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Tag: IFRS

  • ‘Insurance’ll thrive in 2014’

    ‘Insurance’ll thrive in 2014’

    Last year was tough and critical for the insurance industry in terms of regulation by the National Insurance Commission (NAICOM). In this report, Omobola Tolu-Kusimo takes a look at the challenges and achievements of the industry in 2013 and prospects in 2014 and beyond.

    The insurance sector has witnessed some positive changes owing to stricter regulatory and operational frameworks enforced by the National Insurance Commission (NAICOM).

    Although the sector is yet to reach its peak, what obtains is a departure from a sector that was previously characterised by poor regulatory framework, coupled with poor service delivery and a battered image.

    Earlier, the industry was laden with a myriad of problems, ranging from lack of trust, non-payment of claims, rate cutting, delays in premium remittance, inability of players to explore and exploit opportunities presented by the implementation of the local content policy of the federal government and unethical practices, among others.

    Presently, the number of existing insurance firms in Nigeria include 14 life, 31 non-life, 11 composite and two re-insurance companies. Total net premium of the industry’s contribution to the Nigerian economy is N185 billion with total gross premium put at N234 billion.

     

    Regulation, Sanctions

    and Penalties

    NAICOM has continued to play its supervisory role with increased on- and-off site inspections of operators. This has ensured prompt settlement of claims, improved corporate governance and risk management capacity and reduced the incidence of non-remittance of premium to insurers. It also intensified its enforcement of regulations and guidelines in the review period, in line with global best business practices, thus improving the confidence level of the insuring public as well as investors and stakeholders.

    The Commission instilled discipline among the operators by wielding the big-stick against erring companies where necessary and adopting the carrot approach in some instances. For instance, the commission decided to waive the N5000 penalty charged daily on late submission of result because of the challenges they faced in transiting to the International Financial Reporting standard (IFRS).

    NAICOM is silent on whether if will wield the big stick against seven companies that were unable to submit their 2012 financial statements one year after, going by the Insurance act, 2003.

    There are pending issues that bother on regulation involving Investment and Allied Assurance (IAA), Alliance and General Insurance (AIG), Fidelity Bond Brokers and others that were suspended from the market owing to financial misappropriation and corporate governance abuse, among others. However, in the case of AIG and Fidelity Bond, NAICOM is incapacitated because the duo have dragged the regulator to court.

     

    No-Premium,

    No-cover policy

    The year started with NAICOM announcing that insurance will no longer be sold on credit, but on a cash-and-carry basis.

    Commissioner for Insurance, Mr Fola Daniel, said with effect from January 1, 2013, the enforcement of sanctions against insurance operators who issue policies, or grant covers in violation of Section 50 (1) of the Insurance Act, 2003, will commence.  The section states that “the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.”

    He said the Commission deemed it imperative to ensure compliance by all insurance operators with the provision of the law in order to protect the interest of policy holders and other stakeholders from the negative consequences of the existing practice.

    Daniel said the current state of affairs before its announcement did not only increase the credit risk of insurers, but also introduced uncertainty in the market as to the capacity of insurers to meet their obligations to policyholders and other stakeholders.

    He advised Ministries, Departments and Agencies of governments, corporate organisations and members of the public to ensure strict compliance with the law.

     

    International Financial Reporting System

    The year also heralded the full implementation of the IFRS. Underwriters jostled to comply as their 2012 accounts were subjected to tough scrutiny by NAICOM. Many of them made frequent visits to the Commission’s office in Abuja, as they ran around to answer volumes of queries on their accounts.

    As at end of 2013 financial year, only 38 firms’ accounts were approved with companies such as Oceanic Insurance Company Limited; Lasaco Assurance Plc; Crystal Life Insurance; Mutual Benefits Life Assurance Limited; Mutual Benefits Assurance Plc; Nem Insurance Plc; Linkage Assurance Plc and Union Assurance Limited getting the last minute approval as at December 20.

     

    Merger and Acquisition

    The industry witnessed one successful merger by Crusader Insurance Plc and Custodian and Allied Insurance Plc. Old Mutual, however, acquired Oceanic Life and is about adding the general arm of the group, Oceanic Insurance Company Limited. Others such as FBN Life, Linkage, Cornerstone, AIICO, Insurance PHB, also mulled the option.

