Financial Reporting and Ethics - The Institute of Chartered ...

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FINANCIAL REPORTING AND ETHICSterm assets and leave a surplus which substantially covers current assets. Abalanced capital structure also implies that the gearing ratio should be optimal.When a company is faced by problems arising from imbalance in capitalstructure, it may have to carry out a capital reconstruction to redress theproblem. Capital reconstruction refers to the re-organisation of capital and/orre-arrangement of the rights of shareholders as between themselves in orderto revive an ailing company or transfer its operation to another company.Indicators of imbalance capital structure include overcapitalization,overtrading, unhealthy working capital ratio, excessive amount of reserve andcapital not represented by available assets.A capital reduction is a scheme approved by the court in which the nominal orpar value of a company’s paid up share capital is reduced.3.9.1 The General RuleThe general rule, going by section 105 of CAMA, 1990, is that a companyis not permitted to reduce its share capital.3.9.2 ExceptionsA company, however, may reduce its issued share capital on fulfillmentof the following conditions;(a) It must be authorised by its articles;(b) It must be by a special resolution passed at a general meeting;(c) The resolution must specify the amount of reduction; and(d) The capital reduction must be approved by the court.The purpose of requiring court’s approval is to ensure the protection of creditorswhose interest may be jeopardized should the company embark on the capitalreduction scheme. They are, therefore, entitled to object to the scheme.Specifically, Section 107(4) requires the company to apply to the court for anorder confirming the reduction, after passing a special resolution, while section107(2) provides that every creditor of the company who is entitled to any debtor claim admissible in proof against the company shall be entitled to object tothe scheme if;(a) The proposed reduction of share capital involves a diminution ofliability in respect of unpaid share capital; and(b) It involves the payment to a shareholder of any paid up share capital orany other form of reduction.Section 107(4) empowers the court to settle the list of creditors entitledto object to the scheme.All these provisions are to ensure that the creditors are protected anddo not suffer any loss as a result of the capital reduction scheme unlessthey allow it by refusing to come forward and object when their interestis not protected.50
AMALGAMATION, ABSORPTION AND RECONSTRUCTION3.9.3 Capital Reduction - The issued share capital of a company could bereduced by:(a) Extinguishing or reducing the liabilities on a company’s sharenot represented by available assets.(b) Extinguishing or reducing the liabilities on a company’s sharein excess of the company’s need.(c) Extinguishing or reducing the liabilities on a company’s sharenot fully paid up.In practice and in most examination questions, capital reduction willtake the form described in (a) above. In this case, substantial losseshave been accumulated and there are no immediate prospects ofimprovement. Therefore, remedial measures have to be taken by wayof capital reduction, which will ultimately ensure that fresh funds areinjected into the business, providing an impetus to set the companyinto motion once again.3.9.4 Capital ReconstructionCapital reduction should not be construed to be the same as CapitalReconstruction. The latter is wider and embraces the former. A companyin severe financial difficulties which needs to reach a compromise withits creditors, may embark on capital reconstruction. Whereas, in capitalreduction scheme, only the existing shareholders (ordinary andpreference) are involved, in capital reconstruction external creditorsare involved.There are basically two types of capital reconstruction. These are:3.9.4.1 Internal Capital Reconstruction:This can be by way of re-capitalization or capital reduction. It isa means of solving the capital problem of a company withoutinvolving another company. It is a scheme of capital reduction,involving existing creditors, in which the company’s financialstructure is altered, but not requiring the formation of a newcompany to take over all or part of the enterprise facing difficulties.For example, debenture holders may be issued ordinary sharesin place of their debentures or take over assets at agreedvaluations in part satisfaction of their debt,Creditors should agree to any changes in their rights, since thewhole objective of the scheme is to ensure that all parties to itare better off - when compared to immediate liquidation.3.9.4.2 External Capital ReductionIn external reconstruction, an entirely new company will beformed for this purpose to take over all or part of the enterprise51
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ACCOUNTING STANDARDSIFRS 7 Financia
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ACCOUNTING STANDARDSactivity, non-c
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ACCOUNTING STANDARDSin the year inc
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ACCOUNTING STANDARDS(v)(vi)(vii)whe
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ACCOUNTING STANDARDS(v)Actions requ
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ACCOUNTING STANDARDSAccounting stud
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6ETHICAL FRAMEWORK, CONCEPTSAND VAL
