The Financial Reporting Council of Nigeria (Amendment) Act, 2023 (hereinafter referred to as “the Act”) is a federal legislation which amends the Financial Reporting Council of Nigeria Act, 2011 (hereinafter referred to as “the Principal Act”). The Act amended the provisions of the Principal Act pertaining to the accounting and financial reporting methods of companies in Nigeria.
This article examines some key changes introduced by the Amendment Act related to companies referred to as “Public Interest Entities”.
Key Changes in the 2023 Amendment Act
- Definition of Financial Statements: The Act amended the definition of “Financial Statements” under Section 77 of the Financial Reporting Council of Nigeria Act, 2011 by removing the phrase “as required under Companies and Allied Matters Act, 2004 (CAMA)…” and replacing it with “as may be prescribed by the Council under this Act”. This change is to the effect that the content of the financial statements of companies are now required to comply with the provisions and guidelines issued by the Financial Reporting Council of Nigeria and not the Companies and Allied Matters Act, 2004 (now 2020). This provision also aligns with the provision of section 378 of the Companies and Allied Matters Act, 2020 on the form and content of financial statements, which section stipulates that financial statements of companies are to comply with the accounting standards issued by the Financial Reporting Council of Nigeria.
- Meaning of Public Interest Entities (PIE): The Act defines PIEs to include:
- Governments and government organisations;
- Listed entities on any recognized exchange in Nigeria;
- Non-listed entities that are regulated;
- Public limited companies;
- Private companies that are holding companies of public or regulated entities;
- Concession entities;
- Privatised entities in which the government retains an interest;
- Entities engaged by any tier of government in public works with an annual contract sum of ₦1 billion and above and settled from public funds;
- Licensees of government; and
- All other entities with an annual turnover of thirty billion naira and above.
Before this amendment, private companies that routinely file returns only with the Corporate Affairs Commission and the Federal Inland Revenue Service were excluded from the definition of PIEs under the Financial Reporting Council of Nigeria Act of 2011. Due to its ambiguity, the interpretation of this provision was open to several legal issues and discourses, which occasioned undue stress and legal fees on private companies.
The amended FRCN Act has now refined the definition of Public Interest Entities, specifying the private companies that fall under this category, which in effect, will put to rest further legal issues and discourse on the provision.
- Effect of Non-compliance with the provision of the FRCN Act on Financial Statements: Under Section 64 (3) of the Principal Act, the fine imposed for non-compliance is twenty million naira, and the period for restating the financial statements is within 60 days. The Act has amended this section to the effect that the failure of Public Interest Entities to comply with the rules of the Financial Reporting Council of Nigeria in compiling their financial statements after being notified of their error, attracts a fine or penalty of Twenty-Five million naira (₦25,000,000) or any amount as may be prescribed by the council. The new section further amends the period for restating the financial statements to within 30 days.
- Creation of a National Repository for Financial Statements: The Act amends the Principal Act by inserting a new paragraph in Section 8 on the functions of the Financial Reporting Council of Nigeria. It provides that the FRCN shall maintain a national repository for the electronic submission of general-purpose financial statements by public interest entities. Under this provision, PIEs can electronically submit their general-purpose financial statements. This change creates a central database for their financials, which, in turn, makes the submission process less strenuous.
- Revised Annual Levies and Sanctions for Non-Compliance with the FRCN Act: Section 33 of the Act revised the annual levies payable to the Council for the fund of the Council and introduced due dates for the remittance of the levies. Under this section, PIEs are required to remit the levies no later than 120 days after the end of the financial year. The Act also amended the sanctions for non-payment of the levies by including the phrase “or entities” to reflect that PIEs are also liable and can be sanctioned for non-compliance with the remittance of levies to the Council.
CONCLUSION
The Financial Reporting Council of Nigeria (Amendment) Act, 2023 thoroughly addressed the ambiguities in applying the provisions of the Financial Reporting Council of Nigeria Act, 2011, to the preparation of financial statements by companies, amongst others. With the clarity the amended provisions of the Act bring, companies will be certain of the applicability of the Act to their operations.