Ch11 Accounts & Annual Return - Sheet1 Flashcards
Definition: Books and paper [Section 2(10)]
Definition: Books of account [Section 2(11)]
Definition: Financial year [Section 2(34)]
Definition: Books and paper [Section 2(10)]
“book and paper” and “book or paper” includes books of account, cost accounting records, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form.
Definition: Books of account [Section 2(11)]
“books of account” include records maintained in respect of:
a) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place;
b) all sales and purchases of goods and services by the company;
c) all assets and liabilities of the company; and
d) items of cost in respect of production, processing, manufacturing or mining activities.
Definition: Financial year [Section 2(34)]
“financial year” in relation to a company or any other body corporate, means the period in respect of which any financial statement of the company or the body corporate, as the case may be, laid before it in general meeting, is made up, whether that period is a year or not.
Books of accounts to be kept by a company [Section 220]
Requirement
Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statements for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch offices, if any.
Cost accounts
In the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or the other inputs or items of cost as may be specified, shall also be maintained.
Keeping books at place other than registered office
All or any of the books of account aforesaid and other relevant papers may be kept at such other place in Pakistan as the board may decide and where such a decision is taken, the company shall file with the registrar a notice in writing giving the full address of that other place within 7 days of the decision.
Records of branch offices
Where a company has a branch office in Pakistan or outside Pakistan, it shall be deemed to have complied with the requirement, if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarized returns are sent periodically by the branch office to the company at its registered office or the other place where books of accounts are kept.
Inspection by directors
The books of account and other books and papers maintained by the company within Pakistan shall be open for inspection by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director.
Where such inspection is made, the officers and other employees of the company shall give to the director making such inspection all assistance in connection with the inspection which the company is reasonably expected to give.
Inspection by members
Members do not have absolute right to inspect books of accounts. However, the Companies Act, or the directors or the general meeting may authorize member(s) to inspect books of accounts.
Time period
The books of account of every company relating to a period of not less than 10 financial years immediately preceding a financial year together with the vouchers relevant to any entry in such books of account shall be kept in good order.
Requirement for liquidator
The liquidator of the company appointed for winding up of the company is also required to maintain the above stated books of accounts for the company during its winding up.
Definition: Financial statements [Section 2(33)]
Definition: Chief financial officer (CFO) [Section 2(15)]
Definition: Financial statements [Section 2(33)]
“financial statements” in relation to a company, includes:
a) a statement of financial position as at the end of the period;
b) a statement of profit or loss and other comprehensive income or in the case of a company carrying on any activity not for profit, an income and expenditure statement for the period;
c) a statement of changes in equity for the period;
d) a statement of cash flows for the period;
e) notes, comprising a summary of significant accounting policies and other explanatory information;
f) comparative information in respect of the preceding period; and
g) any other statement as may be prescribed.
Definition: Chief financial officer (CFO) [Section 2(15)]
“chief financial officer” means an individual appointed to perform such functions and duties as are customarily performed by a chief financial officer.
Financial statements [Section 223]
Requirement
The board of every company must lay before the company in AGM its financial statements for the period, in the case of first such statements since the incorporation of the company and in any other case since the preceding financial statements, made up to the date of close of financial year adopted by the company.
Time limit
The first financial statement must be laid at some date not later than sixteen months after the date of incorporation of the company and subsequently once at least in every calendar year.
The financial statements must be laid within a period of 120 days following the close of financial year. However, in the case of a listed company the Commission, and in any other case the registrar, may, for any special reason, extend the period for a term not exceeding 30 days.
Duration of financial year
The period to which the statements aforesaid relate, not being the first, shall not exceed one year except where special permission of the registrar has been obtained.
Audit
The financial statement shall be audited by the auditor of the company, and the auditor’s report shall be attached thereto.
The requirement of audit shall not apply to a private company having the paid up capital not exceeding Rs. 1 million or such higher amount of paid up capital as may be notified by the Commission.
Dispatch to members
Every company shall send audited financial statements together with the auditor’s report, directors’ report and in the case of a listed company the chairman’s review report to every member of the company and every person who is entitled to receive notice of general meeting, either by post or electronically at least 21 days before the date of meeting at which it is to be laid before the members of the company.
Copy at registered office
The company shall keep a copy of financial statements together with the said report at the registered office of the company for the inspection of the members.
Filing to Authorities by Listed company
A listed company shall, simultaneously with the dispatch to members, send by post three copies and electronically a copy of such financial statements together with said reports to each of the Commission, registrar and the securities exchange and shall also post the same on the company’s website.