     

    Release of Takaful and

    Micro insurance  guidelines

    Less than two months to the end of the year, NAICOM released guidelines on Takaful and Micro  Insurance in line with the provisions of the 1997 Insurance Act, and the need to complement the current drive for Financial Inclusion to increase insurance penetration in Nigeria.

    Daniel said the Commission was prepared to give all the necessary support for this segment of insurance which is expected to create wealth, alleviate poverty, increase penetration of insurance and, to a larger extent, bring insurance practitioners in Nigeria to the same page as their counterparts in other jurisdictions.

     

    Products Development

    Following the trend of the emerging market, NAICOM encouraged the insurance companies to   design and market attractive new products to entice customers with the aim of deepening the market and increase sales. Companies were asked to submit updates on products’ performance on quarterly basis after approval has been granted by the Commission to sell the products.

    Presenting an update on the performance of products, NAICOM said about 80 per cent of the products approved in 2012 performed well as at end of last year.

     

    Market Development and Restructuring Initiative (MDRI)

    Although the MDRI initiative was meant to achieve a N1.2 trillion premium income as at end of 2012, consumer apathy in the market lowered prospects of actualisation of the target.

    Last year, the momentum to sell the compulsory insurances around the country by operators was low due to the inability of the commission to gather full support of law enforcement agencies to enforce the law.

     

    Consultation Committee

    The industry inaugurated the Insurance Industry Consultation Committed (IICC) headed by the President, Chartered Insurance Institute of Nigeria (CIIN), Fatai Lawal. It was charged with speaking for the industry and helping to resolve all issues among operators from the different arms of the industry.

     

    2014 Projections

    Operators and stakeholders are of the expectation that by 2014, various initiatives of the regulator will increase insurance penetration and more Nigerians will buy into insurance. This, they believe, would boost the industry’s contributions to the nation’s economy.

    Insurance veteran, Prof Joe Irukwu, said the industry fared well in 2013 but could do better this year. He said premiums were growing, but that the level of insurance awareness remained very low.

    He said: “Everybody in the industry has to do everything possible to get as many Nigerians as possible to appreciate the value and the benefit of insurance. Insurance would have made more contributions to the development of the country if we have many more people that are aware of its benefits.

    “The situation was worst in the past because government and everybody ignored insurance but I think with the new NAICOM and its Commissioner, Daniel, the industry is becoming more recognised. But there is need for more work to be done. Unfortunately for us, insurance is linked with the economy and when the economy is doing well, insurance does well. But when the economy is not doing well, the industry will suffer,” he added.

    On industry prospects this year, Irukwu said operators and stakeholders are poised to see that the industry plays a more active role this year.

    “If we solve the political problems that we have and if there is the political will, businesses will thrive, security will improve and more jobs will be created. This is when insurance will play its part.  But this requires the effort of everybody, not just government. Everybody has to be on board to make our insurance culture more positive than it was before”.

    Managing Director, Custodian and Allied Insurance Plc, Mr. Wole Oshin, said regulation has improved tremendously, adding that the introduction of the IFRS, though with its attendant challenges, is a welcome development and a positive step in the right direction.

    He noted that a uniform way in the reporting of accounting procedures and operation will be achieved, while it will also increase transparency and coherence with the international standards.

    Oshin said the regulator has acted in the best interest of the industry with the enforcement of the no- premium, no-cover policy, noting that the response of the insuring public has been positive. He said the insuring public that had rated the industry as unserious, now deals with industry with much seriousness

    “In the coming year, I expect that the public would properly understand that the industry is working and that things will even get better. I believe we will move to a greater height this year,” he said.

    For Managing Director, Anchor Insurance, Mr Muyiwa Adeduro, 2013 was a year with mixed feelings even as he felt excited that operators, including himsel,f survived the tough regulatory year.

    He said: “It was a year of the adoption of IFRS and a year of Enterprise Risk Management (ERM) and so many other regulations that we need to comply with so it was a tough and learning year.

    “In terms of income, the no premium, no cover initiative by NAICOM is commendable because it has helped the industry tremendously in terms of premium collection and increased our income. Although, we lost quite a number of customer that are used to paying installmentally or at the end of the year but we believe that coming 2014 will be better.”

