THE OBJECTIVES, LIMITATIONS AND FEATURES OF GENERAL PURPOSE FINANCIAL REPORTING, AND OTHER NATIONAL DISCLOSURES IN ACCORDANCE WITH CAMA 2020 (AS AMENDED): PREPARATION OF VALUE ADDED STATEMENT AND FIVE-YEAR FINANCIAL SUMMARY
Introduction
General purpose financial reporting serves as the cornerstone of corporate accountability and transparency. It provides essential financial information about a reporting entity to a wide range of stakeholders who rely on this information to make informed economic decisions . The Companies and Allied Matters Act (CAMA) 2020, as amended, establishes the statutory framework for financial reporting in Nigeria, setting out the specific disclosures and reporting requirements that companies must fulfil .
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity . These decisions depend on the returns that these stakeholders expect, such as dividends, principal and interest payments, or market price increases, and their expectations about returns depend on their assessment of the amount, timing and uncertainty of future net cash inflows to the entity and on their assessment of management’s stewardship of the entity’s economic resources .
This comprehensive guide examines the objectives, limitations and features of general purpose financial reporting, the statutory disclosures required under CAMA 2020, and provides practical guidance on the preparation of value added statements and five-year financial summaries.
The Pain Points: Why Understanding Financial Reporting Requirements Matters
The Inconsistent Application of Standards
Many Nigerian companies struggle with the inconsistent application of financial reporting standards. While the Conceptual Framework and IFRS provide guidance, the lack of a coherent understanding of these principles can lead to unreliable and incomparable financial information . For example, an estimate of an unobservable price or value cannot be determined to be accurate or inaccurate, but a representation of that estimate can be faithful if the amount is described clearly and accurately as being an estimate, the nature and limitations of the estimating process are explained, and no errors have been made in selecting and applying an appropriate process .
The Compliance Burden
CAMA 2020 imposes extensive disclosure requirements that can be overwhelming for companies, particularly small and medium-sized enterprises. From the directors’ report to the audit committee’s responsibilities, the statutory requirements are numerous and detailed . Failure to comply with these requirements can result in penalties, diminished investor confidence, reduced stakeholder engagement, and the deterioration of public trust in the entity .
The Value Added Statement Confusion
The value added statement is a unique disclosure required under CAMA 2020 that many companies struggle to prepare correctly . Unlike the traditional income statement, which focuses on profit, the value added statement reports the wealth created by the company during the year and its distribution among various interest groups such as employees, government, creditors, proprietors and the company . This shift in perspective can be challenging for preparers accustomed to profit-centric reporting.
The Five-Year Financial Summary Challenge
Preparing a five-year financial summary requires consistency in presentation and calculation across multiple reporting periods. Companies often struggle with restating prior period figures when accounting policies change, ensuring comparability across years, and presenting the information in a clear and understandable format .
The Objectives of General Purpose Financial Reporting
The Primary Objective
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity . These stakeholders are the primary users to whom general purpose financial reports are directed because they cannot require reporting entities to provide information directly to them and must rely on general purpose financial reports for much of the financial information they need .
Supporting Investment and Credit Decisions
The decisions of investors, lenders and other creditors depend on the returns that they expect, for example, dividends, principal and interest payments or market price increases . Their expectations about returns depend on their assessment of:
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The amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity
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Management’s stewardship of the entity’s economic resources
Information About Economic Resources and Claims
To make these assessments, users need information about:
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The economic resources of the entity, claims against the entity and changes in those resources and claims
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How efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s economic resources
Limitations of General Purpose Financial Reporting
General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need . Users need to consider pertinent information from other sources, such as general economic conditions and expectations, political events and political climate, and industry and company outlooks .
Furthermore, general purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity .
Management’s Role
The management of a reporting entity is also interested in financial information about the entity. However, management need not rely on general purpose financial reports because it is able to obtain the financial information it needs internally .
Other Users
Other parties, such as regulators and members of the public other than investors, lenders and other creditors, may also find general purpose financial reports useful. However, those reports are not primarily directed to these other groups .
The Qualitative Characteristics of Useful Financial Information
The Conceptual Framework establishes the qualitative characteristics that make financial information useful. Information must be both relevant and faithfully represented if it is to be useful. Neither a faithful representation of an irrelevant phenomenon nor an unfaithful representation of a relevant phenomenon helps users make good decisions .
