Economic Issues

The Role Of Nigeria’s Financial Reporting Council Under The Financial Reporting Council Of Nigeria Act, 2011 -By Oyetola Muyiwa Atoyebi & Betseabasi Asuquo

Published

7 months ago

October 12, 2023

INTRODUCTION

The Financial Reporting Council of Nigeria (FRC) is a regulatory body established by the Nigerian government to oversee financial reporting, corporate governance, and the audit profession in the country. It was established through the enactment of the Financial Reporting Council of Nigeria Act in 2011. The FRC replaced the former Nigerian Accounting Standards Board (NASB) and also took on additional responsibilities related to corporate governance and regulation of the audit profession. This article will examine the roles and impact of the Council.

REGULATORY FRAMEWORK AND FUNCTIONS OF THE FRC

Financial Reporting Standards: The FRC[1]is responsible for setting accounting and financial reporting standards for public and private entities in Nigeria. These standards are aimed at ensuring transparency and reliability of financial information, which in turn enhances investor confidence and promotes sound financial decision-making.
Corporate Governance: The FRC through the Directorate of Corporate Governance[2]plays a crucial role in promoting good corporate governance practices within Nigerian companies. It issues guidelines and codes of corporate governance that companies are expected to adhere to[3]. These guidelines cover various aspects of corporate governance, including board composition, disclosure practices, and the protection of shareholders’ rights.
Auditing and Assurance[4]: The FRC is involved in regulating the audit profession in Nigeria. It establishes and enforces auditing and assurance standards, ensuring that audits are conducted with integrity and in compliance with international best practices. This oversight helps maintain the quality of financial statements and audits.
Enforcement: The FRC, through the Directorate of Inspection and Monitoring, has the authority to enforce compliance with financial reporting and corporate governance standards[5]. It can investigate instances of non-compliance and take appropriate actions, including issuing warnings, imposing fines, or recommending legal actions against erring entities or individuals[6].
Investor Protection and Economic Development: By ensuring accurate and transparent financial reporting, the FRC indirectly protects the interests of investors and stakeholders in Nigerian companies. Reliable financial information helps investors make informed decisions, fosters trust in the capital markets, and contributes to the overall stability and growth of the Nigerian economy. It attracts foreign investment, enhances the credibility of Nigerian companies, and improves the country’s business environment.

ACCOUNTING AND AUDITING STANDARDS

The FRC, through its Directorate of Auditing Practices Standards,[7] established the Nigerian Standards on Auditing (NSA), which are based on the International Standards on Auditing (ISA). These standards provided guidelines for auditors on conducting high-quality audits, maintaining professional confidence and ensuring the integrity of audit processes. The NSA is aimed at enhancing the quality and consistency of audit practices in Nigeria.

Also, the FRC, through its Directorate of Accounting Standard Practices[8] issued the Nigerian Accounting Standards (NAS) which are based on International Financial Reporting Standards (IFRS). The goal was to align Nigerian accounting practices with international best practices to enhance transparency and comparability of financial statements. These standards covered various aspects of financial reporting, including recognition, measurement, presentation, and disclosure of financial information.

CHALLENGES AND CRITICISMS OF THE FRC

The Financial Reporting Council of Nigeria (FRC) has faced various challenges and criticisms, as is the case with many regulatory bodies. Some of these challenges and criticisms include:

Complex Regulatory Environment: Nigeria’s regulatory environment can be complex and challenging to navigate. The FRC’s regulatory responsibilities cover a wide range of areas, including financial reporting, corporate governance, and audit regulation. Managing these diverse responsibilities effectively while keeping up with changes in the business landscape can be demanding.
Enforcement and Compliance: Though there are provisions in the Act as to sanctions for non-compliance, the enforcement mechanisms are not clearly spelt out. The FRC needs to enhance its enforcement mechanisms to ensure that companies and individuals comply with financial reporting and corporate governance standards. Ensuring consistent and timely enforcement can be a challenge.
Independence and Influence: As with any regulatory body, the FRC needs to maintain its autonomy and independence from external influences to effectively regulate and oversee financial reporting and corporate governance practices. However, the Council does not by itself have autonomous powers to perform its primary function of making regulations independently. They have to act through the Minister of Industry, Trade and Investment.[9]
Adaptation to Change: The regulatory landscape is not static and evolves with changes in technology, business practices, and international standards. The FRC needs to stay current and adapt its regulations and standards to remain relevant and effective. This may prove to be a challenge as there are no elaborate procedures[10] set down to make regulations or amend the existing ones.
Complexity of Issues: The issues related to financial reporting, corporate governance, and ethics can be complex, requiring in-depth understanding and expertise. Ensuring that regulations are clear, practical, and appropriate for the Nigerian context can be a challenge.
Lack of Awareness and Capacity Among SMEs: Small and medium-sized enterprises (SMEs) might face challenges in understanding and implementing complex regulatory requirements. The FRC needs to ensure that its regulations are accessible and relevant to businesses of all sizes.

