ETHICAL ISSUES IN AND REGULATORY FRAMEWORK OF CORPORATE REPORTING

ETHICAL ISSUES IN CORPORATE REPORTING

1 The ethical issues facing the accountant
Definition: Professional ethics are the principles and standards that underlie the responsibilities and
conduct of a person in performing his/her function in a particular field of expertise.

Introduction
 Ethical principles are important in a business organisation as they set the tone for the culture and
behaviour of employees and management.
 For example, a business’s ethical aim may be to treat employees fairly and to be honest in all business
transactions.
 The application of ethics can sometimes be intangible. Ethic is often described as ‘doing the right thing’
but this can mean different things to different individuals.
 After the accounting scandals in Enron, Worldcom, Parmalat and others, business ethics has become
more prominent in the accounting world.
 As a result, many companies have an ethical code that sets out their ethical objectives. This can e a
huge benefit for businesses, as employees tend to prefer to work for a company with good guidelines of
moral behaviour, and customers and suppliers will prefer to deal with such a business.

Issues in advising on corporate reporting

 An audit is an independent examination of, and report on, the financial statements and therefore it is
expected that the auditors are independent.
 However, there has always been an area of contention in the accountancy profession as to whether
auditors can actually be independent when their clients pay for their services.
 Many audit fees are high, for example, in 2000 Enron Corp paid Arthur Andersen US$25 million fort the
audit. It becomes very difficult for the auditor to say no to a client when such great sums of money are
involved.
 There is a balance between agreeing with the client’s accounting practices in order to keep the client,
and allowing them to get away with dubious accounting practices and potentially being fined, not allowed
to practise or even ending up in prison.
 Another independence issue is that accountancy firms complete non-audit work for their clients in
addition to the audit. This work is often of a higher value than the audit and, again, makes it difficult for
the auditor to be completely independent as they potentially could lose a great deal of fee income.
 Accountancy bodies are aware of this and issue codes of conducts and ethical guidelines that they
require their members to comply with.

The preparation of accounting information

 Ethics in the preparation of business information starts in the individual entity with those responsible for
preparing the entity’s financial statements.
 A key role for the professional accountant is to drive the ethics process from the bottom up, ensuring that
the financial statements have been prepared in accordance with accounting standards and present a
true and fair view.
 One of the issues in preparing financial information is the pressure that may be put on individuals by
officers of the organisation who are acting unethically. If an individual’s senior is asking him or her to
prepare financial information in a misleading way, then it can be very difficult to speak up and refuse to
do what is being asked for.
 In many cases, accountants know what they should do, but often there are adverse consequences for
them if they take a stand. It takes a great deal of courage to speak out and potentially lose one’s job for
doing so.
 Ethical codes of conduct take into account the accountant and business and offer guidance on how to
deal with ethical issues.
 Some accountancy bodies, such as ICAEW and the CIMA, operate ethics helplines where members can
phone for advice on ethical issues facing them.

Ethical conflicts of interest

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Situations may arise in which an accountant might be asked to behave (or might be tempted to behave) in
a way that conflicts with ethical standards and guidelines.
Conflict of interest could relate to unimportant matters, but they might also involve fraud or some other
illegal activity. Examples of such ethical conflicts of interest are as follows:
 There could be pressure from an overbearing supervisor, manager or director, adversely affecting
the accountant’s integrity

 An accountant might mislead his or her employer as to the amount of experience or expertise they
have, when in reality the expert advice of someone else should be sought.
 An accountant might be asked to act contrary to a technical or professional standard. Divided
royalty between the accountant’s superior and the required professional standards of conduct could
arise
 A conflict of interest could arise when the employer publishes) or proposes to publish) misleading
information that will benefit the employer, and may or may not benefit the accountant personally as
well.

Resolution of ethical conflicts of interest

Conflicts of interest can arise in so many ways that it would be difficult to provide a detailed set of
guidelines for their resolution.
Accountants faced with conflicts should evaluate their significance. Unless they are so insignificant that
they can be ignored, the accountant should consider the safeguards that are available for their elimination
or reduction.
For example, it may be possible to:
 Obtain advice from within the employing organisation, an independent professional adviser or a relevant
professional body
 Invoke a formal dispute process within the employing organisation
 Seek legal advice.