Fundamental Qualitative Characteristics
Relevance: Information is relevant if it is capable of making a difference in a decision made by users. For example, an estimate of an impairment in an asset’s value can be relevant even if there is significant uncertainty, provided it represents the best available information .
Faithful Representation: Information must faithfully represent the economic phenomena it purports to represent. Faithful representation does not mean accurate in all respects. Free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process . For example, an estimate of an unobservable price or value cannot be determined to be accurate or inaccurate. However, a representation of that estimate can be faithful if:
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The amount is described clearly and accurately as being an estimate
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The nature and limitations of the estimating process are explained
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No errors have been made in selecting and applying an appropriate process for developing the estimate
Enhancing Qualitative Characteristics
Comparability: Comparability enables users to identify and understand similarities in, and differences among, items. A comparison requires at least two items. Comparability is not uniformity—for information to be comparable, like things must look alike and different things must look different . Although a single economic phenomenon can be faithfully represented in multiple ways, permitting alternative accounting methods for the same economic phenomenon diminishes comparability .
Verifiability: Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent. Different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation . Verification can be direct or indirect. Direct verification means verifying an amount or other representation through direct observation. Indirect verification means checking the inputs to a model, formula or other technique and recalculating the outputs .
Timeliness: Timeliness means having information available to decision-makers in time to be capable of influencing their decisions.
Understandability: Understandability means classifying, characterising, and presenting information clearly and concisely.
CAMA 2020 Disclosure Requirements
The Financial Statements of a Company
Under CAMA 2020, a company’s financial statements must include :
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Statement of accounting policies
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Statement of source and application of funds
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Value added statement for the year (not compulsory for private companies)
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Five-year financial summary (not compulsory for private companies)
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Balance sheet as at the last day of the year
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Profit and loss account or income and expenditure account
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Notes on the accounts
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Auditor’s Report
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Director’s Report
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Group financial statement (for holding company only)
Section 378 CAMA 2020: Form and Content of Individual Financial Statements
Section 378 of CAMA 2020 provides that the value added statement shall report the wealth created by the company during the year and its distribution among various interest groups such as the employees, government, creditors, proprietors and the company .
Section 385: Directors’ Report
Every company must prepare a director’s report which must contain :
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A fair view of the development of the business of the company and its subsidiaries during the year and of their position at the end of it
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The amount which the directors recommend should be paid as dividend and the amount which they propose to carry to reserves
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The names of the persons who were directors of the company at any time during the year
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The financial activities of the company and its subsidiaries in the course of the year and any significant change in those activities in the year
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Particulars of significant changes in the fixed assets of the company in the financial year
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The difference between the market value of land and the amount at which it is recognised in the statement of financial position if, in directors’ opinion, the difference is of such significance that the attention of members or debenture holders should be drawn to it
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Details of directors’ interests in the company’s shares and debentures
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Particulars of any important events affecting the company which have occurred since the end of the year
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An indication of likely future developments in the business
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An indication of the activities of the company in the field of research and development
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Names of distributors of the company’s products
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Particulars of donations and gifts made for any purpose
Section 386: Signing of Balance Sheet
A company’s balance sheet and every copy of it which is laid before the company in a general meeting or delivered to the Commission shall be signed on behalf of the board by two of the directors of the company .
Section 387: Persons Entitled to Receive Financial Statements
A company must send a copy of its financial statements for the year to all the following not less than 21 days before the date of the meeting at which they are to be laid :
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Every member of the company (whether or not entitled to receive notice of general meetings)
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Every holder of the company’s debentures (whether or not so entitled)
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All persons other than members and debenture holders, being persons so entitled
Section 388: Directors’ Duty to Lay and Deliver Financial Statements
The directors must lay the financial statements before the company in a general meeting not later than 18 months after incorporation . Subsequently, the directors must lay the financial statements before the company in a general meeting at least once a year not exceeding nine months after the year-end . The directors must deliver with the annual return to the Commission a copy of the balance sheet, the profit and loss account and the notes on the statements which were laid before the general meeting for each year .
Section 384: Disclosure of Loans to Officers
If a company has made a loan or guaranteed a loan to an officer of the company, it must make the following disclosures :
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The aggregate amounts outstanding at the end of the financial year
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The number of officers for whom the transactions, arrangements and agreements were made
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The disclosure does not apply if the aggregate amounts outstanding at the end of the year in respect of any officer do not exceed N5,000 nor to loans made by a recognised bank to any of its officers
The Value Added Statement
Definition and Purpose
The value added statement is a unique disclosure required under CAMA 2020 for public companies . Unlike the traditional income statement, which focuses on profit, the value added statement reports the wealth created by the company during the year and its distribution among various interest groups .