    On the economic environment, the Anchor boss said there has being a positive side in the economy.

    He noted that the same cannot be said about the real sector.

    “We still have a lot to grapple with on growth in the real sector. Electricity generation depleted in 2013 and quite a number of people sustained their operation throughout the year with running of generating set and buying diesel.

    “But I believe that quite a number of initiatives of the NAICOM is going to rub off on the industry. The launch of microinsurance and takaful, retail sector among others are avenues we are looking at for next year.  It is sad that out of over 160 million Nigerians, only few have one form of insurance or the other.

    Insurance penetration is still lower than two per cent in the economy and these are the issues we should work on next year and I believe that 2014 will be a very good year for us in the sector.

  • IFRS: Uphill task for insurance firms

    IFRS: Uphill task for insurance firms

    In line with the on-going financial reforms, significant public interest entities and companies listed on the Nigerian Stock Exchange were mandated to prepare their financial statements in line with the International Financial Reporting Standards (IFRSs), which replaced the Statement of Accounting Standards issued by the defunct Nigerian Accounting Standards Board. But from all indications, adoption of the IFRS remains a herculean task for insurance operators, reports Omobola Tolu-Kusimo.

    The transition from the accounting standard instituted by the defunct Nigerian Accounting Standards Board to the International Financial Reporting Standards (IFRS) by insurance operators , has been a challenge for many industry players.

    NAICOM had in its bid to ensure that the industry is accepted and can compete globally, raised the stake in 2011 when it introduced, in line with global trend, the IFRS and mandated operators to adopt the new system in preparing their 2012 reports.

    The Commission also enforced the IFRS, in line with the Federal Government’s FSS: 2020 Insurance Vision. The thrust is to bring the insurance market in Nigeria to the platform of global players, as well as position them as the first choice in Africa. Under this dispensation, their operations will be transparent, efficient and safe, in accordance with global practices, and as well attain to the 15th position in world insurance premium generation by the year, 2020.

    IFRS is a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements that help users, globally to make economic decisions.

    However, to ensure seamless transition, the Commission embarked on training and guidance programmes to assist the players. It urged chief executive officers, chief finance officers and other board members of insurance and reinsurance firms to be IFRS compliant within the shortest time possible.

    In spite of this, most of the operators did not anticipate the enormous work to be done to prepare an IFRS account. Some even believed it was business as usual and did not take the regulatory body as seriously as they should.

    The IFRS has brought to the fore the limitation of the accounting method under NASB in shielding accounting data. The new IFRS which encourages full disclosure, has brought the sector under the searchlight, by ensuring transparency and accountability. This has however tasked the resilience of some operators to their health, with some insurers’ operations and activities slowing, as many are struggling to adjust to the new accounting method one year into the current financial year, 2013.

    It is worthy to note that the banking sector has since moved on beyond adopting the IFRS since 2012 with little or no problem in getting their accounts approved by the Central Bank of Nigeria (CBN).

    According to NAICOM 2012 Financial Statements Submission Status of Insurance Companies as at November 26, 2012, 10 insurance companies out of the existing 60 companies have not submitted their 2012 audited accounts and annual returns while 21 have submitted but have not gotten approval. Only 28 out of the 60 companies have got approval.

    Except for Mansard Insurance PLc, ADIC Insurance Limited, WAPIC Insurance, Consolidated Hallmark Insurance, Oasis Insurance and FBN Life which got the IFRS system correctly and their accounts were approved as at June 30 submission deadline, others like Continental Reinsurance Company, AIICO Insurance, Leadway Assurance Company, were able to get approval three months after deadline.

    Crusader General Insurance Limited, Crusader Life Insurance Limited, UBA Metropolitan Life Insurance Company, Zenith Insurance Company Limited, Unitrust Insurance Company Limited, Unity Kapital Assurance Plc, Standard Allied Life Assurance, Custodian & Allied Insurance. Plc, Regency Alliance Company, Royal Exchange Assurance Plc, Sovereign Trust Insurance Plc, Zenith Life Insurance Limited, Royal Prudential Life Assurance Plc, Sterling Assurance Nigeria Limited, Prestige Assurance and FIN Insurance Law Union& Rock Insurance Company, Cornerstone Insurance Plc, Oceanic Life Assurance Plc (Old Mutual) got approval for their accounts more than six months into the new financial year.

