Nigeria`s Financial Think Tank: On The Way Forward For Financial Sector.

The Executive Secretary/Chief Executive Officer, Financial Reporting Council, Mr. Jim Obazee, believes the move by the Federal Government to harmonise the codes on corporate governance would enhance governance structures, accountability and raise investor confidence. Obazee, who spoke with Obinna Chima, also addressed the issues surrounding the Statement of Accounting Standards32 and the International Financial Reporting Standards. 

Excerpts:The roadmap for conversion to the International Financial Reporting Standards (IFRS) in Nigeria stipulates that small and medium scale enterprises (SMEs) are expected to adopt these standards by 2014. With the state of SMEs in Nigeria, do you think they will be able to comply?

The national roadmap is in phases, because when the Federal Executive Council (FEC) approved the national roadmap in July 2010, they said it should be in phase transition. Phase one is what we are currently counting its gains. Looking at possible lessons that were learnt, and that had to do with listed and significant public interest entities. Stage two is for other public interest entities which include charities such as churches, mosques, political parties, non-governmental organisations (NGOs) that are within charity. Granted that 2014, which is the account we would see in the first quarter of 2015 has to do with SMEs and micro entities.

SMEs are supposed to used IFRS for SMEs, while the micro entities will use SMEGAL level three issued by the United Nations Conference for Trade and Development on National Standard Accounting. Directly to your question, you may be looking at the state of SMEs today from a very different platform. But by the time we would be talking about implementing rules, you will discover that they will definitely fall in line.

It is like saying that by 2014, we would have electricity for 24 hours and you are convinced that some people would still be insisting on using lantern because looking at their structure today, it is lantern that they are using and you believe that they will continue to use lantern by 2014. So by 2014, obviously, SMEs will definitely begin to apply IFRS because the professionals that are working with them, external auditors and even the banks where they take loans from would be requesting for IFRS statements from them in the course of their dealings.

Don’t you think the cost associated with conversion to IFRS might discourage compliance?

A lot of people look at the cost implications and don’t take cognisance of the benefits they would reap when they do the cost-benefits analysis. Implementing IFRS for large organisations, listed and significant public entities may have financial burden, but not on those that are implementing IFRS for SMEs or SMEGAL level three for micro entities. SMEGAL level three is about 12 pages which an accounting technician can even help you put together. But we would be talking about verifiability, comparability, faithful representation and reliable financial statements that will enable them get loans and overdraft. The IFRS for SMEs is not burdensome because they don’t require big accounting firms to do their GAAP analysis neither do they require even medium sized firms. So it is not a major burden.

Since the fund raising for the IFRS Academy was done, there have been lots of questions on when the academy will take off?

Yes, the fund raising dinner was held, not that the funds came in. Two years ago we held the fund raising dinner and gradually we are beginning to have a buy-in from operators on the IFRS Academy. Certain things were being looked at within the IFRS Academy. Firstly, we needed to have a venue for to take-off, which we said is expected to be the Nigerian Capital Market Institute owned by the Securities and Exchange Commission (SEC).

It was recently that SEC signed the Memorandum of Understanding (MoU) for us to use the Academy. Secondly, we are bringing in foreigners into the Academy and the foreigners want us to fulfill some requirements before they can come in, and those requirements are being met. The World Bank was interested and they also advertised our expression of interest for the lectureship of the Academy.

Of course, dealing with the World Bank, you also have to follow due process and that is being finalised. For the funds, we have gotten about half of what we need. We are also about to introduce a board of trustee for the Academy because the Academy will not be managed by the governing board of the FRC, but by a board of trustee largely drawn from those that contributed to the Academy. So that is the status. If you go to our website,

we have put out the admission notice and probably we will soon be advertising in the newspapers. Why the delay? The delay has been due to the space where we intend to use due to the acceptability of our jurisdiction by those we are inviting to come and be lecturing in the Academy. We have also been doing linkages.

We have been going from universities to talk to them on what the country stands to gain if the students are taught the new financial reporting rules and what they stand to gain as lecturers if they understand the importance of the new financial reporting regime. So we have signed with SEC that we intend to commence the use of the institute by April. This means that by April we would then do the facelift, bring in the furniture and do the admission. So by first week of May, we would commence the school.

The FRC was mandated by the Federal Government to harmonise the various codes on corporate governance by regulators in the country. What level of work has been done on that?

It was not helping investments to have different codes of corporate governance in Nigeria. You have the SEC and Corporate Affairs Commission (CAC) using one, the Central Bank of Nigeria (CBN) also has a code of corporate governance for banks; the National Insurance Commission (NAICOM) has one for insurance, the National Pension Commission (PenCom) is also creating its own, in fact, the Nigerian Communication Commission (NCC) recently tried to create a code of corporate governance for telecoms companies. No, jurisdiction accepts that.