Why Value Added Statements Matter
Value added statements are important because they:
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Shift the focus from profit to wealth creation
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Recognise the contribution of all stakeholders
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Enhance transparency and accountability
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Align with the concept of corporate social responsibility
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Provide a broader view of corporate performance
Key Components of a Value Added Statement
1. Wealth Created (Value Added)
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Sales revenue
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Less: Bought-in materials and services
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Equals: Value added (gross)
2. Wealth Distributed
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To employees: Wages, salaries, pensions, and other benefits
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To government: Taxes and levies (excluding income tax)
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To providers of capital: Interest on loans and dividends to shareholders
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To the company: Retained earnings for reinvestment
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To society: Charitable donations and social contributions
A Simplified Example of a Value Added Statement
XYZ PLC
Value Added Statement for the Year Ended 31 December 2025
| N’000 | |
|---|---|
| Wealth Created | |
| Turnover | 1,500,000 |
| Less: Cost of bought-in materials and services | (800,000) |
| Value Added | 700,000 |
| Wealth Distributed | |
| To Employees: Wages, salaries and benefits | 300,000 |
| To Government: Taxes and levies | 100,000 |
| To Providers of Capital: Interest and dividends | 150,000 |
| To the Company: Retained earnings | 130,000 |
| To Society: Charitable donations | 20,000 |
| Total Wealth Distributed | 700,000 |
Exemption for Private Companies
A private company need not include the value added statement in its financial statements . However, many private companies choose to prepare one voluntarily as a matter of good corporate governance.
Five-Year Financial Summary
Definition and Purpose
The five-year financial summary is a mandatory disclosure for public companies under CAMA 2020 . It provides a comparative overview of a company’s financial performance and position over a five-year period, enabling users to identify trends and assess the company’s long-term performance.
Key Features
Comparative Information: The summary presents key financial figures for the current and four preceding years.
Consistency: Figures should be presented on a consistent basis across all years. If accounting policies change, prior year figures must be restated.
Key Metrics: The summary typically includes:
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Turnover
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Profit before tax
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Profit after tax
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Earnings per share
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Dividends per share
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Total assets
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Total liabilities
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Shareholders’ funds
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Return on equity
A Simplified Example of a Five-Year Financial Summary
XYZ PLC
Five-Year Financial Summary
| (N’000) | 2025 | 2024 | 2023 | 2022 | 2021 |
|---|---|---|---|---|---|
| Income Statement | |||||
| Turnover | 1,500,000 | 1,350,000 | 1,200,000 | 1,050,000 | 900,000 |
| Profit before tax | 250,000 | 220,000 | 190,000 | 160,000 | 130,000 |
| Profit after tax | 180,000 | 155,000 | 130,000 | 108,000 | 85,000 |
| Balance Sheet | |||||
| Total assets | 1,200,000 | 1,100,000 | 980,000 | 850,000 | 720,000 |
| Total liabilities | 600,000 | 550,000 | 480,000 | 420,000 | 350,000 |
| Shareholders’ funds | 600,000 | 550,000 | 500,000 | 430,000 | 370,000 |
| Per Share Data | |||||
| Earnings per share (N) | 0.90 | 0.78 | 0.65 | 0.54 | 0.43 |
| Dividends per share (N) | 0.30 | 0.25 | 0.20 | 0.15 | 0.10 |
Corporate Governance and Audit Committee Requirements
Section 404: Audit Committee
CAMA 2020 mandates that all Public Limited Liability Companies (PLCs) constitute an audit committee comprising five members—three shareholders and two non-executive directors . This requirement underscores the importance of oversight in financial reporting and governance .
Functions of the Audit Committee
The audit committee is responsible for :
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Ascertaining whether the accounting and reporting policies of the company are in accordance with legal requirements and agreed ethical practices
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Reviewing the scope and planning of audit requirements
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Reviewing the findings on management matters in conjunction with the external auditor and departmental responses
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Keeping under review the effectiveness of the company’s system of accounting and internal control
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Making recommendations to the board with regard to the appointment, removal and remuneration of the external auditors
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Authorising the internal auditor to carry out investigations into any activities of the company which may be of interest or concern to the committee
Consequences of Not Having an Audit Committee
The absence of an audit committee can create serious loopholes in an organisation’s financial reporting and internal control mechanisms. Without this body, accountability may erode, leaving the organisation vulnerable to fraud, accounting errors, and a general lack of transparency . Moreover, not having an audit committee may lead to diminished investor confidence, reduced stakeholder engagement, and the deterioration of public trust in the entity .