    Meanwhile, companies such as Equity Assurance Plc, Lasaco Assurance Plc, Crystal Life Insurance PHB Insurance Plc, Great Nigeria Insurance, Niger Insurance, Oceanic Insurance Company, Wapic Life Assurance, Nem Insurance Plc, Lasaco Life Assurance, Linkage Assurance Plc, Union Assurance, Nigeria Reinsurance Corporation, Universal Insurance Company, though have submitted their accouts, but they were queried by the regulator.

    Others in this category are Staco Insurance, Capital Express, Standard Alliance Insurance, Mutual Benefits Assurance, Mutual Benefits Life Assurance, African Alliance Insurance Plc, Anchor Insurance, Nigerian Agricultural Insurance Corporation.

    The list of companies which are yet to submit are Industrial & General Insurance Plc Alliance & General, Alliance & General Life Assurance, Goldlink Insurance, Guinea Insurance Plc, International Energy Insurance, Unic Insurance Plc and NICON Insurance including Spring Life Assurance and Investment & Allied Assurance which has been taken over by the regulator.

    These companies are still facing challenges in getting their IFRS based accounts across to NAICOM for approval.

    Besides, the companies risk cancellation of their operating licence. Section 26 of the Insurance Act 2003 states that failure to file annual returns constitutes a ground for cancellation of operating license and an insurer shall be deemed to have failed to file its annual returns if the provisions of Section 26 of the Insurance act 2003 are not met 12 months after the end of the financial year.

    Worried that majority of the insurers would not be able to make it; the commission drew the attention of the insurers to major mistakes it identified in the IFRS accounts and ask them to learn from those who were already IFRS complaint.

    The Commission also said it has invited all insurance and reinsurance companies whose financial statements had been audited to take advantage of its IFRS help desk facility for a risk-free review of their IFRS conversion outcomes.

    In a circular to all insurance companies titled: “Common Issues Observed in the Pre-Submission Review of 2012 IFRS Financial Statements” the Commissioner for Insurance, Fola Daniel, said “this circular is issued to draw the attention of companies that are yet to submit their returns to the commission, to the major mistakes and areas for improvement that our reviews had revealed so as to be guided accordingly.”

    The commission explained that the information on “operations and activities” for insurance business are to incorporate items such as business acquisition, underwriting, claims, investments, while information on other businesses should be guided by the same rule.

    “Being the year of first adoption, companies is expected to provide information on the basis of the conversion of financial statements prepared under Nigerian Gap to IFRS 1. Some companies did not indicate which of the adjustments required by IFRS were made in Nigerian GAAP assets and liabilities derecognised, assets and liabilities not recognised under Nigerian GAAP now recognised and items in Nigerian GAAP Balance sheet reclassified into appropriate IFRS categories”.

    The Commission advised that all information required by IFRS 1 that are relevant to each company should be provided as part of the basis of preparation of the IFRS financial statements in the section for accounting policies.

    The commission also revealed that some accounts submitted by some companies did not add up and expressed displeasure at auditors who endorse the account.

    NAICOM Director of Supervision, Mr Nicholas Okpara in Ilorin told journalists that henceforth auditing firms who collide with insurance companies by passing incorrect financial statements will be blacklisted from the industry.

    Okpara said: “NAICOM will maintain a black book where the names of auditors who consistently fail to leave up to their responsibilities will be entered. Once this is done, the auditor will be barred from auditing financial statements of insurance companies. We are working on it because something has to be done for them to stop endorsing false accounts.

    “The financial statement of a company is a joint responsibility by the board and management of that company and the auditor that provides the quality assurance and to the extent the auditor will certify the account is more or less taking responsibility that account contains no error and is the true and fair view of the financial position of the company.

    “It is disturbing that some auditors of some insurance companies who ought to have discovered if there is an error and display professional roles fail to do so and we are surprise at this kind of behavior.”

