IFRS IMPLEMENTATION: Observed Issues & Challenges with 2012 Statutory Reports By Nicholas Opara

IFRS IMPLEMENTATION: Observed Issues & Challenges with 2012 Statutory Reports

By

N.O. OPARA

Director (Supervision)

NAICOM, Abuja.

Content

Introduction

IFRS Road map

What is IFRS

NAICOM role in transition to IFRS

Observed issues

Challenges with 2012 Statutory Reports

Conclusion

Introduction

Accounting standards are principles that governs accounting practices and also used as references to determine the appropriate accounting treatment of complex transactions

Before now, Nigeria was using local financial reporting standards - referred to as Nigerian Generally Accepted Accounting Principle (NGAAP)

The NGAAP is made up of the following:

The Companies and Allied Matters Act (CAMA)

Statements of Accounting Standards (SAS) - issued by the then Nigerian Accounting Standard Board (NASB); now Nigerian Financial Reporting Council (FRC)

Other industry specific Rules, Regulations and Guidelines such as Insurance Act 2003 and NAICOM Operational Guideline, etc

International best practice (optional) eg the ICPs issued by IAIS

　

Shortcoming of the Nigerian GAAP

Prescriptive nature of the ‘Rule based’ standards (one size fits all)

Not internationalized

Incomparability of financial statements of companies in Nigeria with those across borders

Differential financial reporting requirements as a result of multiplicity of laws and bodies for the regulation of accounting and financial reporting of institutions

Institutional weakness in regulation, compliance and enforcement of standards and rules

Inadequate disclosure by reporting entities and Compliance gap as financial statements do not fairly represent the entities financial position

Nigerian IFRS Transition Road Map

On October 22, 2009 NASB inaugurated Stakeholders’ Committee on the Roadmap to the Adoption of IFRS in Nigeria

On January 2010 Committee on Road Map submitted it’s report

On July 28, 2010 The Federal Executive Council (FEC) approved the adoption of IFRS in Nigeria in phases

On September 02, 2010 the adoption of IFRS was announced to the public by Minister of Commerce & Industry – Senator Jubril Martins-Kuye

What is IFRS

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 all over the world to make economic decisions

The standards are issued by International Accounting Standard Board (IASB) – a private organization based in London

IFRS is principle based and not rule based – it requires management judgments

It requires more of full disclosure and fair valuation of assets and liabilities

IFRS is all about:-

Recognition

Derecognition

Classification

Measurement

Disclosure

Presentation

Aim: To develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards.

Helps preparers of financial statements throughout the world to produce and present high quality, transparent and comparable financial information.

Role NAICOM Played in Transition

Leadership role played by NAICOM in ensuring a seamless transition are as follows:

Sensitization/awareness creation at Board/Executive level of Insurance institutions

Training/workshops for CFOs, Auditors, Accountants & NAICOM staff

Issuance of circulars requiring companies to submit their individual roadmaps/transition timetables, impact analysis and quarterly progress reports

Issuance of prudential guidelines and IFRS harmonization carve-out, including sample of reporting template

Issuance of Regulatory IFRS Templates for quarterly and annual Returns .

Pre-submission review of 2012 IFRS financial statements.

Issuance of circulars on Common Issues Observed in the pre-submission Review of 2012 IFRS Financial statements

Issuance of IFRS Reconciliation Templates for Equity and Income Statements

Review of 2012 IFRS Audited Accounts proper

Challenges with 2012 Statutory Reports

Carry over issues from NGAAP due to peculiarities and technicalities of insurance accounting

Inadequate time to perform dry-run as the National roadmap did not allow sufficient time for transition to IFRS.

Lack of in-debth knowledge of IFRS.

Dearth of professionals with practical experience in IFRS (consultants, CFOs and Auditors)

Unsuitability of existing systems including accounting software to generate financial reports/information in IFRS compliant form and high cost of acquiring new ones.

Observed Issues with 2012 Statutory Reports

IFRS transition process which is crowded

IFRS transition reconciliations – inappropriate presentation & inadequate explanations including cross referencing

Accounting Policies – crafting, sequencing, completeness and relevance

Trade receivables:- Proof of existence and impairment methodology applied

Unquoted equities:- Basis of valuation and testing for impairment

Issues with fair valuation

Information not based on reliable and verifiable market information

Insufficient disclosure of relevant information

the nature and extent of exposure to risks arising from insurance contract & financial instruments

Relevant IFRS disclosure requirements

Others

Disregard for qualitative characteristics of useful financial information.

　

Qualitative Characteristics of financial information

Conclusion

Overall, the quality of IFRS financial statements so far submitted to the Commission for approval in 2012 is low; thus involving the commission in extensive review of the audited accounts.

To achieve more credibility and reliability of financial reporting in subsequent years, companies should leverage on lessons from 2012 accounts.

Capacity building in the area of financial reporting should be ongoing both at the industry level and also for the Commission.

Accounting systems should be upgraded to achieve efficiency and reduce human interference / errors in the preparation of accounts.

Thank you