As with global standards, the Financial Reporting Council of Nigeria (FRCN) was set up under the FRCN Act 6 of 2011 with a defined mandate. Apart from protecting the interests of investors and stakeholders, the Council was established to give guidance to the public on issues relating to financial reporting and corporate governance, to ensure accuracy and reliability of financial reports and harmonise the activities of relevant professional and regulatory bodies. The Council was equally mandated to promote the highest standard among auditors and other professionals engaged in the financial reporting process.
Financial reporting regulators across the world are established with the intent of engaging financial reporters to determine the peculiar needs of a market and work together with the corporates, as well as their primary regulators, to develop standards, structures and systems that work for such markets.
Clearly, one thing the FRCN is not empowered to do is to play the role of a ‘tax collector’, or to levy financial and business entities for acting with impunity. When these things happen, it is expedient that they must be highlighted for public scrutiny. This is a reflection on the mood of practitioners over the harsh reality of FRCN’s operations, which has necessitated swift reactions before everything slips from the precipice into the abyss.
Nigerian businesses and concerns are having running battles with issues of multiple taxation and overlapping regulatory and oversight functions of many government agencies that it can ill-afford another unwanted burden through FRCN’s acts, which stakeholders need to come together to do something about. If unchecked, the consequences could be grave for the economy in the long term. Foreign direct investments could plummet, while the negative impact is capable of retarding the growth of indigenous companies and negate one of the Council’s core mandates.
The FRC in the United Kingdom, unlike FRCN, works to establish whether or not a financial reporting breach has occurred, while the courts are responsible for determining appropriate sanctions. The FRCN, on its part, has chosen to copy some aspects of the UK code of conduct, but not those that require it to properly engage with the market it regulates, or refer matters that should be addressed or interpreted to the courts.
The FRCN’s reviews and appeal processes are not independent or segregated as expected. The Council sits over proceedings in an appeal. In the UK, the segregation of duties and checks by independent reviewers are built into the FRC’s review procedure. The FRCN is shifting from its primary focus on public interest enterprises to focus on money making. It seeks to extend its universe of compulsory levies to all entities in the private sector.
This expansionist mind-set was contested by Eko Hotels Limited when the agency levied and threatened to sanction the company for not registering and paying annual dues to it. The court ruled that Section 77 of the FRCN Act excluded private companies from the entities subject to regulatory powers of the FRCN.
The institution has become an exorbitant tax collector, charging registration fees of up to N219,000 per professional and annual dues of N5,000 each, unlike in the UK, whose financial regulator asks for voluntary levies from regulated entities that pay according to their market capitalisation.
The FRCN has reviewed its penalties by as much as 5,000 percent. These penalties are exorbitant, even exceeding the constitutional limits approved by the National Assembly. The agency also showed its complete disregard for the law in requiring that a penalty must be paid within 14 days, failing which an additional penalty of 0.1 percent of the total shall accrue on a penalty every passing day. This is despite the fact that Section 64 (1) of the FRCN Act states that regulated entities are only liable to fines upon conviction by a court of competent jurisdiction.
If the FRCN is meant to function as a unified regulator that will reshape the national risk management system and sanction misbehaviour in the management of public interest entities, then it has not lived up to its responsibilities.
In fact, the FRCN should focus on the development of standards, codes and guidelines that will support the fair presentation of financial statements by stewards of business enterprises; the provision of guidance; and engagement with stakeholders to encourage compliance with the codes and standards. Sadly, the FRCN is not leading by example in terms of transparency in its operations. Its leadership must set the tone for others to emulate by publishing its own annual reports, which have not been done between 2011 and 2014, as is required by section 38 of the FRC Act. How justified would the Council be to demand standards from regulated entities when it has not followed such itself? All FRCs across the globe publish their reports on their websites for public scrutiny.
Again, since FRCN believes strongly in rotation and “fresh look”, it is about time its Executive Secretary steps aside, having dominated corporate reporting for over a decade – from serving as Technical Director of the defunct Nigerian Accounting Standards Boards, through to its CEO to the current position as Executive Secretary of FRCN.
The National Assembly should urgently establish a committee to review the activities of the FRCN, to ensure that its governance systems, recent pronouncements and planned enactments are in line with the Act that established it. The review will also be necessary to determine whether the powers FRCN has are being exercised appropriately as a friend or foe to the entities it regulates. The review cannot come at a better time than now in view of the need to enhance financial reporting and regulatory frameworks in the country in the wake of the two waves of collapse in the banking sector, following reforms made by the Central Bank of Nigeria (CBN).
Temitope Olajiga, who works with C&F | Porter Novelli, wrote in from Lagos.