FRC: Doctor, heal thyself!
ONE of the universal duties of regulators worldwide is to maintain law and order – be it the police, trade association, industry statutory body, or even the courts. In the discharge of this responsibility, the regulator must act within its terms of engagement, that is, in the context of the law establishing it. It must also, in itself, set a good example for the regulated to emulate.
The need to enhance financial reporting and regulatory frameworks across the globe became amplified after a number of corporate failures leading up to the global financial crises of 2008. In Nigeria alone, there have been two waves of collapse in the banking sector following reforms made by the CBN. With the advent of the crises, and the ensuing losses for market participants, there was no better time to prioritize the protection of investor and stakeholder interest.
The object of the FRCN Act No. 6, 2011 is to protect the investor and stakeholder interest, give guidance on issues relating to financial reporting and corporate governance, ensure good corporate governance practices, ensure accuracy and reliability of financial reports and harmonize activities of relevant professional and regulatory bodies.
Functionally, financial reporting councils the world over issue/adopt standards for use in preparation of financial reports by public interest corporate bodies. This is not the case with the Financial Reporting Council of Nigeria (FRCN), as the regulator seems to be more interested in making money than improving accounting reporting in Nigeria.
FRCN seems to have adopted the disposition of some of our law enforcement agencies who hide at road bends waiting for offending road users to arrest instead of guiding motorists to do the right thing. It does not monitor or promote education, research and training in the relevant fields of accounting, auditing, financial reporting and corporate governance as included in its mandate.
FRCN has not developed or issued any standard as required in S.8 of the FRCN Act nor has it liaised with relevant professional bodies (CIBN, CITN, ICAN, NBA, NSE etc) on ethical standards. Contrarily, on April 15, 2015, it demonstrated its disdain for industry-wide engagement as it posted the Draft National Code of Corporate Governance on its website, giving industry operators and practitioners and other relevant stakeholders only one month to post their comments. As a pointer to its destination, it slated a public hearing on the unilateral draft code to happen in less than two weeks after the lapse of this window period.
Instead of bringing about enabling environment, FRCN is preoccupied with increasing fines and levies for corporate offenders. In 2014, it revised penalties for non-compliance from a range of N5 million per instance to N100 million from an initial maximum limit of N10 million. A withdrawal of financial statements by the reporting entity now attracts a fine of N500 million to not more than N5 billion and in multiples of N500 million, a revision of 5,000%. These new penalties are too high and far exceed the constitutional limits approved by the National Assembly and President.
FRCN as a body actually displayed a total disregard of the law in requiring that penalty must be paid within 14 days, failing which an additional penalty of 0.1% on the imposed penalty shall accrue for each day of default. This is contrary to Section 64 (1) of the FRCN Act which stipulates that regulated entities are only liable to fines upon conviction by a court of competent jurisdiction.
FRCN has thrown separation of powers to the wind as it makes laws, interprets them and sanctions any defaulter, a situation that has made it become largely dictatorial and far less open to the engagement with market participants. This disposition has earned the FRCN two big embarrassments as two separate courts have ruled against its over-reaching tendencies.
Apart from acting outside its mandate, FRCN has become a typical case of do-as-I-preach, not as-I-do preacher. While it chases public entity institutions and in some cases private entity companies to publish their annual reports, FRCN is yet to publish its own annual reports since inception in 2011. Of all its peers worldwide, FRCN is the only financial reporting council that does not publish its financial reports despite the fact that Section 38 of the FRCN Act requires it to do so. As a matter of fact, all other overseas financial reporting regulators publish their annual reports on their websites.
As the draft code requires that executives of corporate bodies rotate every 10 years to ensure the maintenance of “fresh look” of the Board, does this imply that the executive secretary of FRCN will step aside to allow another person inject fresh ideas into the agency? An official, Obazee, has dominated corporate reporting industry in corporate Nigeria for over 10 years, from serving as Technical Director through CEO in NASB and to Executive Secretary of FRCN. The healer should please heal himself.
I feel that the FRC should rather work with the industry bodies and practitioners in the developments of standards, codes and guidelines that will support the fair presentation of financial statements by stewards of business enterprises as is done the world over.
• Udom wrote from Lagos.