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ETHICAL FRAMEWORK, CONCEPTS AND VAL
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7THE ENVIRONMENT: CORPORATE,PROFESS
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THE ENVIRONMENT: CORPORATE, PROFESS
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8PROFESSIONAL ETHICS8. 0 LEARNING O
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PROFESSIONAL ETHICSobjectivity are
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PROFESSIONAL ETHICS(c)(d)The type o
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PROFESSIONAL ETHICSabout conflicts
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PROFESSIONAL ETHICS(d)(e)Confidenti
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PROFESSIONAL ETHICSA. III onlyB. II
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9DECISION MAKING IN ETHICS9. 0 LEAR
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DECISION MAKING IN ETHICS9.2 A FRAM
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ETHICAL THREATS AND SAFEGUARDS(d)We
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DECISION MAKING IN ETHICS4. A perso
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10ETHICAL THREATS TS AND SAFEGUARDS
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ETHICAL THREATS AND SAFEGUARDS(iv)(
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ETHICAL THREATS AND SAFEGUARDSto th
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ETHICAL THREATS AND SAFEGUARDSpayab
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ETHICAL THREATS AND SAFEGUARDS(a)Fi
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ETHICAL THREATS AND SAFEGUARDSimmin
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ETHICAL THREATS AND SAFEGUARDSHowev
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ETHICAL THREATS AND SAFEGUARDS(iii)
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11CORPORATE GOVERNANCE11.0 LEARNING
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CORPORATE GOVERNANCE11.3.1 Nature(a
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CORPORATE GOVERNANCEThe company sho
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CORPORATE GOVERNANCEtrust, possible
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CORPORATE GOVERNANCEAn agent has im
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CORPORATE GOVERNANCE(a)(b)(c)(d)(e)
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CORPORATE GOVERNANCE11.6.1 The law
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CORPORATE GOVERNANCEILLUSTRAUSTRATI
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CORPORATE GOVERNANCEimitated. They
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CORPORATE GOVERNANCE(a)(b)Greenbury
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CORPORATE GOVERNANCE11.9.2 Boards d
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CORPORATE GOVERNANCErelationship wi
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CORPORATE GOVERNANCE(e)(f)(g)(h)(i)
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CORPORATE GOVERNANCE(vi)Inquisitive
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CORPORATE GOVERNANCE(e)ConsultancyA
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CORPORATE GOVERNANCEThe incoming au
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CORPORATE GOVERNANCEIn summary, acc
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CORPORATE GOVERNANCEAccording to Th
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CORPORATE GOVERNANCE3. A body corpo
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12SOCIAL AND ENVIRONMENTALISSUES IN
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SOCIAL AND ENVIRONMENTAL ISSUES IN
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APPENDIX ISUGGESTED SOLUTIONS TO RE
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SUGGESTED SOLUTIONS TO REVISION QUE
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SUGGESTED SOLUTIONS TO REVISION QUE
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APPENDIX IICOMPREHENSIVE QUESTIONS
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COMPREHENSIVE QUESTIONS AND SUGGEST
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APPENDIX IIICASE STUDY 1Karsashi, a
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CASE STUDIES(iii)(iv)The floor sale
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CASE STUDIESShare price and dividen
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CASE STUDIESSUGGESTED SOLUTION(A) A
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CASE STUDY 3The following informati
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CASE STUDIESCASE STUDY 4Ologobojo i
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APPENDIX IVTable 1:SUMMARY OF INTER
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SUMMARY OF INTERNATIONAL ACCOUNTING
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APPENDIX VGLOSSARY OF TERMSAbsorpti
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GLOSSARY OF TERMSEthical Objectivis
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APPENDIX VIBIBLIOGRAPHYChambers Ham
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APPENDIX VIISTUDY AND EXAMINATION T
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STUDY AND EXAMINATION TECHNIQUES7.3
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INDEXAAbsorption, 17, 19, 39, 40, 4
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INDEXProfessional Behaviour, 136, 1
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