Financial Statements: A Priority for the First Quarter


In corporate law, compliance with current regulations is not optional; it is rather the driving force that ensures the legal operation of every business.

In some cases, the approval of Financial Statements is viewed only as an accounting formality; however, this is not entirely accurate. During the first quarter of the year, companies do not simply approve their balance sheets in a strict sense; they also validate the company’s transparency and either release or trigger the civil liability of those responsible for its management.

In this regard, pursuant to the Peruvian Companies Act (PCA), the General Meeting of Shareholders must convene at least once a year, within the three months following the closing of the prior financial year (i.e., no later than March 31) to approve the company’s corporate management and the financial results reflected in the financial statements1 for such year, and to decide on the allocation of profits, among other matters.

If the Board of Directors is established as a governing body of the company, it must act prior to the approval of the Financial Statements by the General Meeting of Shareholders, with the purpose of reviewing the relevant documentation and making it available to shareholders with sufficient advance notice for their consideration at the meeting.

This is particularly important because the PCA expressly sets out that directors are jointly and severally liable to the company, without limitation, for damages arising from resolutions or acts that violate the provisions of the PCA. Such liability may result from a lack of due diligence in reviewing the Financial Statements and their respective accounts, as all information must accurately reflect the company’s financial reality.

At this point, one may ask: what happens in companies that do not have a Board of Directors as a governing body? The answer is simple: the General Manager assumes responsibility for such obligations.

The PCA establishes that the General Manager is responsible, among other duties, for the existence, maintenance, and accuracy of the accounting systems, as well as for the truthfulness of the information provided to the Board of Directors or the General Meeting of Shareholders.

It is important to note that the General Manager may also be jointly and severally liable, together with the members of the Board of Directors, when they participate in acts that result in corporate liability, or when, despite being aware of such irregular acts, they fail to report them to the Board in its capacity as a governing body.

Although the PCA does not establish a specific corporate sanction for failing to comply with the deadline for approving the Financial Statements, it is advisable to fulfill this obligation in the event of omission, given the legal implications regarding the liability of the Board of Directors or the General Management. Likewise, failure to submit financial statements, or submitting them without having properly closed the accounting books, may result in the imposition of tax penalties on the company, which could amount to up to 0.3% of the company’s net income for the prior year.

Notwithstanding the foregoing, companies subject to oversight by regulatory authorities (such as the Superintendency of Banking, Insurance, and Private Pension Funds; the Superintendency of the Securities Market; among others) are required to file the approval of their Financial Statements within the aforementioned first quarter; otherwise, they may be subject to penalties imposed by the competent authority.

It is essential to have comprehensive legal advisory, including a proper analysis of the information contained in the Financial Statements, in order to timely identify the company’s current situation, ensure transparency, and propose alternative solutions in the event of balance sheet discrepancies that may place the company in an irregular situation or trigger causes for dissolution, among other contingencies.

At BDO SERVICIOS LEGALES Y LABORALES S.A.C., we can assist you in complying with your various corporate obligations. For further information, please contact us at servicioslegales@bdo.com.pe.

 


1 For purposes of the Peruvian Companies Act, “Financial Statements” include the balance sheet (currently referred to as the Statement of Financial Position) and the profit and loss statement (currently referred to as the Statement of Comprehensive Income).


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