ACC 321

CHAPTER ONE

THE MEANING, OBJECTIVES AND CONTENT OF CORPORATE ANNUAL REPORTS

At the end of this lecture, students must be able to understand the meaning, objectives and content
of corporate annual reports. Specifically, students should be able to:

1.1 Explain the meaning and objectives of corporate annual reports;

1.2 Identify the various components of a standard “Annual Report”;

1.3 Differentiate between a standard annual report and an abridged one;

1.4 Identify items normally included in the Chairman’s statement;

1.5 Identify items normally included in directors’ report;

1.6 Explain the importance of the Report of the Auditors to the Annual Report;

1.7 Explain the importance of the Report of the Audit Committee to the Annual Report.
1.1 The meaning and Objectives of Corporate Annual Reports (CARs).

Generally, reports refer to statements and opinions which convey information from one party to the
other. Corporate annual reports thus means communication of information about the performance of
an entity for a given period of time by directors of the entity to members of the company and to other
intended users so as to assist them in making decisions relative to the entity. Other objectives of
corporate annual reports include:

(i) Compliance with statutory requirement.

Corporate entities are required by the Companies and Allied Matters Act (CAMA) 1990 to
publish annual reports a copy of which must be filed with the Corporate Affairs Commission
(CAC). For companies quoted on an Exchange, such reports must also be filed with the stock
exchange. Consequently, a company quoted on the Nigerian Stock Exchange (NSE) is also
required to file its annual corporate reports to the Exchange. In Nigeria for example, the
reports must be filed with the Nigerian Stock Exchange (NSE).

(ii) Promotion of efficient allocation of resources in the capital market

Capital markets thrive on information especially from published annual reports.

According to NSA 1, financial statements are a structured representation of the financial information
which ordinarily includes accompanying notes derived from accounting records and intended to
communicate the entity’s economic resources and obligations at a point in time or the changes therein
for a period of time in accordance with a financial reporting framework. The term may refer to a
complete set of financial statements, but it may also refer to a single financial statement, such as a
balance sheet, or a statement of revenues and expenditures, and related explanatory notes.

From the above, financial statements are:

Structured presentation of information;

Obtained from accounting records; and
Communicating same to interested
parties. Also, it may refer to:

(i) Complete set of financial statements; or

(ii) A single set of financial statements such as balance sheet (statement of financial position).

Objective

The main objective of financial statements is communication of economic data to intended parties,
especially members of the company and members of the audit committee in case of companies quoted
on the stock exchange. By so doing, users of financial statements are informed about the financial status
of the company and its progress towards achieving its established goals. Such are the primary or general
Purpose- showing how a business is faring as well as where its future lies. With reference to section 60
subsection 2(c) of the Investment and Securities Act (ISA) 2007, annual reports also aims at showing that
the financial condition and results of operations of the entity for the period being reported, were
presented fairly,

Classes of Corporate Annual Reports

There are two classes of corporate annual reports. These are the standard ‘Annual Report’ and
the ‘Abridged Report.’

1.2 The various components of a standard “Annual Report”

Contents of corporate annual reports (CAR) are usually defined by regulatory and reporting frameworks.
Regulatory framework include pronouncement by the government through institutions such as the:

(i) Corporate Affairs Commission – implementing the provisions of the Companies and Allied
Matters Act (CAMA)1990 as amended to date;
(ii) Securities and Exchange Commission – implementing the provisions of the Investment
and Securities Act (ISA) 2007;
(iii) Central bank of Nigeria (CBN) – implementing the provisions of the Banking and Other
Financial Institutions’ Act (BOFIA) 2002;
(iv) Nigerian Insurance Commission (NICOM) - implementing the provisions of the Nigerian
Insurance Act;
(v) Pensions Commission (PENCOM)- implementing the provisions of the Nigerian Pensions Act;
and
(vi) Financial Reporting Council of Nigeria. Oblige

Reporting frameworks include pronouncements by professional associations, especially associations of

professional accountants locally and internationally. Most of these are codified in accounting standards
which must be followed in the documentation, disclosure and presentation of financial statements. The
standards in Nigeria are the International financial Reporting Standards (IFRS) and the Statement of
Accounting Standards ((SAS) which complies substantially with IFRS.