IMPACT OF THE FRC ON FINANCIAL REPORTING PRACTICES

The Financial Reporting Council of Nigeria (FRC) has had a significant impact on financial reporting practices in Nigeria since its establishment. Its role in setting standards, promoting transparency, and enforcing compliance has contributed to shaping the way companies prepare and present their financial information. Some of the impacts include:

Adoption of International Standards: The FRC has played a pivotal role in aligning Nigerian accounting and financial reporting standards with international best practices, such as the International Financial Reporting Standards (IFRS). This alignment has improved the comparable value and credibility of financial statements issued by Nigerian companies, making them more attractive to investors and stakeholders both locally and globally.
Enhanced Transparency: The FRC’s focus on transparency and disclosure has led companies to provide more comprehensive and relevant information in their financial statements. This has improved the quality of financial information available to investors, analysts, and other users, enabling better-informed decision-making.
Improved Corporate Governance: The FRC’s guidelines on corporate governance[11] have influenced the way companies are governed and managed. By promoting principles of accountability, ethical behaviour, and proper risk management, the FRC has contributed to the strengthening of corporate governance practices in Nigerian organizations.
Higher Professional Standards: The FRC’s oversight of auditors and auditing standards has contributed to raising the quality of audit services. This has led to more accurate and reliable audits, which in turn enhances the credibility of financial statements.
Market Efficiency: Standardized and transparent financial reporting practices improve market efficiency by enabling investors to make quicker and more informed decisions. This can lead to more accurate pricing of securities and more efficient allocation of capital.

RECOMMENDATIONS FOR FUTURE PROSPECTS AND REFORMS

Although the direction of future reforms and prospects for the FRC are to be influenced by changes in government policies, economic conditions, technological advancements, and international developments, below are some suggestions for improvement of the FRC.

Enhanced Enforcement Mechanisms: There should be a focus on strengthening the FRC’s enforcement mechanisms to ensure that companies comply with financial reporting, corporate governance, and ethical standards. This could involve stricter penalties for non-compliance and more robust monitoring processes.
Digital Transformation: As technology evolves, the FRC should seek to embrace digital tools and platforms to streamline its operations, facilitate information dissemination, and improve communication with stakeholders. Digital solutions could enhance efficiency and accessibility for both regulatory functions and stakeholder engagement.
Engagement with Stakeholders: The FRC should endeavour to strengthen its interactions with various stakeholders, including businesses, investors, auditors, and professional bodies, to receive quality feedback. This can help ensure that regulatory initiatives and standards are well-informed, practical, and effectively address the needs of the ecosystem.
Capacity Building: The FRC should invest in capacity-building programs for professionals in the accounting and auditing sectors. This ensures that professionals are equipped with the knowledge and skills necessary to adhere to evolving standards and practices.
SME Focus: Recognizing the significance of small and medium-sized enterprises (SMEs) to the economy, the FRC should develop tailored approaches to address the specific needs and challenges faced by SMEs in complying with regulatory requirements.
Flexibility and Adaptation: The regulatory landscape is dynamic. As such, the FRC will need to remain flexible and adaptive to changes in technology, business practices, and international standards. Regular review and updates of regulations and practices will be essential.

CONCLUSION

The establishment of Nigeria’s Financial Reporting Council (FRC) under the Financial Reporting Council of Nigeria Act, 2011, marked a significant milestone in the country’s efforts to enhance financial transparency, corporate governance, and accountability. The FRC’s multifaceted role, encompassing the setting of accounting and auditing standards, promoting ethical corporate practices, enforcing compliance, and ensuring robust regulatory oversight, has contributed to shaping a more trustworthy and investor-friendly business environment. By aligning Nigerian financial reporting practices with international standards and fostering adherence to ethical principles, the FRC plays a pivotal role in not only bolstering investor confidence but also fostering sustainable economic growth. As the FRC continues to evolve in its regulatory mandate, its impact on Nigeria’s financial landscape remains instrumental in driving transparency, accountability, and stability in the corporate sector.

KEY WORDS

audits, financial reports, code of corporate governance, financial reporting council

SNIPPET

AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate and Commercial Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Betseabasi Asuquo

Betseabasi is a member of the Dispute Resolution Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Corporate Practice.

She can be reached at betseabasi.eyo@omaplex.com.ng

[1] Section 52 of the FRC Act 2011

[2] Section 49 of the Act

[3] Section 51(c) of the Act

[4] Section 53 of the Act

[5] Section 28; 57 of the Act.

[6] Section 64 of the Act.

[7] Section 26 of the Act.

[8] Section 24 – 25 of the Act.