Ethical implication of preparing corporate reports

 Preparers of financial information must prepare that information honestly and fairly. Financial information
may be relied upon by users of the financial statements, investors and potential investors, banks,
suppliers etc.
 Such information must be prepared in accordance with accounting standards so that it complies with
current practice and presents a true and fair view.
 If financial information is not prepared in this manner, the risk is that it does not show a true and fair view
of the performance and position of the entity and is misleading.
 Users who make decisions based on the information reported stand to lose out if it subsequently turns
out that the entity is not what it seems.
 This was certainty the case in Enron who misstated five years of financial statements, reporting profits
rather than losses. Shares in Enron became worthless and many investors and employees lost a lot of
money.

Sarbanes-Oxley
The Sarbanes-Oxley Act 2002 was introduced in the US after a series of corporate accounting scandals.
Public trust in accounting and financial reporting practices was declining due to the number of scandals
uncovered.
The Act contains various specific requirements:
(a)The act places personal responsibility for the accuracy of a company’s financial statements on its chief
executive officer (CEO) and the chief financial officer (CFO) equivalent of finance director
(b)All companies with a US listing must provide a signed certificate to the SEC vouching for the accuracy of
the company’s financial statements, signed by CEO and CFO, this is similar to the situation in Nigeria
where the responsibility of preparing financial statements lies with the board of directors.
(c)This requirement applies to foreign companies with a US listing, as well as to US companies.
(d)The SEC also requires the CEO and CFO to certify in each quarterly and annual report:
- the accuracy of the information in the report
- the fairness of the financial information.
(e)The report should contain information about the effectiveness of the company’s ‘disclosure controls and

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 procedures’ and its internal controls over financial reporting, this should be covered by the certification.
(f) The CEO and CFO must return bonuses to the company, including equity or incentive compensation
awards awarded to them in the preceding twelve months, if their company’s financial statements are re-
stated due to material non-compliance with accounting rules and standards.

Increased financial disclosure

The Act includes a number of provisions for greater or more rapid disclosures of financial information.
 In its financial report, the company must disclose details about its off-balance sheet transactions
and their material effects.
 Material changes should be disclosed on a ‘rapid and current basis’. The Act gave responsibility to
the SEC for making the detailed regulation.

Internal control report

Companies should include a report on ‘internal control over financial reporting’ in their annual report. This
internal control report must:
 Include a statement of management’s responsibility for an adequate internal control system
 Identify the framework used to evaluate internal control
 Provide an assessment by management of the effectiveness of internal control and any material
weakness..\ In addition there must be an annual evaluation of the internal controls by the company’s
external auditors, who must provide ‘attestation’ about them
However in 2007, the SEC amended the requirements of Sarbanes-Oxley in relation to the assessment of
internal control as the current compliance was costly and time consuming.

Audit Committee
Stock exchanges are prohibited from listing the securities of any company that does not comply with certain
audit committee requirements. These include the following:
(a)Every member of the audit committee should be independent
(b)The audit committee must have responsibility for the appointment and compensation of the external
auditors
(c)The audit committee must have responsibility for the oversight of the work of the external auditors
(d)The committee must establish procedures for whistleblowers that raise concerns about questionable
accounting or auditing matters.

Auditors and the audit

Restrictions have been placed on the types of non-audit work that can be carried out by the audit firm for a
client company. Prohibited services include:
 Book-keeping services and other services related to the accounting records or financial statements
of the company
 The design and implementation of financial information system
 Actuarial services
 Valuation services
 Internal auditing
 Legal services
 Management functions
 Broker/dealer or investment advice services
 Tax services are specifically permitted by the Act, unless they come within a prohibited category of
non-audit service
There is a compulsory five-year rotation of both the lead audit partner and the concurring partner working
on the audit of a corporate client.

US Stock Exchange Rules

Following the Sarbanes-Oxley Act, and regulation by the SEC, the national securities exchanges in the US
were required to develop corporate governance rules for companies whose shares are listed on the
exchange.
The majority of the board of directors should be independent directors.