It follows, hence, that the components of a standard ‘Annual Report’ are often defined by statute as well
as professional standards. Where there is any conflict, the legal provisions take precedence. In Nigeria,
The supreme statutory source of the contents of a standard ‘Annual Report’ is the Companies and
Allied Matters Act (CAMA) 2020 as amended to date. Section 334 on ‘Director’s Duty to prepare Annual
Accounts,’ indicates in subsection 2 that financial statements thus prepared should include:

(i) Statement of the accounting policies;

(ii) The balance sheet as at the last date of the year;
(iii) A profit and loss account or, in the case of a company not trading for profit, an income
and expenditure account for the year;
 (iv) Notes to the account;
(v) The auditors’ reports;
(vi) The directors’ reports;
(vii) A statement of the source and application of fund;
(viii) A value added statement for the year;
(ix) A five-year financial summary; and
(x) In the case of a holding company, the group financial statements.

With regard to a private company, subsection 3 excludes items (i), (vii), (viii) and (ix).

Further to the above, the 1991 amendment to CAMA 1990 introduced the audit committee. Public
limited liability companies are required to include a report of the audit committee in their annual
re4ports.

It follows from the above that a standard ‘Annual Report’ is a combination of statements and opinions
presented by directors of a company which includes all statutory items such as the income statement,
statement of financial position, notes to the accounts, statement of source and application of funds,
auditors’ reports, directors’ reports, report of the audit committee, value added statement for the year
and five-year financial summary.

A standard ‘Annual Report’ fully complies with all statutory and professional presentation and
disclosure requirements. It is a document required by the CAMA 2020 (as amended) in section 345 to be
laid by the directors before a company in general meeting. By virtue of section 342 of the Act, it
contains:

(a) A fair view of development of the business of the company as well as its position at the end of
the year;
(b) Recommendation by the directors (if any) for payment as dividend and the amount proposed for
retention;
(c) Names of directors during the year;
(d) Financial activities of the company during the year;
(e) Any significant changes in the financial activities of the company during the year ;
(f) Statement of the particulars and matters required by:
Part I of Schedule 5 to the Act- matters of general nature;
Part II of Schedule 5 to the Act – disclosure required by company acquiring its
own shares etc.;
Part III of schedule 5 to the Act – employment and employees.
1.3 Differentiation between a standard annual report and an abridged one

As explained in 1.2 above, a standard annual report is a collection of statements and opinions for a
given year incorporating all statutory and professional requirements. Such report usually complies fully
with the provisions of the Companies and Allied Matters Act (CAMA) 2020 and provisions of the relevant
in practice, it includes:

(i) Statement of the chairman;

(ii) Financial statements – balance sheet, profit and loss account, cash flow statement,
changes in equity, notes to the account, value added statement and five – year
(iii) Directors’ reports;
(iv) Auditors’ reports; and
(v) Audit committee report.
An abridged annual report on the other hand is any annual report other than a standard annual report.
Such report may include one or more elements of a standard annual report. For example, an abridged
annual report may include only the balance sheet, or profit and loss account or cash flow statement.
Often, an abridged annual report is made up of:

(i) Balance sheet;

(ii) Profit and loss account; and
(iii) Auditors’ report.
Going by section 350 of the Companies and Allied Matters Act (CAMA) 2020, an abridged annual report
is a modified report and is akin to the returns of a small company.

"Abridged" is more condensed, while "detailed" is just as it implies - detailed, with all
financial details, facts and figures included.

