New Amendments to the Implementation of Section 121 of the Companies Act 2014
As of 20th April 2018, Section 121 of the Companies (Amendment) Act 2014 took effect, and with those changes comes the introduction of new sections 202A and 202B of the Companies Act. These regulations have successfully come into effect, and concurrently, the Companies Regulations 2018 (Revision of Defective Financial Statements or Consolidated Financial Statements or Balance-Sheet) have been issued to operationalize these two new sections.
What Is Section 202A and Why Was It Introduced?
This section will allow directors to voluntarily revise their financial statements for the areas which do not comply with the requirements of the Act. This includes compliance with the Accounting standards and any other consequential revisions.
Section 202A was introduced to enable directors to make revisions to the defective financial statements on their own record. Voluntary revisions may be done to these financial statements in respect of any financial year of the company. Before the introduction of this sections, this move was not possible unless the director obtained a court order before they could file a revision of the financial statements under section 12B, a move which was time-consuming and costly.
What Is Section 202B and Why Was It Introduced?
This sections allows the Registrar to apply to the Court for a declaration that the financial statements do not comply with the requirements of the Act, which includes compliance with the Accounting Standards. This section will also allow for an order requiring the directors to revise the financial statements. It will be up to the court to then decide whether the financial statements comply with the requirements of the Act (which includes complying with the Accounting Standards) and the Court may then give directions on how the revision should be handled.
With the introduction of this section, there is a complementary enforcement action to allow the Registrar to apply to the court to require that a company revise its defective financial statements if such defects have been detected.
What Are the Key Requirements of Sections 202A and 202B?
Some of the key changes and requirements that come with the introduction of these two new sections include:
- The revised financial statements must be filed with the Registrar within 30 days from the date of revision.
- All revised financial statements must be laid at the next general meeting held after the date of revision.
- Directors will be able to revise the company’s financial statements in respect of any financial year of the company.
- The revised financial statements will be considered as having been prepared on the date of the original financial statements and accordingly, do not deal with events occurring after the date of the original financial statements.
- All the Accounting Standards requirements which were applied in the original financial statements will continue to be applied in the revised financial statements.
- The introduction of these two sections mean that revisions are confined to those aspects in which the financial statements did not comply with the requirements of the Act and any necessary consequential revisions. This includes compliance with the Accounting Standards.
- The previous relief from any requirements granted by the Registrar on the original financial statements will not automatically apply to the revised financial statements and new directors’ statements. New applications must be made in this case.
- The new statement by the director and the amended auditor’s report must be attached to the revised financial statements.
- The directors will be responsible for taking reasonable steps to ensure that the revised financial statements, together with the new statements from the directors and the amended auditor’s report are sent within 30 days after the revision date to all persons who have received the original financial statements and all persons entitled to receive the notice of general meeting as at the date of revision.