The reports shall be made available on the website of the company for a time period as may be specified.
Approval and authentication of financial statements [Section 232]
Manner of authentication
The financial statements must be approved by the board of the company and signed on behalf of the board by the chief executive and at least one director of the company, and in case of a listed company also by the chief financial officer.
Chief executive not in Pakistan
When the chief executive is for the time being not available in Pakistan, then the financial statements may be signed by at least two directors.
Affidavit by certain private companies
In case of a private company having a paid up capital not exceeding Rs. 1 million, the financial statements shall also be accompanied by an affidavit executed by those who signed the financial statements, that the financial statements have been approved by the board.
Single member company
The financial statements of a single member company shall be signed by one director.
Filing of financial statements with registrar (after AGM) [Section 233]
Requirement
After the audited financial statements have been laid before the company at the AGM and duly adopted, a copy of such financial statements together with reports and documents required and, duly signed (by CEO/directors), shall be filed by the company with the registrar.
Time limit
Above financial statements shall be filed within 30 days from the date of such meeting in case of a listed company and within 15 days in case of any other company.
When members do not adopt financial statements
If the general meeting before which the financial statement is laid does not adopt the same or defers consideration thereof or is adjourned, a statement of that fact and of the reasons therefor shall be annexed to the said financial statements required to be filed with the registrar.
Not applicable to
This filing requirement shall not apply to a private company having paid up capital not exceeding Rs. 10 million or such higher amount as may be notified by the Commission.
Quarterly financial statement of listed companies [Section 237]
Time period
Every listed company shall prepare the quarterly financial statements within the period of:
30 days of the close of first and third quarters of its year of accounts; and
60 days of the close of its second quarter of its year of accounts.
Additional requirement for second quarter
Additional requirements for second quarter accounts:
a) the cumulative figures for the half year i.e. six months be presented
b) it shall be subjected to a limited scope review by the statutory auditors of the company
c) limited scope review shall be in such manner and according to such terms and conditions as may be determined by ICAP and approved by the Commission.
Posted on website and electronic filing
The quarterly financial statements shall be posted on the company’s website for the information of its members. Moreover, it shall also be transmitted electronically within the period specified above:
to the Comm ission,
to the securities exchange; and
with the registrar.
The Commission may specify the time period for which the quarterly financial statements shall be made available on the website of the company.
Extension in time for first quarter
However, if the company was allowed extension for annual financial statements; the company may apply to the Commission for extension for filing accounts of first quarter and the Commission may extend the period of filing for a period not exceeding 30 days.
Dispatch to member on request
A copy of the quarterly financial statements shall be dispatched in physical form if so requested by any member without any fee.
Authentication
The approval and authentication requirements of the quarterly financial statements are same as those of annual financial statements.
Group/Consolidated financial statements [Section 228]
Requirement
There shall be attached to the financial statements of a holding company having a subsidiary or subsidiaries, at the end of the financial year at which the holding company’s financial statements are made out, consolidated financial statements of the group presented as those of a single enterprise and such consolidated financial statements shall comply with the disclosure requirements of the relevant Schedule and financial reporting standards notified by the Commission.
Exception
The above requirement shall not apply to a private company and its subsidiary, where none of the holding and subsidiary company has the paid up capital exceeding Rs. 1 million.
Additional interim financial statements
Where the financial year of a subsidiary precedes the day on which the holding company’s financial year ends by more than 90 days, such subsidiary shall make an interim closing, on the day on which the holding company’s financial year ends, and prepare financial statements for consolidation purposes.
Audit
Every auditor of a holding company appointed (to audit its individual financial statements) shall also report, in the specified form, on consolidated financial statements and exercise all such rights and duties as are vested in him under the law.
Disclosure of certain material information
There shall also be disclosed in consolidated financial statements any note or explanation on a qualification (relating to a subsidiary) which is material from viewpoint of members of holding company but have not been covered in the financial statements of holding company.
Authentication
Every consolidated financial statement shall be signed by the same persons by whom the individual financial statements of the holding company are required to be signed.
Application of other sections
The all provisions of sections 223, 233, 234, 235 and 236 shall apply to a holding company required to prepare consolidated financial statements as if for the word “company” appearing in these sections, the words “holding company” were substituted.
Relaxation by the Commission
The Commission may, on an application of a holding company, direct that the above provisions shall not apply to such extent as may be specified in the direction.
