Annual returns, Annual Report -All you need to know

In the corporate world, transparency, accountability, and compliance are crucial aspects of maintaining a healthy business environment. Nigeria, like other countries, has established regulations and requirements that companies must adhere to. Two important documents that play a significant role in corporate governance are the Annual Report and the Annual Returns. While both documents serve different purposes, they are both essential in providing stakeholders with critical information about a company’s performance and compliance. This piece seeks to highlight the differences between Annual Reports and Annual Returns in the Nigerian context.

Definition and Purpose of Annual Report and Annual Returns

Annual Report

An Annual Report is a comprehensive document prepared by a company to provide a detailed overview of its activities, financial performance, and future prospects to its shareholders and other stakeholders. It serves as a platform for transparent communication between the company’s management and its constituents.

The Annual Report typically includes the following components:

• A message from the chairman or board of directors, highlighting key achievements, challenges, and strategic initiatives.
• Financial Statements: A detailed breakdown of the company’s financial position, including the balance sheet, income statement, cash flow statement, and notes to the financial statements.
• Management Discussion and Analysis: A narrative section that provides an analysis of the financial statements, market conditions, risk factors, and future prospects.
• Corporate Governance Report: Information on the company’s corporate governance practices, board composition, remuneration policy, and internal control mechanisms.
• Auditors’ Report: An independent assessment of the company’s financial statements by external auditors.
• Other Disclosures: Additional information such as sustainability initiatives, risk management practices, and compliance with regulatory requirements.

Annual Returns

While Annual Reports focus on disclosing comprehensive information to shareholders and stakeholders, Annual Returns are primarily prepared and submitted in satisfaction of a statutory requirement under Nigerian law. The Corporate Affairs Commission (CAC) mandates that every registered company in Nigeria must submit its Annual Returns, providing essential information about the company’s structure, ownership, and financial standing.

Annual Returns, as presented in the form CAC 19 (Annual Return Form) typically include the following information:

• the details of the company.
• Share Capital: Details about the company’s issued share capital.
• Shareholders’ Information: The names, addresses, and shareholdings of all shareholders in the company.
• Directors’ and Officers’ Information: Names, addresses, and other pertinent details of the company’s directors and officers (such as the secretary).
• Auditors’ Information: The name, address, and details of the company’s auditors.
• Financial Statements: A summary of the company’s financial position, including total assets, liabilities, and shareholders’ equity.
• Annual Returns are essential for maintaining compliance with Nigerian regulations. Failure to file Annual Returns within the stipulated timeframe can result in penalties, fines, or even the striking off of the company from the register. By submitting Annual Returns, companies demonstrate their adherence to statutory requirements and ensure transparency regarding their ownership structure and financial status.

Frequency and Filing Requirements for Annual Report and Annual Returns

Annual Reports

 Companies required to comply with the Nigerian Code of Corporate Governance 2018 are mandated to prepare their annual reports and disclose it to their shareholders and other stakeholders on a yearly basis under Nigerian law. The annual report must  contain statutorily mandated information such as corporate governance report, statement on Company’s Environmental Social and Governance .

Companies are required to publish their annual reports once every financial year. 

Annual Returns

Annual returns are required to be filed annually to provide updated information about the company’s structure, ownership, and financial standing.

Companies are mandated to file their annual returns within 42 days from the date of the company’s Annual General Meeting (AGM). The AGM should be held within 18 months from the date of the company’s incorporation and subsequently, at least once every calendar year. The annual returns may be filed electronically through the CAC’s designated online portal. Companies are required to register on the portal, provide accurate information, and make the necessary payments for filing annual returns.

Read more about filing annual returns here.

Use of Annual Report and Annual Returns in Investor Relations

Annual reports and annual returns play a crucial role in providing transparency, accountability, and valuable information to investors and stakeholders.

They provide a comprehensive overview of a company’s financial performance, including income statements, balance sheets, and cash flow statements. Investors rely on these financial statements to assess the company’s profitability, liquidity, and overall financial health. They analyse key financial ratios, such as return on investment, earnings per share, and debt-to-equity ratio, to evaluate the company’s performance and make informed investment decisions.

They offer valuable insights into a company’s strategic direction and future plans. Management discussion and analysis sections provide a narrative explanation of the company’s performance, highlighting key achievements, challenges, and growth strategies. Investors use this information to understand the company’s competitive position, expansion plans, and market opportunities, enabling them to assess the company’s long-term prospects and align their investment strategies accordingly.

They also help to evaluate the company’s compliance with corporate governance requirements and help to identify the risks and uncertainties faced by the company, including market risks, regulatory risks, and operational risks. Investors use this information to evaluate the potential risks associated with their investment.

Impact of Annual Report and Annual Returns on Company Reputation

The impact of annual reports and annual returns on company reputation is significant. These documents play a crucial role in shaping stakeholders’ perception of a company’s credibility, transparency, and commitment to good corporate governance.

These documents help the company to build transparency and trust. Annual reports and annual returns provide a platform for companies to disclose essential information about their financial performance, strategic direction, and compliance with regulatory requirements. By presenting accurate and comprehensive information, companies demonstrate transparency and establish trust with stakeholders. This transparency enhances the company’s reputation as it showcases a commitment to open communication and accountability.

They also help build stakeholder confidence. Annual reports and annual returns are instrumental in fostering stakeholder confidence. Shareholders, investors, and other stakeholders rely on these documents to assess the company’s financial health, evaluate risks, and make informed decisions. When companies consistently provide clear, reliable, and timely information through these reports, it instills confidence in stakeholders, leading to positive perceptions of the company’s reputation.

Filing annual returns within the prescribed timeframe also showcases a company’s adherence to regulatory requirements and compliance with the law. Meeting these obligations enhances the company’s reputation by demonstrating its commitment to following established procedures and regulations. It indicates that the company operates with integrity and respects legal frameworks, which positively impacts stakeholders’ perception of the company.

Conclusion

In conclusion, preparing and filing/ publishing annual returns and annual reports is an important obligation for Nigerian companies that must be done very thoughtfully. At Norebase, we are happy to assist companies with the preparation of these documents.

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