor's report are defective. Presenting the company as exempt when it plainly is not is a false filing and can attract penalties for the company and every officer who signed. The board should appoint an auditor, lay audited accounts before a properly convened AGM, and correct the record.
2. Explain the consequences of the missed AGM and the outstanding annual returns, and who bears the exposure.
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AGM. An AGM must be held each year. Failure is an offence by the company and every officer in default, and a member may ask the Court to order a meeting to be convened. The absence of an AGM does not suspend the duty to file accounts or returns.
Annual return. The return must be filed with the Corporate Affairs Commission within 42 days after the AGM, with the prescribed annexures. Filing only for 2021 means 2022 and 2023 are outstanding. Late filing attracts the Commission's penalty regime, and continued default exposes the company to strike-off proceedings and to practical difficulty obtaining certified true copies or letters of good standing.
Officers. The secretary and the directors who knowingly allow the default are personally exposed. Practically, the company should hold the outstanding AGM, lay the audited accounts, file returns for 2022, 2023 and 2024 with the applicable penalties, update the registers of members and directors, and adopt a compliance calendar with a named owner and board reporting line.
3. The finance director suggests dating board minutes to show that the exemption was discussed and approved in 2023. How should the company secretary respond?
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Refuse. Backdating minutes is a false record. It misleads the auditor, the members and the Corporate Affairs Commission, and it converts a compliance failure into deliberate concealment. The secretary would be personally exposed to penalties under CAMA 2020, to civil liability, and to disciplinary action under the ICSAN code of conduct.
Correct response. Minute the discussion truthfully, recording that the exemption was considered and that the secretary advised it was unavailable. If the board insists, ask for the instruction in writing, restate the advice on the record, and escalate to the chairman or the audit committee. Preserve the contemporaneous papers, including the 2023 accounts and the correspondence with the Commission.
Remedy. Address the real problem: appoint a qualified auditor, audit the 2023 and 2024 accounts, convene the AGM, and file the outstanding returns. Voluntary disclosure and prompt correction are far less damaging than a fabricated record, which would also undermine any future application for leniency.