Section 30(3)(c) of the Companies Act, No 71 of 2008 requires every company to prepare annual financial statements and these annual financial statements must be approved by the board of directors. This is often evidenced by the signatures of two directors (or one director, if that is the case) who have been authorised to do so by the board of directors, on the “Directors Responsibilities and Approval” page in the annual financial statements.
However, please note that when a company has more than two directors, the signing of this page in the annual financial statements cannot replace a properly constituted board meeting where the annual financial statements have been discussed and approved, and the signatories have been authorised to sign on behalf of the board. This can also be done by way of a resolution as contemplated in Section 74 of the Companies Act.
Neither will it be sufficient to just say that the directors have discussed the annual financial statements amongst themselves and approved them. A board meeting has to be properly convened for this purpose and it must comply with all the formalities unless the Memorandum of Incorporation of the company provides otherwise. For example, the majority of directors must be present, and a majority of the votes cast approving the resolution. A decision may also be adopted by written consent of a majority of the directors, provided that each director had received notice of the matter to be decided and a copy of the annual financial statements. The minutes of the board meeting, signed by the chair of the meeting, or the resolution of the directors signed by the majority of directors, are evidence of the proceedings of that meeting or resolution voted upon. These minutes and resolutions must be retained for a period of seven years, either pasted into a minute book, or kept safe in a file together with all other minutes and resolutions that have been passed.
If questions are asked, or there is discontent amongst the directors, or there are other issues regarding the content of the annual financial statements, evidence of a proper approval process will help avoid problems.
Lastly, it is very important to note that in terms of Section 29(6) and 214(2) of the Companies Act, if any person has been a party to the preparation, approval, dissemination or publication of a document, which contains an untrue or incorrect statement, and may cause the document to be false or misleading, then that person is guilty of an offence. Directors or other persons who are involved in the preparation of financial statements would therefore be well advised to exercise extra caution when their actions concern the financial statements of the company.
Corporate Statutory Auditor, Johannesburg