Financial Literacy Requirement
One of the most significant enhancements in CAMA 2020 is the requirement that at least one member of the audit committee must be a professional accountant . This provision ensures that the committee has the technical competence to interpret financial data, promote financial independence, and enhance audit supervision and transparency .
Duty of the Auditor
Section 407: Auditor’s Duties
Section 407(1) states that it shall be the duty of the company’s auditor, in preparing their report, to carry out such investigations as may enable them to form an opinion on the following matters :
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Whether proper accounting records have been kept by the company and proper returns adequate for their audit have been received from branches not visited by them
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Whether the company’s Statement of Financial Position and (if not consolidated) its Statement of Comprehensive Income are in agreement with the accounting records and returns
Auditor’s Rights
Section 407(3) states that every auditor of a company shall have a right of access at all times to the company’s books, accounts and vouchers and is entitled to require from the company’s officers such information and explanations as they think necessary for the performance of the auditor’s duties .
Directors’ Report Consistency
Section 407(4) states that it shall be the auditors’ duty to consider whether the information given in the directors’ report for the year for which the accounts are prepared is consistent with those accounts and if they are of opinion that it is not, they shall state the fact in their report .
Director’s Responsibilities for Financial Statements
Section 377(1): Preparation of Financial Statements
Directors under Section 377(1) are required to compile and present to members of the AGM the company’s financial statements for the pertinent financial year, together with the audit report and their own report . This clause emphasises the directors’ responsibility to give shareholders correct and timely financial reports .
Section 386(4): Approval and Signing
Section 386(4) requires the board of directors to review the balance sheet and profit and loss account before they are approved and signed on their behalf by two directors authorised to do so . This internal approval system guarantees that the board has common responsibility for the completeness and accuracy of financial data .
Section 405(1)(a): Certification Requirement
Section 405(1)(a) adds a certification requirement wherein the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) must formally confirm the correctness and dependability of the financial statements . This clause conforms with global best standards and encourages personal executive responsibility .
Shareholder Approval of Financial Statements
Under CAMA 2020, the presentation of financial statements at an AGM is classified as “ordinary business” under Section 238, meaning it is a regular procedural requirement, and no formal decision is required . This categorisation implies that shareholder approval is not necessary for the adoption of financial accounts under CAMA 2020 .
How Qeeva Advisory Helps with Financial Reporting Compliance
At Qeeva Advisory, we understand that navigating the complexities of general purpose financial reporting and CAMA 2020 compliance can be challenging. Our team of experienced professionals helps Nigerian businesses prepare compliant financial statements, including value added statements and five-year financial summaries.
Our Core Services
Advisory Services Nigeria – Our advisory professionals help you understand your financial reporting obligations, prepare compliant financial statements, and implement best practices.
Regulatory Compliance – We ensure your financial statements meet all CAMA 2020 and regulatory requirements, including the preparation of mandatory disclosures.
Bookkeeping Services – Accurate records are essential for preparing reliable financial statements. Our bookkeeping services ensure your financial data is accurate and complete.
Frequently Asked Questions
Q: What are the objectives of general purpose financial reporting?
A: The objective is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity .
Q: What are the qualitative characteristics of useful financial information?
A: The fundamental qualitative characteristics are relevance and faithful representation. The enhancing characteristics are comparability, verifiability, timeliness, and understandability .
Q: What are the disclosure requirements under CAMA 2020?
A: CAMA 2020 requires companies to prepare financial statements including a balance sheet, profit and loss account, notes on the accounts, auditor’s report, director’s report, value added statement (for public companies), five-year financial summary (for public companies), and group financial statements (for holding companies) .
Q: What is a value added statement?
A: A value added statement reports the wealth created by the company during the year and its distribution among various interest groups such as employees, government, creditors, proprietors and the company .
Q: Is the value added statement compulsory for private companies?
A: No. A private company need not include the value added statement in its financial statements .
Q: What is a five-year financial summary?