2 Codes of ethics
Professional accountants are expected to act with honesty and integrity and the accounting bodies to which
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they belong provide a code of ethics by which they require their members to abide.
The International Federation of Accounting Council (IFAC) has its Code of Ethics and Conduct which
applies to all the associate and fellow members of the Institute.
The Code of Ethics and Conduct establishes the ethical requirements for members. It sets out the
fundamental principles and provides a conceptual framework for applying those principles. The Code
consists of the following fundamental principles:
(a)Integrity- Members should be straightforward and honest in all professional and business relationship.
(b)Objectivity- Members should not allow bias, conflicts of interest or undue influence of others to override
professional or business judgments.
(c)Professional competence and due care – Members have a continuing duty to maintain professional
knowledge and skill at a level required to ensure that a client or employer receives competent
professional service based on current developments in practice, legislation and techniques. Members
should act diligently and in accordance with applicable technical and professional standards when
providing professional services.
(d)Confidentiality- Members should respect the confidentiality of information acquired as a result of
professional and business relationships and should not disclose any such information to third parties
without proper and specific authority or unless there is a legal or professional right or duty to disclose.
Confidential information acquired as a result of professional and business relationships should not be
used for the personal advantage of members or third parties.
(e)Professional behaviour – Members should comply with relevant laws and regulations and should avoid
any action that discredits the profession.

3 Consequences of unethical behaviour

The consequences of unethical behaviour in deliberately presenting incorrect financial information, or failing
to audit such information properly, are severe. Many accountants have been fined or jailed for not fulfilling
their professional duties.
Consequences for preparers of financial statements
The consequences for individuals include:
 Prison sentence
 Fines or repayments of amounts fraudulently taken
 Loss of professional reputation
 Being prevented from acting as director or officer of a public company
 Possibility of being expelled by professional accountancy body, if membership is being held

Consequences for auditors of financial statements

 The audit firm being taken to court and charged with a criminal offence
 Individual partners of the audit firm being banned from audit work
 Loss of reputation leading to the loss of clients and income
 Fines or compensation payable
 Investigation by accounting body, such as ACCA, ICAEW, ICAN etc

REGULATORY FRAMEWORK OF CORPORATE REPORTING

Applicable Regulations as Sources of Nigeria GAAP
The applicable regulations, Standards, Laws and Regulations GAAP and international accounting
standards) both have impact on financial reporting. Both requirements concentrate on accounting issues to
report on, their recognition, their measurement basis, disclosures and mode of presentation.
In most cases, the requirements of local GAAP will give a complete different picture from what is obtainable
when the international standards are applied to financial reporting.

National Requirements
In Nigeria, the national financial reporting requirements Generally Accepted Accounting Practice (GAAP)
can be categorized into three namely:
 Financial reporting standards,
 Law and
 Regulations.

Financial Reporting Standards

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Introduction
An accounting standard is an authoritative pronouncement on a chosen accounting transaction or other
event by a relevant accounting standard board that has jurisdiction over a given area and such
pronouncements are enforceable by entities that prepare financial statements within that jurisdiction.
The accounting standards have the objective of ensuring that the alternative treatments of similar
accounting transactions and other events of similar circumstances are considerably narrowed down and to
ensure that the financial statements follow the most appropriate accounting policies that will enable the
relevance, reliability and comparability as well as ensuring fair presentation of information contained in
financial statements.
The users of financial information – investors, creditors, management, employees, business contacts,
financial specialists, government and the general public – are entitled to information about a business entity
to a greater or lesser degree. However, the needs and expectations of these groups will vary hence the
financial statements are often referred to as general purpose.
The preparers of the financial information often find themselves in the position of having to reconcile the
interests of different groups in the best way for the business entity. Without accounting standards to
prescribe how certain transactions should be treated, preparers would be tempted to produce financial
information which meets the expectations of the favoured group.
The aim of accounting standards is that they should regulate financial information in order that it shows the
following characteristics:
 relevance
 reliability
 understandability
 comparability
Accounting standards are issued on major accounting transactions and every organisation that prepares
financial statements must comply with the requirements of the standards as far as they are relevant to the
financial transactions of that entity
However, compliance with a particular standard may not be considered as appropriate if this will adversely
affect the relevance, reliability as well as fair presentation of the financial statements.
Entities mostly draw their accounting policies on the pronouncements of accounting standards on the
accounting transactions