1.4 Items normally included in the Chairman’s statement

The Chairman of a company is a director of the company elected by the directors to preside over their
meetings (s.8) for a specified period of time (Section 263 (4) of CAMA 2020 as amended). The items to
be included in the Chairman’s statement, hence, are derivatives of items to be included in directors’
report. Consequently, chairman’s statement is usually a brief summary of directors’ report. In the
standard annual report for the year ended 31 may, 2014 for example, PZ Cussons Nigeria Plc., included
the following items in the ‘Chairman’s statement.’

(i) Introduction
(ii) Overview of the business environment – micro and macro.- and effects on corporate
performance.
(iii) Corporate performance in terms of profitability and dividend payout for the year.
(iv) The board of directors, highlighting changes where necessary.
 (v) Staff – including training as well as employment of physically challenged persons.
(vi) Corporate social responsibility.
(vii) Future prospects.
(viii) Conclusion.

For the year ended 31 December, 2015, The Okomu Oil palm Company Plc., showed the following
items in the chairman’s statement:

(i) Introduction.
(ii) The operating and economic environment in 2015.
(iii) The company’s operational performance for 2015.
(iv) Consolidated financial results.
(v) Environment, health and safety.
(vi) Future expansion and development plans.
(vii) Conclusion.

For the year ended 31 December, 2010, the chairman’s statement of Guaranty Trust Bank Plc., had
the following items:

(i) Introduction.
(ii) Macroeconomic review.
(iii) Subsidiaries.
(iv) Board of directors.
(v) Staff
(vi) Economic outlook.
(vii) Group outlook.

From the above, it is clear that chairman’s statements may vary from company to company but normally
include items relating to:

(i) Global economic performance.

(ii) Corporate performance.
(iii) Future plans.
(iv) Conclusion.
More detailed information is provided in the directors’ reports.

1.5 Items normally included in directors’ report

Sections 334, 335 and 342 relate to directors’ duty to prepare annual accounts, form and contents of
Individual financial statements as well as the nature of the accounts so prepared.
The items, as noted in 1.2 above, normally include:

(i) Statement of the accounting policies;

(ii) The balance sheet as at the last date of the year;
(iii) A profit and loss account or, in the case of a company not trading for profit, an income
and expenditure account for the year;
(iv) Notes to the account;
(v) The auditors’ reports;
(vi) The directors’ reports;
(vii) A statement of the source and application of fund;
(viii) A value added statement for the year;
(ix) A five-year financial summary; and
(x) In the case of a holding company, the group financial statements.

Compliance with Schedule 2 to the Act and Statement of Accounting Standards is mandatory.

Schedule 2 in Part1 section A paragraph 2, requires the financial statements of a company to state:

(i) The name of the company.

(ii) The period of time covered.
(iii) A brief description of its activities.
(iv) Its legal form.
(v) Its relationship with important suppliers – local and overseas.

Other items required by virtue of section 342 of the Act, include:

(g) A fair view of development of the business of the company as well as its position at the end of
the year;
(h) Recommendation by the directors (if any) for payment as dividend and the amount proposed for
retention;
(i) Names of directors during the year;
(j) Financial activities of the company during the year;
(k) Any significant changes in the financial activities of the company during the year ;
(l) Statement of the particulars and matters required by:
Part I of Schedule 5 to the Act- matters of general nature;
Part II of Schedule 5 to the Act – disclosure required by company acquiring its
own shares etc.;
Part III of schedule 5 to the Act – employment and employees.

More detailed items are therefore, incorporated into the reports of the directors in order to help users
of financial information evaluate the financial liquidity, profitability and viability of a business entity
(second Schedule Part 1 section A s. 1)
1.6 Explain the importance of the Report of the Auditors to the Annual Report

The importance of the report of the auditors to the annual report is that it lends credibility to the annual
report. This is because in the process of preparing the report, auditors by reason of section 359 of the
Act, have examined records of the company and the accounts prepared therefrom to form an opinion,
per section 360 of the Act, on whether or not the records were properly kept, whether the financial
statements were in agreement with the records also correspond with information provided in the
directors’ reports for the year.

