Nigeria:
Amendment Of FRCN Act: Changes To Financial Reporting And Corporate Governance In Nigeria
21 November 2023
Banwo & Ighodalo
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In a bid to enhance transparency and accountability in financial
reporting and further strengthen corporate governance in Public
Interest Entities ("PIEs"), the National
Assembly, in April 2023, passed the Financial Reporting
Council of Nigeria (Amendment) Act, 2023 which
amended some provisions of the Financial Reporting Council of
Nigeria Act of 2011.
The Financial Reporting Council of Nigeria
("FRCN") was primarily established in
2011 to develop and publish accounting and financial reporting
standards to be observed by PIEs in the preparation of financial
statements, as well as to adopt and enforce corporate governance
codes to be complied with by the boards and managements of the
entities.
The FRCN Amendment Act, which has a commencement date of May 3,
2023, and was published in the Federal Republic of Nigeria Official
Gazette of July 19, 2023, introduced new supervisory, governance,
regulatory, compliance, enforcement and punitive measures to the
existing and applicable financial reporting and corporate
governance regimes.
This article provides a quick guidance on the changes,
introduced by the FRCN Amendment Act, that are relevant to PIEs
– entities that are subject to the regulatory remit of the
FRCN.
S/N
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KEY ISSUES
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PROVISIONS IN THE FRCN ACT OF 2011
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CHANGES INTRODUCED BY THE FRCN AMENDMENT ACT,
2023
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1.
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Definition of PIEs.
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Governments, government organizations, quoted and unquoted
companies and all other organizations which are required by law to
file returns with regulatory authorities (excluding private
companies that routinely file returns only with the CAC and
FIRS)
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- Governments and government organizations.
- 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 companies.
- Concession entities.
- Privatized entities in which government retains an
interest.
- Entities engaged by any tier of government in public works with
annual contract sum of N1 billion and above and settled from public
funds.
- Licensees of government.
- All other entities with an annual turnover of N30 billion and
above.
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2.
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Annual Dues payable by registered professionals, firms
of registered professionals, and PIEs as contributions to the
statutory Fund maintained by the FRCN.
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- A minimum of N5,000 payable by every registered professional as
Annual Due.
- A publicly quoted company with market capitalization not more
than N1 billion to pay annually an amount equal to 0.1% of its
market capitalization or N250,000, whichever is lower.
- A publicly quoted company with market capitalization greater
than N1 billion but not more than N500 billion to pay annually an
amount equal to 0.04% of its market capitalization or N2 million,
whichever is lower.
- A publicly quoted company with market capitalization greater
than N500 billion to pay annually a sum of N5 million.
PIEs that were not publicly quoted companies were
required to pay annually amounts stated as follows:
- N5,000 where the annual turnover was not less than N25 million
but not more than N50 million.
- N20,000 where the annual turnover was greater than N50 million
but not more than N500 million.
- N50,000 where the annual turnover was greater than N500 million
but not more than N1 billion.
- N100,000 where the annual turnover was greater than N1 billion
but not more than N10 billion.
- N1 million where the annual turnover was greater than N10
billion.
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- A minimum of N10,000 payable by every registered professional
as Annual Due.
- A publicly quoted company with market capitalization not more
than N1 billion to pay annually an amount equal to 0.10% of its
market capitalization or N500,000, whichever is higher.
- A publicly quoted company with market capitalization greater
than N1 billion but not more than N5 billion to pay annually an
amount equal to 0.04% of its market capitalization or N2 million,
whichever is higher.
- A publicly quoted company with market capitalization greater
than N5 billion but not more than N100 billion to pay annually an
amount equal to 0.004% of its market capitalization or N3.5
million, whichever is higher.
- A publicly quoted company with market capitalization greater
than N100 billion but not more than N250 billion to pay annually an
amount equal to 0.004% of its market capitalization or N10 million,
whichever is lower.
- A publicly quoted company with market capitalization greater
than N250 billion but not more than N500 billion to pay annually an
amount equal to 0.003% of its market capitalization or N15 million,
whichever is lower.
- A publicly quoted company with market capitalization greater
than N500 billion but not more than N1 trillion to pay annually an
amount equal to 0.0025% of its market capitalization or N20
million, whichever is lower.
- A publicly quoted company with market capitalization greater
than N1 trillion to pay annually an amount equal to 0.002% of its
market capitalization or N25 million, whichever is lower.
PIEs that are not publicly quoted companies are now
required to pay annually amounts stated as follows:
- An amount equals to 0.02% of annual turnover, where the annual
turnover of the entity is not more than N25 million.
- An amount equals to 0.025% of annual turnover, where the annual
turnover of the entity is greater than N25 million but not more
than N50 million.
- An amount equals to 0.03% of annual turnover, where the annual
turnover of the entity is greater than N50 million but not more
than N500 million.
