Where a company has subsidiaries, its own accounts show only part of the picture. Sections 181 and 182 of the Companies Act 1997 require the whole.
Section 178 — the definition
(a) a consolidated balance sheet for the group as at that balance date; and
(b) where a member of the group trades for profit, a consolidated profit and loss statement; and
(c) where no member trades for profit, a consolidated income and expenditure statement; and
(d) where an applicable financial reporting standard requires it, a consolidated statement of cash flows,
together with any notes or documents giving information relating to the balance sheet or statement.
Under section 171, a “group” means a group comprising a reporting company and its subsidiaries — whether or not any or all of those subsidiaries are themselves exempt companies. A small exempt subsidiary is still consolidated.
Section 181 — when group accounts are required
Subject to subsection (2), the directors of a reporting company that has, on its balance date, one or more subsidiaries shall — in addition to complying with section 179 — ensure that, within five months after that balance date, group financial statements complying with section 182 are completed and dated and signed on behalf of the directors by two directors, or by the sole director.
Group financial statements are in addition to the company’s own. Both must be completed and signed within five months of the balance date. Under section 181(3) the Registrar may, on the application of the holding company and for any special reason, extend the period — even beyond the calendar year.
The obligation attaches to a reporting company only. An exempt company does not prepare group accounts — but note that under section 171 a subsidiary of a company that is not an exempt company, or of an overseas company, or of an issuer, can never be exempt.
Whether a company is a holding company turns on sections 5 to 7 — control of the board, more than half the votes, more than half the issued shares, or entitlement to more than half of every dividend.
Group financial statements are not required where the only shareholders of the company at that balance date comprise —
(a) a body corporate incorporated in the country, or a nominee of such a body corporate; or
(b) such a body corporate (or its nominee) and a subsidiary of that body corporate (or its nominee).
Where the company is itself wholly owned within a Papua New Guinea group, its results will already be consolidated by the parent above it. Section 181(2) avoids preparing the same consolidation twice.
The exception is confined to a body corporate incorporated in the country. A subsidiary held by a foreign parent must prepare its own group accounts if it has subsidiaries — because the foreign parent’s consolidation is not filed here.
Section 182 — content of group financial statements
(1) The financial statements of a group shall comply with generally accepted accounting practice.
(2) Where compliance does not give a true and fair view, the directors shall add such information and explanations as will give a true and fair view.
Where a subsidiary became a subsidiary during the accounting period, the consolidated profit and loss or income and expenditure statement shall — unless an applicable financial reporting standard otherwise requires — relate to the profit or loss of the subsidiary for each part of the period during which it was a subsidiary, and not to any other part.
So pre-acquisition results are excluded. That prevents a group flattering its consolidated result by acquiring a profitable company late in the year and consolidating the whole year’s profit.
Subject to subsection (3), where a subsidiary’s balance date differs from the reporting company’s, the group financial statements shall —
(a) where the subsidiary’s balance date does not precede the reporting company’s by more than three months — incorporate either the subsidiary’s statements for the period ending on that date or interim financial statements for the same period as the reporting company’s; or
(b) in any other case — incorporate interim financial statements for the same period as the reporting company’s.
A gap of up to three months may be bridged by using the subsidiary’s own accounts. Beyond that, interim statements aligned to the parent’s period must be prepared. The practical answer for most groups is to align balance dates — which section 176 permits.
Section 182(5) completes the rule: subject to subsection (3), group financial statements shall, except where otherwise required by an applicable financial reporting standard, incorporate the financial statements of every subsidiary.
Section 183 — registration
The directors of a company required by section 190 to be audited shall ensure that, within 14 days after the annual meeting, copies of the financial statements and any group financial statements, together with a copy of the auditor’s report, are submitted to the Registrar for registration in accordance with section 215(3).
Under section 185(1)(b), where group financial statements are not completed and signed in time, every director of the reporting company commits an offence, penalty under section 414(3). Under section 185(2) the same applies where they fail to comply with an applicable financial reporting standard.
Group accounts and the rest of the Act
| Provision | Effect |
|---|---|
| s 64 | A subsidiary may not hold shares in its holding company |
| s 112(2), (3) | A director may act in the interests of the holding company where the constitution expressly permits |
| s 117(1)(c) | The wholly owned group carve-out from “interested” |
| s 349 | Liability of a holding company for the insolvent trading of a subsidiary |
| ss 320A–320C | Pooling of assets of related companies in liquidation |
| s 235 | Short form amalgamation within a wholly owned group |
Sources
- Companies Act 1997 — ss 5–7, 64, 112, 117, 171, 172, 176–185, 190, 215, 235, 320A–320C, 349, 414
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.