Obazee: FG Serious about IFRS Compliance

The Chief Executive Officer, Financial Reporting Council (FRC), Mr. Jim Osayande Obazee, has said that the federal government is desirous of implementing the International Financial Reporting Standards to promote accountability and encourage investors. He spoke to Obinna Chima
There have been so many issues surrounding public sector accounting in recent times. As a regulator, what is the FRC doing to sanitise the system?
As part of our law, Section 26 actually gave room for Directorate of Accounting Standards, public sector. Now to be able to deal with that, we have advised state governments to review their Financial Management law and the federal government to review its Financial Management Act. If those laws are not reviewed, they will not be able to comply with International Public Sector Accounting Standards. The first point is review and the second point is enlightenment. That is why the Accountant General of the Federation has been going round with other accountant generals, and they have been going from state to state, talking to themselves on how to improve on their financial reporting system because the FRC Act is now detailed. First, we have said they should use cash basis before going to accruals. So we are looking at their books and we believe that this 2014 they should be able to finalise their financial statements. This year, we would pursue the agenda of International Public Sector Accounting Standards so that ministries can report properly in line with international rules.
What is the level of implementation of the International Financial Reporting Standards (IFRS) roadmap in the country and to what extent have the challenges faced by the insurance companies being addressed?
As you are well aware, the national roadmap became effective January 2012 and it is in a phased transition – three phases. The first phase was the financial statements we saw effective first quarter of last year, which covered the period January 1, 2012, to 31 December, 2012. Of course though it is a year-end financials, it was made public by the end of the first quarter of 2013.
The second phase January 1, 2013, to 31st December 2013, which are the financial statements we shall begin to see effective from the end of March this year. Under the first phase, we are supposed to be looking at the accounts of listed and significant public interest companies.
Listed companies are the once that are quoted on the Nigerian Stock Exchange (NSE) and significant interest companies are those entities that are not quoted, but they reported to a third regulator. That means other than filing with the Corporate Affairs Commission (CAC) and the Federal Inland Revenue Service (FIRS); they also file their financial statements with a third regulator.
For instance, you know that there are some banks that are not quoted on the NSE, but they file their reports to the Central Bank of Nigeria (CBN), which is a third regulator. Then you have the likes of MTN, Airtel, Etisalat, they file with the Nigerian Communications Commission (NCC), which is a third regulator.
To be sure that we are on top of the matter, we carried out what is called IFRS Readiness test. We did that last year for those that were in the 2012 group and out of the 197 companies that were listed on the NSE as at that time, only 72 actually  submitted for the readiness test, for the significant public interest companies, only 38 submitted and just three government business entities submitted.
Now in 2013, other public interest companies including charity and government entities were supposed to submit. We just finished the request. But sadly, only 345 submitted of which 10 were government entities. It showed a lot of things.
For the first group, yes, we saw that they were highly responsive, but for this second group, we don’t believe they are responsive and we are taking steps to ensure that thing change, especially government entities. 
The insurance companies fall within the first group which is phase one. They have a primary regulator –the National Insurance Commission (NAICOM). NAICOM helped greatly to ensure that the insurance companies comply. But incidentally, as at the time we were finalising their oversight, it was only 20 insurance companies that were able to meet the target.
That was what resulted to the late filings by the insurance companies to the NSE. But a number of them have woken up now. NAICOM is not giving them break and is insisting that they must comply and we are watching them very closely, in cooperation with NAICOM.
You have also requested that not-for-profit organisations are also registered. What is the level of compliance in that area and considering the huge number of not-for-profit organisations, do you have the capacity to regulate them?
Not-for-profit organisations are within the second phase. Now, we have asked them to register because that is the first point of call. You have to register with the FRC, then you submit your financial statements and then we start following up on your compliance with IFRS and other accounting rules.
A number of them have registered with us. Don’t forget that we just closed the door to the submission of IFRS readiness by the end of January. Now, currently we are still in February and it is too early to judge the level of compliance of not-for-profit organisations. On the capacity of the FRC to deal with this issue, it is not just capacity from the FRC. Don’t forget that the FRC capacity is not limited to FRC staffing.
Each organisation is supposed to have its own accounting function and then they are supposed to have their own external auditors. Ours is to monitor compliance. So dealing with compliance, there is already a pool of resources that is supposed to ensure that there is compliance. If you hired top-rated accounting firms to look at your books, they definitely will not want to the FRC to be upon them for not allowing you to prepare your financials correctly.
But we are also expanding; we are also recruiting because we need to populate the seven directorates that we have.
But what do you think is responsible for the difficulty in complying with IFRS?
First, a number of them did not take financial reporting seriously in the past. Secondly, the IFRS procedure is such that you are either complying or you are not complying. There is no middle ground and so you have to do it right. Thirdly, is the fact that we have the FRC that is implementing the law and also implementing the enforcement of the standards.
So, they know that if you don’t comply with our rules, we are not going to allow them to finalise their accounts in line with our Act. They also discovered that we are registering professionals and accounting firms. Since we have registration, no practicing accountant would want his FRC registration number withdrawn because of fraudulent practices.