- An amount equals to 0.04% of annual turnover, where the annual
turnover of the entity is greater than N500 million but not more
than N1 billion.
- An amount equals to 0.045% of annual turnover, where the annual
turnover of the entity is greater than N1 billion but not more than
N10 billion.
- An amount equals to 0.05% of annual turnover, where the annual
turnover of the entity is greater than N10 billion.
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3.
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Annual Dues Payment Dates.
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Payment dates were not specified but Annual Dues were required
to be paid "as and when due". This was likely to be
determined by Demand Notices from the FRCN.
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- Individual professionals and professional firms are now
required to pay their Annual Dues "not later than 60 days from
January 1 every year".
- PIEs are now required to pay "not later than 120 days of
the financial year".
- Other entities qualified under the FRCN Amendment Act are now
required to pay "not later than 120 days of the financial
year".
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4.
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Penalties for Non-payment.
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- A person who failed to pay the applicable due would be liable
to pay a penalty equivalent to 10% of the amount due for every
month of default cumulatively for up to ten months.
- If still in default after the ten months, the person would be
prosecuted and if convicted would be liable to a fine of not more
than 3 times the amount due, plus all accrued penalties for default
charged by the FRCN.
- Where the defaulting person is a company, the CEO of the
company would, in addition, be liable to a fine of not more than
N500,000 or imprisonment for a term not exceeding 6 months.
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- A person who fails to pay the applicable due shall now be
liable to pay a penalty equivalent to 10% of the amount due for
every month of default cumulatively until payment is made and shall
be prosecuted by the FRCN in accordance with the law.
- A person shall be liable to sanctions as may be determined by
the FRCN for any default of its agents, officers, or personnel
engaged in the financial reporting process for non-compliance with
the provisions of the FRCN Act (as amended).
- In the case of the CEO of a company, the penalty shall be as
prescribed by the FRCN, or imprisonment for a term not exceeding 6
months on conviction.
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5.
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Registration of professionals and validity
period.
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The FRCN was required to maintain a Register of Professionals,
and every registration was valid for a period of 2 years.
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The FRCN shall maintain a Register of Professionals, and every
registration of professionals under the FRCN Act (as amended) shall
be renewed annually.
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6.
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Penalties for holding appointments and offering services
to PIEs for remuneration by unregistered persons.
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A person not registered with the FRCN, who held appointment or
offered any service for remuneration as a professional for PIEs,
was liable on conviction to a fine not exceeding N500,000 or to
imprisonment for a term not exceeding 6 months or both.
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A person not registered with the FRCN, who holds appointment or
offers any service for remuneration as a professional for PIEs
shall be liable on conviction, to a fine of N5 million or any other
amount that the FRCN may prescribe by Regulation from time to time,
or to imprisonment for a term not exceeding 6 months.
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7.
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Adoption of accounts, financial reports or annual
returns and other documents required under certain Acts of the
National Assembly.
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The FRCN was required to adopt accounts, financial reports or
annual returns and other documents required under certain Acts
listed in Section 59 of the FRCN Act of 2011.
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In addition to the Acts listed under Section 59 of the FRCN Act
of 2011, the FRCN is now required to adopt accounts, financial
reports or annual returns and other documents required under the
following three Acts:
- Finance Act, 2021.
- Fiscal Responsibility Act, 2007.
- Finance Control and Management Act, 1958.
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8.
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Practice
Review by FRCN of
professional
accountants & execution of Warrant of
Distraint.
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Subject to the consent of a public interest entity/company under
investigation, the FRCN could inspect any relevant book, document,
and record in the possession, or under the control of the auditor,
his partner or employee and make copies of, or take any abstract
of, or extract from any such book, document, and record in relation
to the company.
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- The FRCN no longer requires the consent of a public interest
entity/company under investigation, to carry out the specified
inspection and copying of documents and records in possession or
under the control of the auditor, his partner or employee.
- The FRCN may now co-opt the assistance and cooperation of any
of the law enforcement agents in the discharge of its duties under
the law, and the law enforcement agents shall aid and assist any
FRCN authorized officer in the execution of any warrant of
distraint and the levying of distraint.
- An FRCN official armed with a warrant issued by a judicial
officer and accompanied by law enforcement officers, shall have the
right and power to enter, search, and seal off any premises covered
by the warrant.
- An official executing a warrant of distraint shall have the
right and power to search for any document and seize or take
possession of such document or any article suspected to have been
used in the commission of an offence.
- Copies or extracts of documents, including digital copies of
records, books, computer are allowed to be taken during execution
of a warrant of distraint, regardless of the medium used for their
storage.
- Forceful entry into premises covered by a warrant of distraint,
through outer or inner windows and doors, are now permitted.
- A designated official of the FRCN is now empowered to use
reasonable force to remove any obstruction to entry, search,
examination, seizure, or removal of any articles from a covered
premises.