    Managing Director, Custodian and Allied Insurance Plc, Mr. Wole Oshin said the IFRS has opened up the Nigerian insurance market to the world and will boost Foreign Direct Investment (FDI).

    For him, it is one of the best thing that has happened to the industry noting that it will enable operators participate in businesses globally.

    He said: “For every sacrifice, there is a benefit and our industry today is known worldwide. Today we can proudly take our account anywhere in the world.

    “Shareholders are also happy because now they can clearly see and understand all operations and activities of the company,” he said.

    Chairman Regency Alliancy Plc, Justice Adolphous Karibi-Whyte, while speaking on impact of IFRS implementation, added that its implementation had significant impact on computation of reserves and valuation and measurement of assets and liabilities.

    Managing Director, Anchor Insurance, Mr. Mayowa Adeduro stated that it was a difficult year in terms of regulation especially with of the adoption of the IFRS.

    He said: “There are a lot of issues that we did not envisage. There was the need for us to learn and understand how to prepare an IFRS account but there is a gap in people that have the experience and knowledge.

    “For instance, you need an actuary and this comes at a huge price. There were also few actuaries in the country.”

    Director-General Nigeria Insurers Association (NIA), Mr. Sunday Thomas said the operators are doing all they can to be IFRS complaint.

    He noted that the ongoing reform especially on regulation has required the operators to have to comply with a lot of rules and guidelines.

    He also said next year would be different as they would have fully adjusted and everything can go smoothly for the industry.

  • STI posts N1.5b profit

    STI posts N1.5b profit

    Sovereign Trust Insurance (STI) Plc has posted a profit before tax of N1.58 billion in the year ended December 31, 2012 from a loss figure of N513.8million loss in 2011.

    Chairman of the company, Dr. Ephraim Faloughi, who made this known during the firm’s annual general meeting in Lagos at the weekend, said this was a result of several adjustments occasioned by the conversion to International Financial Reporting Standard (IFRS).

    He said the company recorded a gross premium of N7.7 billion in the year under review from N6.4 billion in the previous year.; this represented a 20 per cent growth.

    He noted that the company continued on its profitability trend after several measures adopted to withstand the challenges and realities of the operating environment,

    Consequent upon this performance, he said total equity stood at N3.13billion as at end of 2012.

    To drive the growth of the company to attain its strategic goals, he said the firm decided to retain its earnings for the year and plough back same into the company.

    The chairman stressed that the firm’s pride was rooted in the quality of people who are its greatest asset and would, therefore, continue to equip and develop then as individuals and collectively as a company.

    He said: “STI will continue to craft its business strategies in a proactive manner to take advantage of the opportunities that could be presented in a growing economy.

    “We have charted a new course for the company and this was comprehensively articulated in our newly developed five year strategic blue print which is aimed at positioning us as one of the pacesetting brands in the insurance industry within the next five years and beyond.’’

    Speaking on the competition that would arise as a result of entrance of foreign insurance brands in the country, he said, the imperative of attracting further capital to boost competitive position cannot be undermined and adequate capitalisation of the business has been identified as a key competitive factor for the coming years.

    “We would therefore continue to explore several capital raising initiatives domestically and across the shares of the nation so as to attract adequate capital for our business,” he added.

  • Daniel slams erring firms over non-submission of 2012 accounts

    Daniel slams erring firms over non-submission of 2012 accounts

    COMMISSIONER for Insurance Mr. Fola Daniel has criticised insurance firms that failed to submit their annual reports eight months into 2013 financial year, warning that they were sending a wrong signal to the world about the health of the industry.

    The Commissioner spoke at the just-concluded seminar for insurance correspondents in Ilorin while commenting on the inability of companies to submit their International Financiaal Reporting Standard (IFRS).

    He, however, assured that in spite of this, the industry remained healthy adding that the National Insurance Commission (NAICOM) will ensure the security of the investment of the public.

    He said the commission has written letters to the chairmen of the companies that have not submitted the accounts and have asked them to dig into the competency of the management of their companies.

    According to him, the commission has no apologies for not approving the result of the insurance firms that have submitted, insisting that NAICOM was not ready to bend the rules.

    He said: “The commission will not compromise but will ensure that the companies abide by the rules and regulations. We have no apologies or excuses for not approving accounts that are not correct. We will rather delay clearance of accounts than allow such accounts to be passed.