National and International Accounting Standards

Every country has its own accounting standard board that produces local standards that are enforceable in
that country for instance in Nigeria we have the Financial Reporting Council of Nigeria (FRC) that publishes
accounting standards known as Statement of Accounting Standards (SAS) and at present the Board has
produced thirty two accounting standards, in America we have the Federal Accounting Standard Board
(FASB) that publishes standards known as Financial Accounting Standards (FAS)
The International Accounting Standard Board (IASB) is charged with the responsibility of publishing
International Accounting Standards (IASs) now to be known as International Financial Reporting
Statements (IFRSs).There are 41 IASs of only thirty are currently relevant, equally, 15 IFRSs have been
issued to date and any IAS withdrawn and needs replacement shall be replaced with an IFRS as in the
case of IAS 22 on Business Combination replaced with IFRS 3 on Business Combination.
The national accounting standard boards of various countries have gradually come to accept the IFRSs
and are currently adopting the IFRSs as the national standards

Law
The company law has a vital role to play in financial reporting, in Nigeria, the company law is CAMA Cap
C20 LFN 2004. It has provisions for the contents of financial reports, the presentation format of the profit or
loss account and balance sheet, statutory notes to the financial reports and the matters contained in the
operating statements.
Other enacted laws that have role to play in financial reporting in Nigeria, include, the BOFIA Act Cap B3
LFN 2004, Insurance Act, Pension Reform Act 2004 as amended that recommended defined contributory
pension scheme for both private and public sector.

Regulations
Some regulations have their impact on financial reporting in Nigeria. Examples are the CBN Prudential

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Guidelines that requires the classification of bank loans and advances into performing and non-performing
and the provision of loan losses according to these classifications. National Insurance Commission
(NAICOM) make pronouncements and regulations for the insurance industry.. National Deposit Insrance
Corporation (NDIC) have its regulations regarding banking industry. Security and Exchange Commission
(SEC) and Nigeria Stock Exchange(NSE) do also have their various regulations that affect the preparation
of financial statements in Nigeria
The Code of Corporate Governance Rule of 2011 that requires the disclosure of entities corporate
governance and corporate social responsibilities in annual financial reports.

Convergence of National and International Financial Reporting Standards

Convergence of international accounting reporting standards is the process of harmonisation of the national
and international accounting standards. This could be achieved but not in the near future. Enormous
difficulties are working against this convergence, include political and technical problems.

Problems Limiting Convergence (Disadvantages)

(a) Different purpose of financial reporting. In some countries the purpose is solely for tax assessments,
while in others it is for investor decision-making.
(b) Different legal systems. These prevent the development of certain accounting pratices and restrict the
option available.
(c) Different users group. Countries have different ideas about who the relevant user groups are and their
respective importance, for example in USA investors and creditors are given prominence while employees
enjoy higher profile in Europe.
(d) Needs of developing countries. Developing countries are obviously behind in the standard setting
process and they need to develop the basic standards and principles already in place in most developed
countries.
(e) Nationalism. This is demonstrated in the unwillingness to accept another country’s standards
(f) Cultural differences. This results in objectives for accounting systems differing from country to country.
(g) Unique circumstances. Some countries may be experiencing unsual circumstances which affect all
aspects of everyday life and impinge on the ability of companies to produce proper reports, for example
hyperinflation, civil war, currency restriction etc.
(h) Lack of strong accountancy bodies. Many countries do not have strong independent accountancy
bodies which would press for better standards and greater harmonisation.

Advantages of Global Harmonisation

The advantages of harmonisation will be based on the benefits to users and preparers of financial
statements as follows:
(a) Investors Both individual and corporate would like to be able to compare the financial results of
different companies internationally as well as nationally in making investment decisions.
Differences in accounting practice and reporting can prove to be a barrier to such cross-border analysis.
There is a growing amount of investment across borders and there are few financial analysts able to follow
shares in international markets.

(b) Multinational companies (preparers of accounts).

(i) Better access would be gained to foreign investor funds
(ii) Management control would be improved, because harmonisation would aid international
communications of financial information.
(iii) Appraisals of foreign entities for take-overs and mergers would be more straightforward.
(iv) It would be easier to comply with the reporting requirements of overseas stock exchanges
(v) Consolidation of foreign subsidiaries and associated companies would be easier.
(vi) A reduction in audit costs might be achieved
(vii) Transfer of accounting staff across national borders would be easier

(c) Government of developing countries. Would save time and money if they could adopt international
standards and, if these were used internally, governments of developing countries could attempt to control
the activities of foreign multinational companies in their country. These countries could not hide behind
foreign accounting practices which are difficult to understand.

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(d) Tax Authorities. It will be easier to calculate the tax liability of investors, including multinationals who
receive income from overseas sources.

