Corporate Reporting, Accounts and Audit Requirements
What the exam tests
This domain tests the accounting records duty, the content and approval of financial statements, the auditor's appointment, rights and independence, and the exemptions available to small companies.
Core rules
- Every company must keep accounting records sufficient to show receipts and payments, assets and liabilities, and to enable financial statements to be prepared; records are retained for the statutory period, commonly six years.
- Financial statements are prepared under IFRS or IFRS for SMEs as endorsed by the Financial Reporting Council of Nigeria, comprising the statement of financial position, profit or loss and other comprehensive income, cash flows, changes in equity, notes, the directors' report and the auditor's report.
- The auditor is appointed by members at the AGM; directors may appoint the first auditor and fill a casual vacancy. The auditor reports to members on whether the accounts give a true and fair view, has a right of access to records and may attend and speak at general meetings.
- Independence matters: no financial interest in the company, no conflicting engagement with the audit client, and rotation rules apply to public interest entities.
- Small companies, as defined by reference to turnover, net assets and absence of foreign members or directors, are exempt from statutory audit but must still keep records, prepare accounts and file returns. The exemption is unavailable where the company is part of a group containing a public-interest entity.
- Public companies publish audited accounts and file them with the CAC and SEC.
Worked example
A private company has turnover of N90 million, net assets of N40 million and no foreign members or directors. It falls within the small-company thresholds, so no auditor need be appointed at the AGM. The board must still approve and sign the financial statements and the secretary must still file the annual return.
Traps
Equating audit exemption with exemption from keeping accounts; letting the chairman appoint the auditor; assuming the directors' report is optional; missing that group membership can remove small-company reliefs.