Annual statement as to compliance: Overview, definition, and example
What is an annual statement as to compliance?
An annual statement as to compliance is a declaration or certification issued by an individual or entity, typically at the end of each fiscal year, confirming that they have adhered to the relevant laws, regulations, and contractual obligations during the reporting period. This statement is often required as part of an ongoing contractual relationship, regulatory compliance, or internal control systems.
The statement serves as an assurance that the entity is in compliance with the terms of a contract, industry standards, or government regulations, and it may involve verifying that the business has met its obligations concerning financial reporting, operational procedures, or specific legal requirements.
Why is an annual statement as to compliance important?
An annual statement as to compliance is important because it provides transparency and accountability to the relevant stakeholders, including regulatory bodies, investors, or other business partners. For businesses, this statement helps demonstrate that they are actively monitoring and adhering to compliance standards, reducing the risk of penalties or legal issues.
For companies in highly regulated industries, such as finance or healthcare, providing an annual compliance statement is often a legal or contractual requirement. For investors, it offers confidence that the business is operating within the law and fulfilling its contractual obligations.
Understanding annual statement as to compliance through an example
Imagine a publicly traded company that must provide an annual statement as to compliance with financial regulations, including the Sarbanes-Oxley Act. This statement would confirm that the company has maintained proper internal controls over its financial reporting and has complied with all applicable regulations related to accounting practices.
In another example, a business entering into a contract with a supplier may be required to submit an annual statement as to compliance with the terms of the contract, such as meeting delivery deadlines, quality standards, and payment terms. The company would certify that they have adhered to all contractual obligations, providing reassurance to the supplier that there are no breaches.
An example of an annual statement as to compliance clause
Here’s how an annual statement as to compliance clause might look in a contract:
“The Company shall provide an annual statement of compliance to the other Party within 30 days of the end of each fiscal year, confirming that it has complied with all applicable laws, regulations, and the terms of this Agreement. The statement shall include a certification that the Company has maintained all necessary internal controls and systems to ensure compliance, and that no violations of this Agreement or applicable law have occurred during the reporting period.”
Conclusion
The annual statement as to compliance is a crucial tool for ensuring that businesses and individuals maintain adherence to legal, regulatory, and contractual obligations over time. It provides transparency, reassures stakeholders, and helps avoid potential liabilities by confirming that the entity is actively monitoring and complying with relevant requirements. Including this statement in contracts and agreements promotes accountability and reduces the risk of non-compliance.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.