(e) Regional economic group usually promote trade within a specific geographical region. This would be
aided by common accounting practices within the region.

(f) Large international accounting firms would benefit as accounting and auditing would be much easier
if similar accounting practices existed throughout the world.

Progress in the Convergence to Date

Despite the difficulties, a lot of progress had been achieved in the convergence of international reporting
standards as enumerated below.

1. UK ASB and International Standards

UK ASB has given fundamental importance to the development of international standards, to this regard its
standards are now closely linked to the international standards, for example its FRS 12 Provisions,
Contingent Liabilities and Contingent Assets is almost identical to IAS 37 of the same name.

2. The EU Regulation
The EU has required that since 2005 consolidated accounts of all listed companies should comply with
IFRS. The implications of this proposal are far reaching. Many commentators believe that, in the light of the
above, it is only a matter of time before national standards setting bodies like the UK ASB are, in effect,
replaced by the IASB and national standards fall into disuse. Although, national standards were designed
for the national environment, which includes small companies, the IASB will need input and expertise from
valued national standard setters like the UK ASB etc.

3. Convergence with US GAAP

Convergence between IFRS and US GAAP has recorded much success to date based on the following
activities:
3.1 Norwalk Agreement
In October 2002, the IASB reached an agreement with the US FASB (Financial Accounting Standard
Board) (the Norwalk’s agreement) to undertake a short-term convergence project aimed at removing a
variety of individual differences between US GAAP and international standards. The first standard resulting
from this project was IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations

3.2 Principled Based Approach

In 2003, an identical style and wording approach was agreed for standards issued by FASB and the IASB
on joint projects. Revised Business Combination standards were issued as a result of this approach in
2008. FASB recognised the need to follow principles-based approach to standard-setting like the IASB.
This was in the light of recent corporate failures and scandals which have led to criticism of the rule-based
approach.

3.3 Common Conceptual Framework

In 2004, the IASB and FASB agreed to develop a common conceptual framework which would be a
significant step towards harmonisation of future standards. The project has two phases:
(a) The initial focus is on particular aspects of the frameworks dealing with objectives, qualitative
characteristics, elements, recognition, and measurement, giving priority to issues affecting projects
for new/revised standards
(b) Later they will consider the applicability of these concepts to other sectors, beginning with non-profit
entities in the private sector.

3.4 Memorandum of Understanding

In 2006, the two Boards signed a memorandum of understanding. This laid down a ‘roadmap of
convergence’ between IFRS and US GAAP in the periods 2006 – 2008. The aim was to remove by 2009
the requirement for foreign companies reporting under IFRSs listed on a US stock exchange to have to
prepare reconciliation to US GAAP.
Consultation is also underway on the possibility of the use of IFRSs by filers. In November 2008, the SEC

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published a proposal, titled Roadmap for the Potential Use of Financial Statements Prepared in accordance
with International Financial Standards by US issuers. This proposed roadmap sets out milestones that if
achieved, could lead to early adoption of IFRS in the US in no distance time. In July 2012 the Stolt Report
on this roadmap discussed barriers to adoption but did not draw any specific conclusions on adoption or
endorsement of IFRS.

3.5 FASB/IASB Projects

Some of the results of the convergence project between FASB and IASB have been;
(a) The issue of IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
(b) The issue of IFRS 8 on Operating Segments
(c) Revision of IAS 23 Borrowing Costs to align with US GAAP
(d) Revision of IAS 1 presentation of Financial Statements and in agreement on common wording to be
used in accounting standards
(e) Revision of IFRS 3 Business Combination and IAS 27 Consolidated and Separate Financial
Statements
(f) The issue of IFRS 9 Financial Instruments, Exposure Drafts on Impairment and Hedging
(g) The issue of IFRS 13 Fair Value Measurement
(h) Issue of IFRS 15 Contract Revenue
(i) There are also Discussion Papers or Exposure Drafts on Conceptual Framework, Financial
Instruments Presentation, Lease (high priority) etc.

4. Dialogue with other key Standard Setters

IASB maintains a policy of dialogue with other standard setters around the world in the interest of
harmonising standards across the globe as follows:
(a) China and Japan
In 2006, China officially released a new set of Chinese Accounting Standards (CACs) which are
substantially converged with IFRSs, and reaffirmed its commitment to international convergence.
In 2005, the IASB and the Accounting Standards Board of Japan (ASBJ) announced a joint project to
reduce differences between IFRSs and Japanese accounting standards, which is currently in progress;
consultation is also underway on the use of IFRSs in Japan from 2016.

