Part XI of the Companies Act 1997 sets the financial reporting regime, and it turns on one distinction.
Section 171 — “exempt company” and “reporting company”
(a) a company that did not at any time during the accounting period have —
(i) total assets exceeding K5,000,000.00 (or such other amount as is prescribed); or
(ii) more than 25 shareholders; or
(iii) more than 100 employees; or
(b) a company that complies with one or two (but not all three) of those conditions and each of whose shareholders has agreed that an auditor should not be appointed; or
(c) a subsidiary of an exempt company.
“Exempt company” does not mean —
(d) an issuer; (e) a subsidiary of an issuer; (f) a subsidiary of a company that is not an exempt company; (g) a subsidiary of an overseas company; or (h) and (i) a subsidiary, or a subsidiary of a subsidiary, of any company or overseas company in (d) to (g).
So a small subsidiary of a large group is never exempt, however modest its own figures. A “reporting company” is simply a company other than an exempt company.
The thresholds are joined by “or”, and the test is whether the company had none of them at any time during the period. Paragraph (b) then rescues a company that exceeds one or two of the three — but only if every shareholder has agreed that no auditor should be appointed.
Under section 173 an “issuer” is a company that has registered a prospectus under the repealed Act or the Securities Act 1997, and the section continues from there. Section 174 deals with companies ceasing to be issuers during a period, and section 175 with certain companies that are not issuers.
Section 177 — what “financial statements” means
(a) a balance sheet as at the balance date; and
(b) for a company trading for profit, a profit and loss statement for the accounting period; or for a company not trading for profit, an income and expenditure statement; and
(c) for a reporting company, where an applicable financial reporting standard requires it, a statement of cash flows,
together with any notes or documents giving information relating to the balance sheet or statement.
The balance date is fixed under section 176. Section 178 defines group financial statements in corresponding consolidated terms.
Section 179 — five months, signed by two directors
The directors of every company shall ensure that, within five months after the balance date — or a shorter period if another Act requires it — financial statements complying with section 180 are —
(a) completed in relation to the company and that balance date; and
(b) dated and signed on behalf of the directors by two directors, or, where the company has only one director, by that director.
Under section 179(2), the Registrar may extend the period on the company’s application for any special reason the Registrar thinks fit — even if the period is extended beyond the calendar year.
Section 179 applies to every company, exempt or not. The exemption in Part XI is from the reporting standards and, under section 190, from audit — not from preparing statements at all.
The five-month deadline also drives the meeting calendar: under section 101(1)(b) the annual meeting must be held not later than six months after the balance date.
Sections 172 and 180 — the content standard
(1) The financial statements shall comply with generally accepted accounting practice.
(2) Where, in complying with generally accepted accounting practice, the statements do not give a true and fair view of the matters to which they relate, the directors shall add such information and explanations as will give a true and fair view of those matters.
Financial statements comply only where they comply with —
(a) applicable financial reporting standards; and
(b) for matters not provided for in those standards and not subject to any applicable rule of law, accounting policies that (i) are appropriate to the circumstances of the reporting company and (ii) have authoritative support within the accounting profession in Papua New Guinea.
Section 180(2) does not permit the directors to depart from the standards. It requires them to add information and explanations where compliance alone would not give a true and fair view. Compliance is the floor; the true and fair view is the object.
“Applicable financial reporting standard” and “approved financial reporting standard” are defined in section 171 by reference to standards approved by the Accounting Standards Board under section 206.
Sections 185, 186 and 187 — the offences
| Section | Failure | Penalty |
|---|---|---|
| 185(1) | Financial statements, or group financial statements, of a reporting company not completed and signed in time | Every director — s 414(3) |
| 185(2) | Statements of a reporting company or group fail to comply with an applicable financial reporting standard | Every director — s 414(3) |
| 186 | Statements of an exempt company not completed and signed in time, or not complying with section 180 | Every director — s 414(2) |
| 187 | A company required by section 190 to have statements audited fails to do so | Every director — s 414(3) |
Section 183 adds a filing duty: 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, any group financial statements and the auditor’s report are submitted to the Registrar in accordance with section 215(3).
Notwithstanding sections 179 to 183, where under the Banks and Financial Institutions Act 2000 a company must prepare an annual balance sheet and profit and loss account, statements complying with that Act are deemed to comply with the form and content requirements of this Act. This matches section 9, under which the Companies Act is read subject to the banking legislation.
Why the statements matter beyond compliance
- They are the starting point for the solvency test — section 4(2)(a)(i) requires directors to have regard to the most recent financial statements that comply with section 179.
- They must be kept as company records for the last seven completed accounting periods (s 164(1)(h)).
- They are open to shareholder inspection under section 216(1)(g), and go into the annual report under sections 209 to 212.
- Failure to keep proper accounting records exposes directors personally under section 348A.
Sources
- Companies Act 1997 — ss 4, 9, 101, 164, 171–190, 206, 209–215, 216, 348A, 414
- Banks and Financial Institutions Act 2000
- Securities Act 1997
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.