Penalty
Any contravention or default in complying with above requirements shall be an offence liable to a penalty of level 2 on the standard scale.
Financial year of holding company and subsidiary [Section 229]
Financial year to coincide
The board of a holding company shall ensure that its financial year and each of its subsidiaries coincides, except where in their opinion there are good reasons against it.
Facilitation by the Commission
For the above purposes, the Commission may facilitate a holding company or a subsidiary by extending the financial year of any such company, on an application by such company.
Other related relaxations
While granting any extension as mentioned above, the Commission may grant such other relaxations as may be incidental or ancillary thereto.
Duty to prepare directors’ report and statement of compliance [Section 226]
Directors’ report
The board shall prepare a directors’ report for each financial year of the company other than a private company, not being a subsidiary of public company, having the paid up capital not exceeding Rs. 3 million.
Statement of compliance
The Commission may by general or special order, direct such class or classes of companies to prepare a statement of compliance. The board shall make out and attach to the financial statement such statement of compliance as may be specified.
Contents of directors’ report [Section 227]
Minimum contents of directors’ report
The directors shall make out and attach to the financial statements, a report with respect to:
the state of the company’s affairs and a fair review of its business;
the amount (if any), that the directors recommend as dividend; and
the amount (if any), they propose to carry to the Reserve Fund, General Reserve or Reserve Account.
Additional contents of directors’ report for certain companies
There are additional contents are required for following companies:
Public company
Private company, which is a subsidiary of public company
The additional contents are:
the names of the persons who, at any time during the financial year, were directors of the company;
the principal activities and the development and performance of the company’s business during the financial year;
a description of the principal risks and uncertainties facing the company;
any changes that have occurred during the financial year concerning the nature of the business of the company or of its subsidiaries, or any other company in which the company has interest;
the information and explanation in regard to any contents of modification in the auditor’s report;
information about the pattern of holding of the shares in the form specified;
the name and country of origin of the holding company, if such company is a foreign company;
the earning per share;
the reasons for loss if incurred during the year and future prospects of profit, if any;
information about defaults in payment of any debts and reasons thereof;
comments in respect of adequacy of internal financial controls;
any material changes and commitments affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statement relates and the date of the report;
disclosure with respect to remuneration package of each of the directors and chief executive including but not limited to salary, benefits, bonuses, stock options, pension and other incentives; and
any other information as may be specified.
Authentication
The directors’ report and statement of compliance must be approved by the board and signed by the chief executive and a director of the company.
Business review section of directors’ report [Section 227]
Business review of listed company
In the case of a listed company, the business review must, to the extent necessary for understanding the development, performance or position of the company’s business, include:
the main trends and factors likely to affect the future development, performance and position of the company’s business;
the impact of the company’s business on the environment;
the activities undertaken by the company with regard to corporate social responsibility during the year;
directors’ responsibility in respect of adequacy of internal financial controls as may be specified; and
the legitimate reasons for not declaring dividend despite earning profits and future prospects of dividend, if any.
Requirements as to annual return [Section 130]
It is a snapshot of general information about a company as on a specific date, giving details of its chief executive, directors, chief financial officer, secretary, legal adviser and auditors, registered office address, members and share capital.
Date of annual return
The annual return is prepared as on the date of the annual general meeting or, where no such meeting is held or if held is not concluded, on the last day of the calendar year.
Requirement and specified form
Every company in each year prepare and file with the registrar an annual return containing the particulars in a specified form as on the date of annual return.
The annual return shall contain the particulars as given in following specified forms:
Form A – Company having share capital
Form B – Company not having share capital
Time limit
The annual return shall be filed with the registrar within 30 days from the date of annual return. However, in the case of a listed company, the registrar may for special reasons extend the period of filing of such return by a period not exceeding 15 days.
Record in registers
All the particulars required to be submitted in the annual return shall have been previously entered in one or more registers kept by the company for the purpose.
No change of particulars since the last return
The above provisions shall not apply to following companies, in case there is no change of particulars in the last annual return filed with the registrar:
A single member company.
A private company having paid up capital of not more than Rs. 3 million.
All other companies shall inform the registrar in a specified manner (Form C) that there is no change of particulars in the last annual return filed with the registrar.
Penalty
Any contravention or default in complying with above requirements shall be an offence liable:
a) in case of a listed company, to a penalty of level 2 on the standard scale; and
b) in case of any other company, to a penalty of level 1 on the standard scale.