    “The biggest problem that we have had in the past is accounts coming from the industry that are not trusted by investors. That is why they do forensics on accounts that have been passed by regulators. This is not a good thing for the companies, the industry and the nation.”

    The NAICOM boss pledged that under his leadership, the regulatory body will not allow the insuring public to be misled.

    He noted that the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) agreed with the commission on the affected  companies.

    He added that the commission has done its best in educating the various companies and its external auditors on IFRS and will continue to make corrections until they get it right

    The Commissioner saidNAICOM will be focusing on deepening insurance penetration through Micro Insurance and Takaful Insurance.

    He explained that micro-insurance is not a conventional insurance that is expensive, adding is affordable and the reach of low income earners.

    On Takaful Insurance, he said it is different from the conventional insurance, adding that the concept is unique and it is accepted by both Christians and Muslims alike, adding that Takaful Insurance is based on trust, fairness and equity.

    He explained further that Takaful Insurance is not about Muslims as being misconcieved, but rather, a better way of doing insurance business that will benefit those at the grassroots.

    He said NAICOM will soon be joining the other regulatory bodies in the country to create awareness about financial illiteracy, adding that in the next few weeks, the commission will embark on outreach programmes to educate its constituency over the issue.

    On money laundering, he said tackling the menace would be on the agenda of the commission in next year.

  • Mutual Benefit, others fail to submit report

    Mutual Benefit, others fail to submit report

    As the days continue to race against insurance and re-insurance firms to get their 2012 International Financial Reporting Standard (IFRS) audited accounts approved by the National Insurance Commission (NAICOM), 18 companies, including Industrial and General Insurance Plc, Mutual Benefit Assurance Limited and Goldlink Insurance Plc, are yet to submit their accounts 10 months into this financial year.

    According to Section 26 of Insurance Act, 2003, these companies risk cancellation of their operating licence.

    Section 26 states that failure to file yearly returns constitutes a ground for cancellation of their operating and an insurer shall be deemed to have failed to file its annual returns if the provisions of the section are not met 12 months after the end of the financial year.

    This was revealed by the NAICOM, the regulatory authority in its recent Submission Status of 2012 Financial Statements of Insurance Companies.

    According to the NAICOM, out of the 60 insurance and reinsurance companies, only 18 are yet to submit the account, 22 have gotten approval of the accounts while 20 have submitted and awaiting responses or been queried at different levels.

    A study of the status report showed that three major composite insurers, Industrial and General Insurance Plc, Goldlink Insurance Plc, NICON Insurance Plc are yet to submit.

  • ‘Finance houses need IFRS to do better’

    Operators of finance houses need to adopt and implement tenets outlined in the International Financial Reporting Standard (IFRS) to achieve their objectives, Jim Osayande Obazee, the Executive Secretary/Chief Executive Officer of Financial Reporting Council of Nigeria has said.

    He disclosed this at the quarterly chief executives business luncheon organised by Finance Houses Association of Nigeria (FHAN) in Lagos.

    He called for easier regulation of financial information of entities and enhancement of investors’ confidence in the quality assurance systems of financial reporting in public and private sector entities.

    Obazee, who spoke on the theme, IFRS Adoption in Nigeria: Issues and challenges for non-bank financial institutions, said the implementation of IFRS required considerable preparation at the country and entity levels to ensure coherence and provide clarity on the authority IFRS will have in relation to other existing national laws.

    He said there was the need for technical partners’ forum of accounting firms that can identify financial reporting issues requiring clarification to avoid inconsistencies.

    He said there should be limited number of professional accounting organisations, preparers and users, including regulators that can provide the International Accounting Standard Board (IASB) with useful feedback, not only after standards are finalised and ready for implementation, but early in the drafting process.

    Obaze said the shortage of expertise in IFRS affects not only the private sector, but also regulators and other government agencies.

    He noted that IFRS has been developed primarily to meet the information needs of shareholders, lenders and other investors, adding that these needs do not always align with those of the tax authorities as seen in extensive use of fair value and the application of substance over form.

    “IFRS is a new world order, in corporate reporting, that is currently altering not only the financial accounting and reporting landscape but also tax accounting/reporting, tax cash flows and tax distributable reserves,” he said.

