International Finance Reporting Standard (IFRS) comes with laudable objectives. It is a concept meant to sanitise accounting practice in order to achieve corporate goals. To ensure that companies comply with IFRS, which has already been embraced abroad, the Financial Reporting Council of Nigeria says auditors must play a major role, writes AKINOLA AJIBADE
Across the world, countries are stepping up efforts in adopting and implementing the International Financial Reporting Standards (IFRS).
The concept is all about full disclosure of information in companies checking fraudulent practices; correcting means by which firms formulate and present their financial statements to shareholders and the regulatory authorities.
IFRS also assists in checking the excesses of the Board of Directors to ensure financial probityand good corporate governance.
It is a catalyst for economic growth as companies that have embraced it get good ratings, compete favourably at the international level and attract investment.
Little wonder that countries and corporate bodies are increasingly signing on to IFRS by enacting laws for implementation. The United States (US), United Kingdom (UK), Germany and Canada are among developed countries that have keyed into the concept.
Abroad, those that infringed on IFRS provisions have been sanctioned and fined, in addition to losing their licences.
Those that compiled with the requirements are reaping the benefits of balance sheets.
To achieve similar goals, the Financial Reporting Council of Nigeria (FRCN), formerly known as the National Accounting Standard Board (NASB), said it would leave no stone unturned in it efforts at sanitising accounting practice in Nigeria. The body said the development became necessary to enable companies to improve on their accounting process and further implement IFRS programmes.
Being the only body, vested with the powers to issues accounting, actuarial, valuation and auditing standards that would be used in preparing financial statements of companies, the IFRC said it has power to enforce compliance of IFRS’s provisions. It said it does not expect anything short of full compliance from firms, adding that everybody would be accountable for his misdeeds.
According to the body, every entity that is involved in issues relating to accounting or taxation will be expected to engage in full disclosure of information. It said failure to do so would attract penalty as part of efforts to improve accounting practice and further make them operative in line with global standards.
Sanctions for auditors
The Chief Executive Officer, Financial Reporting Council, Jim Obazee, said Sections 61 and 62 of the Constitution confers powers on the body to review the activities of external auditors and see whether there are grey areas in them. He said such auditors would be sanctioned depending on the gravity of the offence.
Speaking at a seminar in Ijebu Ode, Ogun State, Obazee said there is no hiding place for auditors (internal and external) with questionable conducts.
He explained that under the IFRS rules, auditors are required to affix their names against any accounts they oversee, saying any violator of the rules would be sanctioned.
The implementation, he said, is that such persons would cease to be practitioners, or members of their professional bodies.
He said the IFRC is only a secondary regulator and is not taking over the responsibility of primary regulators. It has the right to reassess the performance of auditors in companies after they have been certified okayed by other regulatory agencies, adding that the aim is to ensure that the rules of IFRS are adhered to.
Said he: “The Central Bank of Nigeria (CBN), for instance, is the primary regulator of banks. IFRC has the power to re-regulate the accounting processes of banks. By this, IFRC will re-appraise the works of the external auditors, after they have been certified okay by certain relevant agencies. Whenever errors are discovered in the reports of auditors, such auditors will be invited for investigation. He or she would be sanctioned, based on the outcome of the investigations.”
On corporate bodies, Obazee said there is going to be financial probity in corporate bodies as part of efforts to sanitise the accounting practice in Nigeria.
ANAN position on IFRS
The Association of National Accountants of Nigeria (ANAN) has advised the Federal Government to set up machinery that would guarantee the IFRC’s independence.
ANAN said the development is in accordance with the Council’s Act, adding that it would help the council’s resolve to improve accounting practices and the auditors in particular.
It said the constitution of the council is vital to the realisation of the IFRS objectives.
The former President, ANAN, Dr Samuel Nzekwe, said the adoption of IFRS is a good omen for the country because it would help in sanitising the accounting practices, and further prevent people that are not competent to engage in auditing. Nzekwe said the issue of sanitising the accounting practice is germane to the growth of the economy, adding that the financial reporting council has started in the right direction. He urged companies that have not fully implemented IFRS to do, arguing that such companies stand the risk of losing credibility in the country.
Capital market perceptives
According to capital market operators, IFRS has become a catalyst for growth across the world. They said this is the era of globalisation, arguing that Nigeria cannot be isolated from the wind of changes that is sweeping the world. They said the international financial reporting standards have brought some changes in the way financial statements are being processed.
The Vice-Chairman, Anchoria Investment and Securities Limited, Chief Olusola Dada, advised quoted firms to see IFRS only from the point of bringing fundamental changes to their operations.
Olusola said institutions abroad have implementedIFRS because they are going to derive some objectives from it. He said this is the period companies want to compete globally, arguing that those that cannot put in place good corporate governance would find it difficult to attract foreign investments.
“For Nigeria to improve its level of Direct Foreign Investment (DFI) and Portfolio Investment, the listed and non-listed firms must have a sound corporate governance programme in place. They can only win the confidence of foreign investors and further get good rating from recognised agencies, when their financial statements are prepared in the line with the provisions of IFRS.
A capital market analyst, Mr Tayo Bello, said the implementation of IFRS is serious, urging the Financial Reporting Council to attach more seriousness to it.
He said there are irregularities in the ways companies prepare their financial statements, arguing that auditors are guilty of this offence. He said when sanctions are imposed by institutions like the FRC, the level of infractions was bound to reduce in Nigeria.
He said when an auditor loses his membership for committing an offence,others would be careful. He said experience has shown that the best way to clean a system is to use some people as scapegoats.
“I think the only way to minimise accounting errors is to bring some people to book. The use of International financial Reporting Standards need not be handled with kid gloves, if meaningful achievement is going to be recorded in this area. In any profession, there are codes of ethical standards that must be followed to achieve success. In some professions, rules are relaxed for one reason or the other. But in accounting, the rules must be abide with to forestall financial management. When the auditors are made to comply with rules guiding their jobs, the better for the accounting profession.”
In a related development, Nzekwe said the collapse of the capital market was due to actions of the bank executives to divert money and buy shares in the same bank to finance their subsidiaries. He said many of bank managers borrowed money from the banks and used them to buy stocks of their subsidiaries and converted them to personal use.
He said many banks failed to become mega banks because of the lack of capacity to give long term loans to customers and failure to finance their foreign subsidiaries effectively. He said some bankers have shown that they are not ready to follow due process, arguing that the development causes a lot of problems to firms auditing their accounts.
The former ANAN chief said it’s not only auditors that should be blamed for accounting errors, adding that everybody involved in the cost management in an organisation must be held accountable for the errors. He said once this happens, getting the right manpower to implement the international financial reporting standards would not be a problem.
Arguments against
adoption of IFRS
Opponents of IFRS have argued that the idea is complex and unattainable for developing countries that have a lot of infrastructural problems. They said the conversion to IFRS is highly technical, time consuming and uneconomical. This, they said, is evident by the different regulatory frameworks that the government must provide before the standards work.
Instead, they advocated what they described as Nigerian GAPP (the Generally Acceptable Accounting Principles). This a common set of accounting principles, standards and procedures that companies use to compile their financial statements. It is a combination of authoritative standards (set by policy boards) and simply the commonly acceptable ways of recording and reporting accounting information.
According to them, IFRS is a global GAPP that countries are trying to implement for growth.
“There is nothing wrong in having a Nigerian version of GAPP, which means that various aspects of GAPP must be domesticated to suit the purpose of local companies and further stimulate their growth. Inability to do so means that the country will be grappling with implementing IFRS,” they said.