There is no jurisdiction where you do that and investors will be interested in the country. You must have a national code. Incidentally, none of these institutions have it within their enabling laws saying that they should monitor code of corporate governance. They were doing it by persuasion other than by mandate.

The FRC Acts states that the code of corporate governance in Nigeria is defined by code of corporate governance issued by the Directorate of Corporate Governance in its Act. So, the legislation that gave birth to mandatory compliance to the code of corporate governance is in the FRC Act. First, the government had to establish a working group that is made up of those who have code of corporate governance before and those who are experts in dealing with code of corporate governance. They have commenced their job, they were given a six months mandate.

They are barely into two months, they have finished their different work group report and they now want to put it together so that they can hold a stakeholders’ meeting. That stakeholders’ meeting will enable people see it from different point of view. We are about putting up a website that will enable people raise issues, make position paper on what they think should be brought in as best practice.

In this country we would be witnessing something new as we would have a code of corporate governance that is dealing with both private sector and public sector. Previously, all that we have been seeing in code of corporate governance had been directed at private sector entities and none for public sector, but this one will deal with both public and private entities. It would talk about the appointment of chairmen of boards, appointment of a chief executive officers, so you don’t have the overlap of a chief executive officer also becoming the chairman which is very largely defective. We see that a lot in not-for-profit entities where the General Overseer is mostly the chairman board of trustees. It is a misnomer.

The Statement of Accounting Standards 32 (SAS 32) recently launched by the council has continued to generate a lot of controversies. What is SAS 32 all about?

The SAS 32 has to do with financial reporting for not-for-profit organisations. For the fact that they are not for profit, it is assumed that they are not expected to pay tax. But every country rely on taxes for its development. No country can develop without taxation. It is not proper to assume that we all sit back and assume that government should find natural resources like crude oil, to be able to develop the country. So if you engage in taxable activities, government is right to tax you on such engagements.

For purpose of comparability, accountability and reliability, not-for profit entities are expected to prepare their financial statements in line with SAS 32 today, but at the end of 2013, they have to comply with applicable IFRS. So the financial you are going to see in 2014, they are expected to prepare it using IFRS. But there have been a lot of talk about FRC requesting churches to pay taxes.

They have reduced the whole of not-for-profit organisations to churches. Now if you look at churches, when they prepared their object clause, what did they say they were set out to do? They said they were set out to help people meet their spiritual needs and things like that. Their object clause did not say they were set up to run educational institutions, bakery, printing press, to have Oil Company, airlines. If they put these things there at the beginning, then the Corporate Affairs Commission would have asked them to register them differently. If in the process they have engaged in all of these, government is not using they should divest from them, what government is simply saying is that they have to separately report these entities because they are taxable entities and activities.

But those ones that are purely not-for-profit and for the objective for which they were set up and is for the benefits of their members, they would not be taxable. That is the position, but they will have to follow proper reporting rules to prepare their accounts so that we can compare them and for government to be able to take meaning decision and policy direction whenever they look at their structure. So, it is not all about taxing churches, it is about making them more accountable. Firstly, we want to know if they are registered. You can’t be in a jurisdiction and you are not formerly registered. So you have to be registered. They are supposed to be filing returns on a yearly basis with the CAC.

Are they currently engaged in activities that are taxable? If yes, they must have Tax Identification Number (TIN) for those activities. If you go to our website, there is a form that they are to fill to enable us register them and in filling them, they are issues that relate to corporate governance that they have to deal with, issues that relate to financial reporting that they have to deal with. Now at the corporate governance end, who are your board of trustees? Who is the general overseer running the church? If the general overseer is also the chairman board of trustees, he would have to resign from one because he cannot be the one sitting to decide his own fate, because if a general overseer is on full time, why should it be the chairman of board of trustees who is now determining compensation for himself? There is a corporate governance issue there. We look at the financial reporting process that they are engaged in; we look at the charitable activities and then none charitable.
Obazee's bio data

Obazee is Executive Secretary/Chief Executive Officer at the Financial Reporting Council, Nigeria. He joined the federal civil service in 1 993 as Senior Manager and Head of the Technical Department at the defunct Nigerian Accounting Standards Board (NASB) and rose to become the Chief Executive Officer of the Board in November 2010.

Mr. Obazee has played very active roles in the development and issuance of accounting standards in Nigeria. 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.

He has been on attachment to the Financial Accounting Standards Board (FASB), USA, Accounting Standards Board, Canada and at other times, on working visit to the International Acc ounting Standards Board (IASB) and Accounting Standards Board, United Kingdom. Prior to joining the defunct NASB, Obazee worked as a Lecturer of Accounting at the University of Benin from 1990 to 1993.

Culled From Thisday.