    Obazee said there is the need to consider the functions of institutional bodies associated with financial reporting standards or having operational interest in financial reporting.

    He also called for consideration of the appropriate functions, powers and operational arrangements of institutional bodies in the country.

     

  • 95% insurers yet to comply with IFRS requirement

    95% insurers yet to comply with IFRS requirement

    •Oasis gets NAICOM’s approval

    Underwriting firms are in a race to meet up with the requirement by regulatory authority, the National Insurance Commission’s (NAICOM’s) on the 2012 International Financial Reporting Standard (IFRS) account.

    Oasis Insurance Plc has, however, joined the league of firms that have passed their 2012 IFRS test, two weeks after the June 30 deadline.

    The Nation learnt that out of 59 insurance firms, 54 are yet to pass the test. Out of these, 16 have submitted their accounts but have not got approval, while 38 are yet to submit their account to the regulator.

    According to NAICOM spokesman, Rasaaq Salami, as at July 1, only Mansad Insurance, Adic Insurance, Consolidated Hallmark Insurance and Wapic Insurance Plc, have been able to get approval on their financial accounts which are IFRS compliant. Oasis made the league recently.

    Salami explained that the accounts of First Bank Life Assurance, Continental Reinsurance Company Plc and Law Union and Rock Insurance, were queried, saying their responses are being awaited.

    He said accounts of AIICO Insurance, UBA Metropolitan Life, Custodian and Allied, NEM, Crusader General, Crusader Life, Zenith General, Zenith Life, FIN Insurance and Standard Alliance Life, are being reviewed.

    On the development, Managing Director, Consolidated Hallmark Insurance Plc, Eddie Efekoha, said NAICOM approval of its IFRS 2012 account was a positive development, attributing it to the determination of the management, Board of Directors and the entire staff of the company

    He said the transition to the IFRS reporting was not as seamless as envisaged in the industry, noting that subsequent years would be less problematic for the players because of lessons learnt.

    He added that the company remained committed towards ensuring that compliance issues with all regulators, both industry based and capital market, would be continually adhered to.

    The Commissioner for Insurance, Fola Daniel, warned that the regulatory body would not approve any account that fails to meet the required standard.

    He assured that the commission will maintain strict reporting standard in the financials of insurance firms, adding that the inability of the operators to meet the set deadline for accounts’ submission would attract sanction of N5000 per day, in accordance with the provision in the Insurance Act.

  • MfBs urged to comply with IFRS

    MfBs urged to comply with IFRS

    The National Association of Microfinance Banks (NAMBs), Southwest Chapter has advised its members to keep to this year’s deadline for the adoption of the International Financial Reporting Standards.

    The body, in a statement, said failure of the operators to adopt IFRS promptly means that they would be able to integrate into the global best practices in financial reporting and disclosure.

    According to its Chairman, Mr Olufemi Babjajide, operators will get more recognition when they fully comply with the standards.

    He said: “We would ensure that our members adopt IFRS. We have told our members to do everything possible to comply with IFRS. We said as from 2013, it would not be good enough if they fail to use the internationally acceptable standards.”

    Babajide said the motive was to enhance market discipline and preparation of accounting statements that would be internationally compatible.

    He said the apex bank had given microfinance banks up till last March to comply with the standard and that the association would begin to sensitise operators from April.

    The chairman said many operators initially thought that the adoption of IFRS was meant for only quoted companies,

    “But now, microfinance banks have been directed to comply by 2013 as no sector will be exempted,’’ he said.

    He said IFRS would be a major change for the banks because it would lead to major changes in internal systems, business processes, performance management, and external communications.

     

  • Why banks’ audited reports are delayed

    Why are banks’ audited reports not released in time by the Central Bank of Nigeria (CBN)?

    The delay is caused by impairment test on assets, full disclosure of ac-counts, related party transactions, estimated future cash flows, among others, contained in the International Financial Reporting Standards (IFRS), says an accountant, Uwadiae Oduware.

    Oduware, a partner in Delloite and consultant to the Financial Reporting Council (FRC) on IFRS, said these issues weigh in CBN’s considerations for the release of the reports.