(b) Other Countries

IFRS are mandatory for Brazil from 2010, Canada and South Korea from 2011, Nigeria, Mexico and
Argentina 2012 and phased in fr India from 2012 to 2014.
The following countries will require the use of the IFSR for SMEs from 2013; Bahamas, Bahrain, Brazil,
Cyprus, El Salvador, Lebanon, Malawi, Malaysia, Panama, Ireland, Kosovo, Saudi Arabia, Singapore,
South Africa, Swaziland, Turkey, Uganda, and UK.

Rules - Based And Principles – Based Accounting Standards

Introduction
All most all entities are required to prepare their financial statements following the National
and International Accounting Standards, whose Standards are generally principle-based.
Recently, there has been much debate on whether principles-based accounting would be
more efficient than the popular rules – based accounting, especially in the context of
accounting scandals such as Enron and Worldcom.
But what is the difference between the two?

Principles-Based Accounting:
These are based upon a conceptual framework such as the IASB's Framework and accounting
standards are set on the basis of the conceptual framework.
Principles – based accounting seems to be the most popular accounting method around the
globe. Most countries opt for a principles – based system, as it is often better to adjust
accounting principles to a company’s transactions rather than adjusting a company’s
operations to accounting rules.
IFRS - the most common international accounting standard, is not rules - based. IFRS states
that a company’s financial statements must be understandable, readable, readable,
comparable and relevant to current financial transactions.
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Rules- Based Accounting
Rules – based accounting is basically a list of detailed rules that must be followed when
preparing financial statements. Many accountants favour the prospect of suing rules based
standards because, in the absence of rules, they could be brought to court if their judgments
of the financial statements were incorrect.
The Generally Accepted Accounting principles (GAAP) system is rules – based accounting
method used by some countries. Companies and their accountants must adhere to the rules
when they compile their financial statements. These allow investors an easy way to compare
the financial information of different companies.
Ten principles of rules – based GAAP accounting system:
1. Regularity
2. Consistency
3. Sincerity with accurate representation of the company’s financial situation
4. Performance of methods
5. No expectation of compensation
6. Prudence with no semblance of speculation
7. Continuity
8. Dividing entries across appropriate periods of time
9. Full disclosures in all financial reporting
10.Good faith and honesty in all transactions
Advantages
Fundamental advantage is that its broad guidelines can be practical for a variety of
circumstances
Secondly, when there are strict rules, that need to be followed, the possibility of lawsuits is
diminished. Having a set of rules can increase accuracy and reduce the ambiguity that can
trigger aggressive reporting decisions by management.

Problems with Both Systems

The main problem overall is that there is no one set of accounting method that has been
universally adopted. Over more than 110 countries that use IFRS as their accounting
standards, while the U,S uses the rules- based GAAP method
Critics of principles – based accounting systems say they can give companies far too much
freedom and do not prescribe transparency. They believe because companies do not have to
follow specific rules that have been set out, their reporting may provide an inaccurate picture
of its financial health
In the case of rules – based methods like GAAP; complex rules can cause unnecessary
complications in the preparation financial statements. And having strict rules means that
accountants may try to make companies more profitable than they are because of the
responsibility to their shareholders. That was the case for Enron and Worldcom.
In Nigeria there is a principles – based framework in terms of the Statement of Principles and
accounting standards and a rules – based framework in terms of the Companies Acts, different
regulations like those of CBN prudential Guidelines, Nigeria Stock Exchange regulations etc.

