Financial institutions other than the Deposit Money Banks (DMBs) in the country have weak financial reporting, and a significant number of them did not pass the International Financial Reporting Standards (IFRS) readiness test conducted by the Financial Reporting Council (FRC) of Nigeria.
Jim Osayande Obazee, executive secretary, Financial Reporting Council, who confirmed this in Lagos at a three-day retreat with journalists said “except for NAICOM’s effort, not more than 20 insurance companies would have been able to submit their 2012 financial statements (prepared using IFRS) to the Securities and Exchange Commission (SEC).”
Obazee said that after the expiration of the November 29, 2013 (first deadline), the FRC extended the readiness test to January 31, 2014, (now the final deadline) for these companies; after which the Council will have no option but to name and shame the erring companies by publishing their names in the newspapers.
Obazee said: “This was largely the cause of their late filing”. This revelation comes barely two weeks after the National Insurance Commission (NAICOM), Nigeria’s insurance industry regulatory body, queried seven insurance companies over the status of their 2012 financial statements.
This shocking revelation from the FRC comes as it currently carries out IFRS readiness tests for entities in the second phase (other public interest entities, including not-for-profit organisations).
Obazee, who spoke on “financial reporting and code of corporate governance in Nigeria: Matters arising” said the first phase of the adoption of International Financial Reporting Standards in Nigeria has started producing enhanced perception for Nigeria.
Sequel to the outcome of the IFRS readiness test by the Financial Reporting Council, it observed that single practice is a huge avenue for fraudulent financial reporting; “be it a professional firm or professional service entity.”
A source close to an investigation by FRC also confirmed to BusinessDay that the Council is investigating a mortgage bank which it has found not to exist as a going concern, adding that ideally, the outcome of their investigation should lead to withdrawal of the mortgage bank’s license by the Central Bank of Nigeria (CBN). “We are meeting with all the stakeholders in the company”, he added.
The FRC said “If you have a licensed individual professional accounting service provider, there will be no second partner audit quality review and if you have a one-man professional service entity, he will never prepare reliable financial statements for the entity he or she manages.
Accordingly, professional bodies should withdraw practicing license given to individuals and license firms. Regulators should ensure that their licenses are operated on institutional platforms. Government business entities’ financial reports are poorly monitored. This is what is giving room for poor financial reporting amongst a number of them.”
In addition to the IFRS readiness test, the FRC is about to commence audit quality inspections. “It should be noted that the FRC is currently seeking membership of the International Forum of Independent Audit Regulators (IFIAR). This will be a booster to the capacity of the Council to monitor audit quality,” Obazee said at the retreat held over the weekend.
“We are convinced that the national Code of Corporate governance will be operational in the first quarter of 2014. This will also strengthen the compliance with Section 44 (3) of the FRC Act and enhance the inflow of Foreign Direct Investment (FDI) and steer greater interest from local investors. The required platform for the implementation of Internal systems/Information systems control with independent attestation, in accordance with Section 7 of the FRC Act shall also be laid,” he stated.
Speaking on the IFRS Academy, the executive secretary said: “We are confident that the much awaited IFRS Academy shall at last commence its operation. We shall also begin to monitor the education and training in the field of the correlated standards that the Council is also set up to oversee”, he said, adding that the FRC shall also progress in the implementation of the national road map to the adoption of IFRS and shall likewise firm up its directive on the implementation of the International Public Sector Accounting Standards (IPSAS) .
Source: BusinessDay
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