- A person executing a warrant of distraint has the right to
search the body of any person found in the covered premises, who is
of the same gender with the person carrying out the body
search.
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9.
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Obstruction of an Inspector in the execution of his
powers or duties under the law.
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Obstruction of an Inspector in the execution of his powers or
duties under the FRCN Act of 2011 amounted to an offence and, any
person who caused such obstruction was liable on conviction to a
fine not exceeding N500,000 or to imprisonment for a term not
exceeding 6 months or to both.
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Obstruction of an Inspector in the execution of his powers or
duties under the law is now an offence that attracts a fine or
penalty not exceeding N5 million or as the FRCN shall prescribe by
regulation, or on conviction to imprisonment for a term not
exceeding 6 months or to both.
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10.
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Sanction for non-compliance.
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- Failure to comply with the prescribed statement of accounting
and financial reporting standards developed by the FRCN or any of
its decisions amounting to non-compliance with the law and with
such other accounting and financial reporting standards as may be
specified under relevant enactments, attracted a fine of not
exceeding N10 million or imprisonment for a term not exceeding 2
years or both, upon conviction.
- The FRCN was required to give a notice of non-compliance to any
entity that contravened specified financial and accounting
standards, and the entity served with such notice was required to
restate its financial statements and resubmit them to the FRCN or
any applicable government department or authority within 60 days of
the service. Failure of a PIE to do this attracted, on conviction,
a fine not exceeding N20 million in addition to restatement of the
affected financial statements within 30 days thereafter.
- Where the FRCN reached a decision that any PIE had failed to
comply with the law or specified standards, resulting to giving the
entity a Notice requiring immediate compliance, failure of the PIE
to comply with the FRCN decision within the specified timeframe
attracted, on conviction, a fine not exceeding N10 million in
addition to the obligations to rectify the relevant irregularities
or restate any affected financial statements within 30 days
thereafter, and also disclose same in the following year's
financial statements.
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- Non-compliance with the prescribed statement of accounting and
financial reporting standards developed or adopted by the FRCN or
with any of the decisions of the FRCN or with any law and such
other accounting and financial reporting standards as may be
specified under relevant enactments, now attracts upon conviction a
fine of N10 million or any other amount which the FRCN may
prescribe in a regulation, or imprisonment for a term not exceeding
2 years.
- Failure to comply with Notice given by the FRCN within the
specified timeframe, now attracts a fine or penalty of N25 million
or any other amount that may be prescribed in a regulation by the
FRCN, in addition to the obligation to restate the affected
financial statements by the concerned PIE within 30 days.
- A PIE that fails to comply with a Notice by FRCN of its
decision requiring immediate compliance with any law or specified
accounting standards, shall be liable to a fine of N50 million or
any amount as the FRCN may prescribe through regulations from time
to time, in addition to the obligations to restate any affected
financial statements within 30 days and to also disclose same in
the following year's financial statements.
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11.
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Pre-trial Notice
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There was no requirement for a Pre-trial Notice to be served
before any entity could bring an action against the FRCN.
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A 30-Day Pre-trial Notice is now required to be served on the
FRCN before commencement of any suit by an entity against the
Commission. The Notice shall state the cause of action; particulars
of the claim; name and place of abode of the intending plaintiff;
and the relief sought.
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Remarks.
The changes brought about by the FRCN Amendment Act underscore a
heightened focus and emphasis on corporate governance and risk
management in financial reporting by PIEs. The notable increase in
the applicable fines and penalties for infringement clearly
demonstrates a serious commitment to ensuring compliance with the
law among relevant entities. Top of Form
The new provision requiring the FRCN Board to maintain a
national repository for electronic submission of General-Purpose
Financial Statements by PIEs, will enhance public access to
information on individual entity's performance, enhance
accountability, and promote transparency in the Nigerian accounting
and corporate governance landscape.
However, concerns arise regarding the expanded powers granted to
the FRCN, particularly in executing warrants of distraint. The
potential for dawn raids on entities by FRCN officials, in
collaboration with law enforcement agents, raises apprehensions
about financial losses and reputational damage for affected
entities.
Additionally, the increased annual dues for PIEs, amid existing
mandatory contributions to various regulatory agencies, may be
perceived as an added financial burden on businesses. This could be
seen as contradicting the government's commitment to reducing
the cost of doing business in Nigeria.
Given that the FRCN Act is a primary legislation requiring
strict compliance with its provisions (in contrast to the Nigerian
Code of Corporate Governance 2018 which operates on the principle
of "apply and explain" or 'Sectoral Governance
Guidelines' or other relevant subsidiary legislations), the
changes introduced have deep implications for PIEs in terms of
compliance risks. Companies and other business entities that fall
within the expanded meaning of PIEs are strongly advised to seek
appropriate legal and professional guidance on the new regulatory
regime.
The Grey Matter Concept is an initiative of the law firm, Banwo
& Ighodalo.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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