The Financial Reporting Council of Nigeria

In Nigeria, the body saddled with the responsibility of developing and publishing national standards to be
adopted and applied by entities in Nigeria was National Accounting Standard Board. The Board was
established by ICAN in 1982 and was taken over by then Federal Ministry of Commerce in 1992 as a
parastal. In 2003, NASB Act was passed to enforce the compliance of entities in Nigeria to standards
issued by the Board.
In 2011, the social, economic, political changes and globalisation of the accounting profession led to the
repeal of the NASB Act of 2003 and in its place the Financial Reporting Council Act of 2011.
The organisational structure, powers, functions (objectives) of the Council, standard-setting process are
discussed below.
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Structure of FRC
Governing council;
A board is established for the Council which shall have overall control of the council and shall consist of:
(a) chairman who shall be a professional accountant with considerable professional experience in
accounting practice.
(b) two representatives from Association of National Accountants of Nigeria (ANAN)
(c) two representatives from Institute of Chartered Accountants of Nigeria (ICAN)
(d) one representative from each of the following:
(i) Office of the Accountant General of the Federation ;
(ii) Office of the Auditor General for the Federation ;
(iii) Central Bank of Nigeria ;
(iv) Chartered Institute of Stockbrokers ;
(iv) Chartered Institute of Taxation of Nigeria ;
(vi) Corporate Affairs Commission ;
(vii) Federal Inland Revenue Service ;
(viii) Federal Ministry of Commerce ;
(ix) Federal Ministry of Finance ;
(x) Nigerian Accounting Association ;
(xi) Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture;
(xii) Nigerian Deposit Insurance Corporation ;
(xiii) Nigerian Institute of Estate Surveyors and Valuers ;
(xiv) Securities and Exchange Commission ;
(xv) National Insurance Commission ;
(xvi) Nigerian Stock Exchange ;
(xvii) National Pension Commission and
(e) the Executive Secretary of the Council.

The chairman shall be appointed by the President on recommendation of Minister and members
recommended by their various professional or statutory bodies to Minsiter for appointment by the president.
The chairman and other members of the board shall hlod office for a term of four years in the first instance
and may be reappointment for a further term of four years and no more.

Standard Setting Process – Financial Reporting Council (FRC)

Procedures for Production of an Accounting Standard
Section 55 and 56 of the Financial Reporting Council Act 2011 provide for the processes leading to the
formulation of an accounting standard by the Council, review of an existing standard and adoption of an
international accounting standard.

Formulation of a new accounting standard and adoption of international standards

55.—(1) In the exercise of its powers for developing and issuing standards,a Direcorate of the Council shall
adopt the following procedures:
(a) identify accounting, auditing or financial reporting issues that require standardization, prepare and
publish exposure drafts, conduct public hearing where necessary and prepare a draft statement of
accounting standards;

(b) submit the draft statement of accounting, auditing or financial standards prepared in accordance with
sub-section 1 (a) of this section to the Council for ratification and thereafter, the Council shall issue the
standards;

(c) ratify such statements of accounting, auditing and financial reporting standards prepared in accordance
with this section; and

(d) thereafter, the statements of accounting, auditing or financial reporting standards shall be published

(2) Any relevant standard issued by a relevant international body shall be adopted by the Council in
accordance with the procedures in sub-section (1) of this section.

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(3) Each Directorate shall appoint working groups in order to accomplish its objectives and where
appropriate, in consultation with the Chairman of the Council.

Review of Existing Standards (Amendments to the Council’s Pronouncements)

56.—(1) Where the Council has cause to seek amendment to any of its, pronouncements, it shall do so in
consultation with the relevant standard setting bodies and shall cause a notice to be published in -
(a) the Gazette ; and
(b) not less than two national daily newspapers, inviting comments from all interested persons.

(2) A person who wishes to submit any comment shall, within 30 days of the last date of the publication
specified in sub-section (1) of this Section, submit his comments in writing to the Council.

(3) The Council shall, in deciding whether to consider the standards or their amendments shall have regard
to any comment submitted under subsection (2) of this Section.

The Powers of the Council

The powers of the Council as contained in the Act are:
(a) enforce and approve enforcement of compliance with accounting, auditing, corporate governance and
financial reporting standards in Nigeria;
(b) enter into such contracts as may be necessary or expedient for the purpose of discharging its functions;
(c) borrow such sums of money or raise such loans as it may require for the purpose of discharging its
functions;
(d) co-operate with, or become a member or an affiliate of any similar international body the objects or
functions of which are similar to, or connected with those of the Council;
(e) exercise such powers as are necessary or expedient for giving effect to the provisions of the Act;
(f ) require management assessment of internal controls, including Information Systems controls with
independent attestation;
(g) require code of ethics for financial officers and certification of financial statement by Chief executive
officer and Chief Finance officer;
(h) require entities to provide real time disclosures on material changes in financial conditions or
operations; and
(i) pronounce forfeiture, by Chief Executive Officers and Chief Financial Officers, of certain bonuses
received from the company and profits realized from the sale of company shares owned by them, where
the company is required to prepare an accounting restatement.