    Oduware said the apex bank is delaying banks’ financials because its wants to be sure that banks conducted impairment test on their assets. He said the test must be carried out before a company is deemed to have complied with IFRS guidelines.

    He said: “As a bank, you need to test your assets to know whether their values have been impaired. For instance, if a bank bought some vehicles, which are supposed to last five years. It is important for the bank to conduct impairment test on the vehicles after two years. This will help in knowing whether the vehicles can last five years or not. Through the test, it would be clear whether the current test values of the assets are beyond their carrying values. CBN is taking its time because it wants to avoid a situation where there would be problems on the assets of banks later.”

    He said another problem is full disclosure of accounts, adding that CBN wants to ensure that banks disclose transactions made in their accounts.

    “IFRS allows full disclosure of accounts, and banks must comply with this. Disclosures in the IFRS are more than the previous accounting standard. Under IFRS, a lot of judgments are expected on the part of the Board of a company. The board must in vivid terms say how they came about the estimates in their accounts. Those estimates are subjective to management’s judgment. Therefore, they must disclose everything in their bid to comply with IFRS. For example, when a loan is given to a customer before, he/she must not fail to pay back within 91 days. However, IFRS will not tell a customer to pay back within a stipulated period. Rather, it will tell the bank to test the collateral the customer is bringing to ascertain its genuineness. So, the CBN would not be happy to see loopholes in the accounts of banks. They have to be very careful,” he added.

    Oduware also a consultant to Securities and Exchange Commission (SEC), said IFRS requires a more extensive disclosure on related party transactions.

    He said CBN wants to be sure that disclosures on such transactions have been made beyond what banks have disclosed in their accounts.

    According to him, financial reports must contain estimated future cash flows in line with IFRS provisions. He said assets, such as buildings or properties, must be able to generate economic benefits, adding that the development would help banks in making cash projections in their accounts.

    He said the values of a property must go beyond physical existence, adding that these must be stated in the accounts.

    He said the apex bank is trying to ensure that banks comply with the relevant provisions of IFRS before releasing the audited reports of banks to the public.

    He said Financial Reporting Council has control over the issue of compliance to accounting standards, stressing that the CBN would still present its works to the council for approval.

  • Experts list hurdles to IFRS implementation

    Experts list hurdles to IFRS implementation

    Income taxes, employee benefits, business combinations and share-based payments pose challenges for banks in the implementation of International Financial Reporting Standards (IFRS), The Nation has learnt.

    The Managing Director, IFRS Strategic Consultants Nigeria Limited, David Raggay, who confirmed this in a statement, said these areas, termed, accounting for financial instruments, remain a hard knot for banks to crack.

    He explained that for financial instruments, the difficulties arise from a mixed-measurement model promulgated under the relevant standards. For instance, there are four standards in issue by the International Accounting Standards Board (IASB), which relate to financial instruments. They are: IAS 32 Financial Instruments: Presentation; IAS 39 Financial Instruments: Recognition and Measurement; IFRS 7 Financial Instruments: Disclosures; and IFRS 9 Financial Instruments.

    Chairman of Publicity Committee, Chartered Institute of Taxation of Nigeria (CITN), Chukwuemeka Eze, said IFRS presents some daunting challenges for tax consultants, especially where the tax free areas in the old system contradicts with the IFRS format.

    Eze, who spoke with The Nation yesterday, said the method of computing in the IFRS differs from the old system. “The IFRS may not have given a headline in areas such as taxing profits, salaries of directors or other remunerations,” he said.

    He said that the Institute of Chartered Accountants of Nigeria (ICAN), CITN and other stakeholders in taxation are already looking at ways of harmonizing and addressing these challenges.

    Former Chairman of the IASB, Sir David Tweedie disclosed that IFRS 7, which bothers on disclosures, will lead to greater transparency about the risks that entities run from the use of financial instruments. This, combined with the new requirements in IAS 1, will provide better information for investors and other users of financial statements to make informed judgments about risk and return”.

    The key objective of IFRS 7 is to provide disclosure requirements that enable users of financial statements to evaluate: the significance of financial instruments for the entity’s financial position and performance; the nature and extent of risks to which the entity is exposed; and how the entity manages financial risks.