Where a clean report is issued by the auditors, third parties are encouraged to rely on the financial
statements for taking economic decisions regarding the financial instruments of the company.
Moreover, investors and other participants in the capital market seldom rely on unaudited financial
statements. The report of the auditors therefore, makes the annual report a viable instrument in
the efficient allocation of resources in the financial markets.

Also important is the indirect role which the report of the auditors plays in promoting sound corporate
governance. This is because the report is sent to members of the company as well as to members of the
audit committee while it is read to members in a general meeting, usually in the annual general meeting.
This implies that directors of the company may not be able to influence the presentation of the report at
the general meeting where it is being read. It also gives the audit committee the opportunity to carry
out their functions on the audit report without interference from the board of directors or other power
clusters in the company.

1.7 The Importance of the Report of the Audit Committee to the Annual Report.

The Audit Committee (AC) is a committee of a business entity listed on the stock exchange. Established
by section 359 (3) of the CAMA 2020 as amended, the committee is made up of equal member of
directors and shareholders, subject to a maximum of six.

Subject to additional functions and powers conferred on the committee by the articles of association of
a company, the statutory functions of the audit committee as listed by CAMA 2020 in section 359(5)
include:

(i) Ascertaining if the accounting and reporting policies of the company are in accordance with
legal requirements and agreed ethical practices.
(ii) Reviewing the scope and planning of audit requirements.
(iii) Reviewing the findings on management matters together with the external auditors as well
 as departmental responses there on.
(iv) Keeping under review, the effectiveness of the quality of the company’s accounting system
and interval control.
(v) Making recommendations to the Board regarding the appointment, removal and
remuneration of the company’s external auditors .
(vi) Authorizing the internal auditor to conduct investigation into any activities of the company
with internal control interest to the committee.

It is evident from the above that the significance or the report of the audit committee to the financial
statements is to enhance good corporate government.

In practice, many reports of the Audit Committee are usually brief. The report of the audit committee of
The Okomu Oil Palm company Plc., for the year ended 31 December, 2015 is presented below;

Report of the Audit committee

In accordance with the provisions of section 359 (6) of the Companies and Allied Matters Act, 2020 as
Amended, we, the members of the Audit committee of Okomu Oil Palm Company Plc., having carried
out our functions under the Act , confirm that the accounting and reporting policies of the company as
contained in the audited financial statements for the year ended 31 December, 2024 are in accordance
with legal requirements and agreed ethical practices.

We confirm that the external auditors, Messrs. Napkur Durven, Chartered Accountants have issued
an unqualified opinion on the company’s financial statements for the year ended 31 December, 2024.

In our opinion, the scope of the audit for the year ended 31 December, 2024 were adequate and we
confirm that the responses by the management to the External auditors’ findings on management
matters were satisfactory.
QUIZZES

1. Generally, reports refer to statements and ………… which convey information from one party to
the other.
2. Corporate annual reports thus means communication of information about the performance of
an entity for a given period of time by directors of the entity to ……………. of the company and to
other intended users so as to assist them in making ……………………relative to the entity.
3. Other objectives of corporate annual reports include ………………………..and …………………..
4. financial statements are …………………. presentation of information obtained from accounting
records and communicated to …………..parties such as ………………….
5. An indirect role which the report of the auditors plays is promoting sound …………………

TESTS

1. . (a) Briefly differentiate between a standard annual report and an abridged annual report.

(b) List four elements of a standard annual report.

(c ) Explain the need for corporate annual reports in the management of a limited liability company.

2. Briefly distinguish between the report of an auditor and the report of an Audit Committee in
corporate annual reports.

ASSIGNMENTS

1. Obtain corporate annual reports from the following industries:

(a) Banking;
(b) Manufacturing; and
(c) Agriculture.

Compare and contrast statements of the Chairman in the reports submitted by you.

2. (a) What are corporate annual reports?

(b) Using Dangote cement Plc.,

(i) List one statement and two reports contained in an annual corporate report;

(ii) Tabulate the profit performance of the company in the last ten years.