By Kelechi Orji Esq

The Importance and Mandate of the Financial Reporting Council of Nigeria

The Financial Reporting Council of Nigeria (F.R.C.N.), established by the Financial Reporting Council of Nigeria Act, No. 6, 2011, serves as a pivotal federal government agency overseeing financial reporting and accountability within corporations. Operating under the supervision of the Federal Ministry of Industry, Trade and Investment, the F.R.C.N. plays a crucial role in enhancing the integrity of Nigerian financial reporting standards. Notably, the Financial Reporting Council of Nigeria (Amendment) Act 2023 introduced key amendments to the original act, reflecting the evolving nature of financial regulations and corporate governance. Understanding these changes is essential for anyone involved in the corporate sector, as they signal a shift towards more stringent and transparent financial practices in Nigeria.

Purpose

The F.R.C.N. is instrumental in elevating the standard of financial reporting. It achieves this by developing and implementing accounting and financial reporting standards applicable to both public and private entities, tailoring these standards to suit the unique needs of each sector. These standards, in line with international norms, elevate the credibility and global competitiveness of Nigerian financial disclosures. Beyond setting standards, the F.R.C.N. actively works to eliminate substandard financial reporting and unqualified preparation of financial statements. This is accomplished through various enforcement mechanisms like regular audits and compliance reviews. Entities found non-compliant face serious consequences, including legal sanctions, financial penalties, and reputational harm, as seen in notable cases like Nigerian Maritime Administration and Safety Agency (N.I.M.A.S.A.), which we will talk about later.

Notable Provisions of the Act

The 2023 amendment and landmark legislation aims to boost transparency and governance in Nigeria’s business environment. As such, key updates in the Amendment Act 2023 include enhanced enforcement powers for the Council, clearer definitions of Public Interest Entities, establishment of a national database for their Financial Statements, and an optimized Governing Board structure. These reforms are set to significantly enhance financial reporting quality, boost investor trust, and contribute to sustainable economic growth.

Section 64 of the Principal Act has been amended to introduce stricter penalties for non-compliance with accounting and financial reporting standards set by the Council. Under the new provisions:

Individual Penalties: Any individual failing to adhere to the Council’s prescribed standards or decisions regarding public interest entities’ compliance will face a fine of N10,000,000 or an amount determined by the Council. Alternatively, they could face up to 2 years in prison. The Council must notify the preparers of the financial statements about this non-compliance.
Penalties for Public Interest Entities: A public interest entity that does not comply with the Council’s notice will be penalized with a fine of N25,000,000 or an amount set by the Council. Additionally, these entities are required to restate their financial statements within 30 days.
Other notable sections of the law are as follows-

The law also states that the Head of Finance of a corporation must be a member of a professional body such as: Institute of Chartered Accountants of Nigeria (ICAN), Association of National Accountants of Nigeria (ANAN).
All professionals who prepare financial statements of a corporation must append their registered F.R.C.N number on the document and file with the F.R.C.N.
Registration is renewed annually.
Steering Clear of Penalties: The Importance of F.R.C.N. Compliance

For corporate leaders (M.Ds/C.E.Os), financial officers (C.F.Os), and finance professionals in Nigeria, adherence to F.R.C.N. regulations are not optional but mandatory. This applies across the board, whether in public or private sector organizations. Ignoring these regulations can lead to severe consequences, as exemplified by the Nigerian Maritime Administration and Safety Agency (N.I.M.A.S.A.), which faced a N500 million fine and had its executives’ certification rights suspended due to non-compliance with F.R.C.N. laws. This incident serves as a stark reminder of the potential repercussions, even for high-ranking officials in reputable agencies. To avoid similar pitfalls, understanding and applying F.R.C.N. standards are crucial. Continue reading for more insights on ensuring compliance and safeguarding your organization’s financial integrity

Mandatory Registration for Key Financial Roles:

F.R.C.N. regulations mandate registration for specific professional roles in both public and private sectors, ensuring adherence to national financial reporting standards. The roles requiring registration include:

Managing Directors/Chief Executive Officers (M.D/C.E.O.s): As the top executives, they are accountable for the overall strategic and operational decisions of their organizations.
Financial Leadership Positions: This category encompasses Chief Financial Officers, Heads of Finance, Financial Controllers, Finance Directors, Executive Directors – Finance, and Directors of Finance.
Professionals in Recognized Financial Associations: Individuals affiliated with recognized professional bodies in internal finance-related roles, such as certified accountants, auditors, and financial analysts.
Registration Process:

With the aid of a competent counsel, the registration process typically involves:

Submission of Credentials: Professionals must submit relevant qualifications and proof of membership in recognized associations, if applicable. Here counsel can help select or determine what credentials are important and timelines for submission and adherence.
Adherence to F.R.C.N. Standards: Registrants are required to demonstrate understanding and adherence to F.R.C.N. guidelines and ethical standards. Here counsel can help outline what these guidelines are and what relevant parties need to know
Compliance Benefits:

Registering with the F.R.C.N. offers several key benefits:

Legal Compliance: Ensures that professionals and their organizations are in line with national financial regulations, avoiding legal penalties.
Professional Recognition: Registration signifies adherence to high standards of financial reporting and ethics, enhancing credibility in the industry.
Risk Mitigation: Reduces the risk of financial inaccuracies and the potential consequences of non-compliance, such as fines and reputational damage.
Should You Seek Advice From A Lawyer?

Yes! In navigating the complexities of the Financial Reporting Council of Nigeria Act, the expertise of a corporate law professional is invaluable. My specialized services include:

Navigating Legal Complexities: Understanding and complying with the Act’s intricate requirements.
Mitigating Risks: Identifying and reducing legal risks in financial reporting and compliance.
Expert Review and Filing: Ensuring financial statements and reports meet legal standards.
Strategic Compliance Advice: Tailoring advice to align with both regulatory requirements and business goals.
Registration and Renewal Assistance: Guiding through the registration process for a unique F.R.C.N number and managing timely renewals.
For detailed and personalized legal advice to ensure compliance and safeguard your business interests, feel free to reach out.

Why Should You Comply?

Ignoring the provisions of this law can lead to severe criminal and civil liabilities for both the corporation and its executives. This includes hefty fines and potential legal actions. A pertinent example is the recent N500 million fine imposed on N.I.M.A.S.A., along with the suspension of its 2018 Financial Statements. Navigating the regulatory landscape in Nigeria requires careful attention to detail and thorough understanding of the law to avoid such penalties.

For expert guidance through these complex regulatory requirements, contact us:

CZAR LEGAL Email: [email protected], Phone: 0805 619 1456 More Information