The functions (objectives) of the FRC as stipulated by the Act

(a) develop and publish accounting and financial reporting standards to be observed in the preparation of
financial statements of public interest entities;
(b) review, promote and enforce compliance with the accounting and financial reporting standards adopted
by the Council;
(c) receive notices of non-compliance with approved standards from preparers, users, other third parties or
auditors of financial statements;
(d) receive copies of annual reports and financial statements of public interest entities from preparers within
60 days of the approval of the Board
(e) advise the Federal Government on matters relating to accounting and financial reporting standards;
(f ) maintain a register of professional accountants and other professionals engaged in the financial
reporting process;
(g) monitor compliance with the reporting requirements specified in the adopted code of corporate
governance;
(h) promote compliance with the adopted standards issued by the International Federation of Accountants
and International Accounting Standards Board;
(i) monitor and promote education, research and training in the fields of accounting, auditing, financial
reporting and corporate governance ;
(j) conduct practice reviews of registered professionals ;
(k) review financial statements and reports of public interest entities ;

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(l) enforce compliance with the Act and the rules of the Council on registered professionals and the affected
public interest entities ;
(m) establish such systems, schemes or engage in any relevant activity, either alone or in conjunction with
any other organization or agency, whether local or international, for the discharge of its functions ;
(n) receive copies of all qualified reports together with detailed explanations for such qualifications from
auditors of the financial statements within a period of 30 days from the date of such qualification and such
reports shall not be announced to the public until all accounting issues relating to the reports are resolved
by the Council ;
(o) adopt and keep up-to-date accounting and financial reporting standards, and ensure consistency
between standards issued and the International Financial Reporting Standards ;
(p) specify, in the accounting and financial reporting standards, the minimum requirements for recognition,
measurement, presentation and disclosure in annual financial statements, group annual financial
statements or other financial reports which every public interest entity shall comply with, in the preparation
of financial statements and reports ;
(q) develop or adopt and keep up-to-date auditing standards issued by relevant professional bodies and
ensure consistency between the standards issued and the auditing standards and pronouncements of the
International Auditing and Assurance Standards Board ; and
(r) perform such other functions which in the opinion of the Board are necessary or expedient to ensure the
efficient performance of the functions of the Council.

Adoption of IFRS and IPSAS by Nigeria

In July, 2010, the Federal Executive Council approved the adoption of IFRS for private sector and IPSAS
for the public sector. Roadmaps to the adoption of these standards were established, and this led to the
adoption of IFRS by companies quoted in the Nigeria stock exchange by January 2012, SMEs adopted
their version of IFRS by January 2014, the three tiers of government, federal, states and local governments
adopted Cash Basis IPSAS on January 1 2014 and the Accrual Basis of IPSAS to be adopted by January
2016.
By the adoption of IFRS, the FRC will monitor compliance with all standards published by IASB to be
applicable to all private sector entities in Nigeria. The FRC will however continue to develop and publish
national standards for application in Nigeria that do not have equivalent IFRS.
To date, national standards developed by FRC that do not have equivalent international standards are
SAS 14 Petroleum Upstream Activities
SAS 17 Petroleum Downstream Activities
SAS 25 on Telecommunication Activities
SAS 32 on Accounting for Not for Profit Organisations

Disclosures of Corporate Governance and Chairman’s Reports

Corporate Governance Report
The contents of corporate governance report are:
 Compliance with laws and regulations;
 The Board Composition;
 Role of the Board;
 Directors‟ Interest in Contracts;
 Board Meetings;
 Board changes;
 Committees of the Board;
 Roles and responsibilities of the Board committees and the discharge of such;
 Control Environment;
 Induction and Training;
 Performance Evaluation process;
 Code of Business Conduct and Code of Governance for Directors;
 Human resource policies, internal management structure, relations with employees, employee
share ownership schemes and other work place development initiatives;

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  Statement of Company’s Risk Management Policies and Practices; and
 Dealings in Securities Code.

Chairman’s Report
CAMA CAP C20 LFN 2004 does not specify the information to be contained in the chairman’s report,
however the following information are often contained in the chairman’s report
 The global environment and its effect on the company
 The domestic environment and its effect on the company
 The operating performance of the company for the year
 Dividend proposed
 Current developments
 Staff and their training
 The future prospects of the company

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