So that has been their major challenge. The board of some of these companies just woke up and discovered that they have to do it and do it correctly and they were not doing that before. In the past, they were presenting things that nobody could look at and again they have discovered that government is serious to enforce compliance with IFRS rules and the FRC requirements.
You described single practice by accounting firms as a huge avenue for fraud, how are you tackling this?
What I mean by single practice is where you have a single person who is a chartered accountant and who is licenced to practice opening up a shop. He may not have skill for valuation, skill for actuarial, and may not have relevant skills for even accounting, as such he may not be able to produce a financial statement that is reliable.
So we have said they should not licence individuals to practice, they need to licence the firms. For instance, you licence KPMG and KPMG would have staff under it. Now, the Institute of Chartered Accountants of Nigeria (ICAN) had put out a notice that 31st December 2013 was the last day for withdrawing individual licence and they are now licencing firms. The Association of National Accountants of Nigeria (ANAN) has also done same. So we have dealt with that. Now, we are registering professionals and we are now insisting that you must have your FRC registeration number under the signature of the accounting firm that is licenced.
When will the proposed national of code of corporate governance for the country be ready?
Yes, like I said the other time, once the national code comes out, all the other codes that we have in the country would be extinguished because it is only that national code that is being produced by the FRC that has legal backing. The rest are moral suasion, they don’t have laws backing them. So, we have said that by the end of the first quarter, we would have it ready. By the beginning of March, we would have public discussion on it to showcase the documents. We are almost through with it because it is in three books – code of corporate governance for private sector, code of corporate governance for public sector and code of corporate governance for not-for-profit organisations.
The FRC is largely described as a ‘super regulator,’ but who supervises the FRC?
Yes, it is a super regulator, but the law is well put together because even the United Kingdom FRC, had to draw strength from the FRC Act of Nigeria because theirs was not robust. So, to answer your question, other than the fact that the federal government supervises the works of the FRC through the Ministry of Industry, Trade and Investment, because our core job is to protect investors and other stakeholders’ interest, our board is also robust. We have a 23-man board and it is made up largely of institutions that are also regulators. Other than the Chairman and the Chief Executive that is appointed by the President, the rest are institutional representatives. Of course you have ICAN, ANAN, CBN, Securities and Exchange Commission, NSE, CAC, Federal Inland Revenue Service and a whole lot of them. So, it is a super regulator that is also being managed by a conglomerate of other regulators.
To what extend does the FRC activities support the federal government’s drive for foreign direct investment?
You see, for the fact that Nigeria has started reporting using the IFRS, we are already providing comfort to investors and the perception about Nigeria has changed for the better because the financial statements that are being produced in Nigeria are now held in high esteem. Nigeria is the first country to have asked for attestation that is not only individual, but joint in the sense that auditors’ reports are signed not just by the firm, they also have FRC registration number that traces the audit to the individual partner that audited the work.
Secondly, our work is supporting employment generation because the whole value chain in financial reporting, so long as there is a regulator that is overseeing them, it is now being driven in such a way that professionals are now getting into it.
Thirdly, for the fact that we are asking for registration and we don’t register you if you are not a professional, it means that positions that were hitherto held by foreigners and Nigerians were not trained to take them, either that the foreigners become members of the professional bodies in Nigeria or they train the manpower they have in Nigeria and engage them for those senior positions. So, it is also supporting investments because investors also look at it that financials produced in Nigeria are a par with those produced internationally.
Then of course the issue of corporate governance is driving a clean up in the entire system. Of course if you don’t have proper corporate governance, you will have issues. If they are not caged within rules and regulations, people would walk away with other peoples’ money.
How do you feel, when you look at some banks in Nigeria and discover that people that were employed as managing directors ended up owning majority shares? It is because there was negligence and no proper reporting structure and they took over. Who is the Chairman? Is he also the managing director? That is why I would ever fault the structure of the Central Bank of Nigeria where the governor who is the CEO is also the chairman of the board, that is defective and the entire board is made up largely of executive directors. That is an error.
Good corporate governance does not take that because what it means is that you are the one that determines strategy, you are the one that determines tactical and the one that determines operations.
If you now liken it to businesses other than the central bank, if you take it to the church, you also see general overseer as the chairman board of trustees. So he is the one that determines his salary, he is the one that determines who replaces him and audits himself. These are very weak corporate governance and we are going to strengthen it.
Obazee is Chief Executive Officer at the Financial Reporting Council, Nigeria. He joined the federal civil service in 1993 as Senior Manager and Head of the Technical Department at the defunct Nigerian Accounting Standards Board and rose to become the Chief Executive Officer of the Board in November 2010.  He has served on various Standards Setting and Technical Committees set up to develop accounting standards aimed at improving financial reporting in the various sectors of the Nigerian economy.
Prior to joining the defunct Nigerian Accounting Standards Board, Mr. Obazee worked as a Lecturer of Accounting at the University of Benin from 1990 to 1993.  Obazee holds a Bachelor of Science Degree in Accounting from the University of Benin, a Master of Science Degree in Accounting from the University of Lagos and a certification in Strategic Financial Analysis for Business Evaluation from Harvard University, USA.
He is the Chairman of the United Nations Conference on Trade and Development (UNCTAD). 

Leave a Reply

Your email address will not be published. Required fields are marked *