Banks are facing a test of integrity, with the Financial Reporting Council of Nigeria (FRC) examing their 2014 financial statements.
Speaking yesterday at a media briefing in Lagos, FRC Chief Executive Officer Jim Obazee said the Council was examining whether the financial statements show the true state of the banks— in accordance with provisions of the International Financial Reporting Standards (IFRS), the Companies and Allied Matters Act, the Bank and Other Financial Institutions Act and the FRC Nigeria Act.
The FRC, he said will look at the accuracy and reliability of the reports based on these Acts.
Zenith Bank, United Bank for Africa (UBA), Guaranty Trust Bank and Union Bank have already submitted their accounts for review.
The penalty for each violation ranges from N5 million to N100 million. A bank will be sanctioned based on the number of infractions committed, including a jail term for offenders.
“We are looking at how reliable, and how accurate the financial accounts are because they must be exact. Offenders will have their FRC registration number withdrawn, based on Section 41 of the FRC Act. That means you will not be able to work again in Nigeria,” he said.
Obazee said banks that fail to classify expenses, such as staff costs, auditors’ remuneration, interest on loans, depreciation directors’ remuneration will be sanctioned. “Failure to classify financial instruments into appropriate categories like Fair Value through Profit and Loss, Held to Maturity, Loans and Receivables, Available for Sale and Amortisation cost will attract penalties,” he said.
He said some of the institutions will have to pay fines where they violate the FRC code, or their operations will be suspended. Obazee said that aside institutions, the body will also be dealing with the external auditors in persons.
“We will not only be dealing with corporate responsibilities, we will be dealing with individual responsibility. For instance, the Company Secretary must be a lawyer. Such persons must also have cognate experience,” he said.
Obazee said the FRC gave the banks one year cool-off period which ended December 2013 to learn the ropes because IFRS is a new principle in Nigeria. “We said if you are adopting the IFRS for the first year, we will give you a cool-ff period of year. Those that adopted IFRS in 2012; they had 2013 as a cool-off period. Within the cool-off period, what we do is consulting. When you come, we guide you on what to do or look out for,” he said.
The cool-off of one year is to ensure that “banks do not say that government ambushed them”.
The FRC will be looking at the banks’ financial reporting infrastructure; revenue recognition, income classification, disclosures and measurements.”
Obazee said the body is implementing Section 11 D of the FRC Act, which is to ensure accuracy and reliability of financial report and corporate disclosure in line with Nigerian laws.
“As a bank, we would be looking at how you comply with the regulations of the Central Bank of Nigeria and Nigeria Deposit Insurance Corporation on how you, for instance, recognise Non-Performing Loans because such could affect your bottom line.”