A: A five-year financial summary provides a comparative overview of a company’s key financial figures over a five-year period, enabling users to identify trends and assess long-term performance .
Q: What is the duty of the audit committee under CAMA 2020?
A: The audit committee is responsible for reviewing the auditor’s report, ensuring the effectiveness of accounting systems and internal controls, and making recommendations regarding the appointment and remuneration of external auditors .
Q: Is shareholder approval required for financial statements at an AGM?
A: No. Under CAMA 2020, the presentation of financial statements at an AGM is classified as “ordinary business,” and shareholder approval is not required .
The Bottom Line
General purpose financial reporting and CAMA 2020 disclosures are fundamental to corporate accountability and transparency in Nigeria. Understanding the objectives and limitations of financial reporting, the qualitative characteristics of useful financial information, and the statutory disclosure requirements is essential for preparers, auditors, and users of financial statements.
Key Takeaways:
Understand the Objective: The primary objective of general purpose financial reporting is to provide useful information to investors, lenders, and other creditors for decision-making .
Know the Qualitative Characteristics: Information must be relevant and faithfully represented to be useful. Enhancing characteristics include comparability, verifiability, timeliness, and understandability .
Comply with CAMA 2020: CAMA 2020 requires comprehensive disclosures, including the directors’ report, audit committee report, value added statement, and five-year financial summary for public companies .
Prepare Value Added Statements Correctly: The value added statement reports wealth created and its distribution among stakeholders. Private companies are exempt from this requirement .
Ensure Directors and Auditors Fulfil Their Duties: Directors are responsible for preparing and signing financial statements, while auditors must carry out investigations to form an opinion on the company’s financial position .
Your job is to be prepared. Understand the objectives and limitations of financial reporting. Comply with CAMA 2020 requirements. Prepare accurate and complete financial statements. Seek professional guidance.
With the right approach and the right partner, you can turn financial reporting from a compliance burden into a strategic advantage.
Suggested Reading from Our Blog
The Need for Conceptual Frameworks in Financial Reporting – Learn about the conceptual foundations of financial reporting,
Tangible Non-Current Assets: IAS 16, IAS 20, IAS 23, IAS 40, IFRS 5 & IFRS 16 Guide – Understand the application of IFRS to tangible assets.
Regulatory Compliance In Nigeria – Comprehensive overview of tax and regulatory compliance requirements.
Reference Links / Sources
ICAN Study Text – Financial Reporting (FR) 2025 – Comprehensive coverage of CAMA 2020 sections 378, 384, 385, 386, 387, 388, 390, and directors’ report requirements
AASB Conceptual Framework – Chapter 1 Objective of GPFR – Detailed explanation of the objective, usefulness, limitations, and primary users of general purpose financial reporting
LawGlobal Hub – Section 378 CAMA 2020 – Legal text of Section 378 defining the value added statement and its distribution among interest groups
AASB Conceptual Framework – Qualitative Characteristics – In-depth analysis of fundamental (relevance, faithful representation) and enhancing (comparability, verifiability, timeliness, understandability) qualitative characteristics
IFRS Conceptual Framework – Official IFRS text on the objective of financial reporting, economic resources, claims, and limitations of financial reports
BusinessDay – Audit Committee Oversight – Analysis of Section 404 CAMA 2020, audit committee composition, financial literacy requirement, and consequences of non-compliance
ICAN Regulatory Framework – Audit committee functions, Section 407 auditor’s duties, and BOFIA 2020 requirements for banks and financial institutions
Brainscape – Financial Statement Components – List of required financial statements under CAMA, including value added statement and five-year financial summary (not compulsory for private companies)
618bees – Filing Financial Statements under CAMA – Clarification that value added statement is not required for private companies
BusinessDay – Shareholder Approval of Financial Statements – Detailed analysis of Sections 377, 386, 388, 405, 238 CAMA 2020 on directors’ duties, certification requirements, and shareholder approval
Let’s Talk About Your Financial Reporting Needs
Navigating the complexities of general purpose financial reporting and CAMA 2020 compliance can be challenging. At Qeeva Advisory, we understand the importance of accurate and compliant financial reporting for business success and regulatory compliance.
Whether you need help with financial statement preparation, regulatory compliance, or audit support, we are here to support you.
📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799
📧 Email: info@qeeva.com
📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria
Contact us today to schedule a consultation. Let us help you navigate financial reporting with confidence.
Your journey to compliant financial reporting starts with a conversation. Let’s talk.
