The current confusion in government accounting system is coming from the fact that ministries, departments and agencies of federal and state governments do not publish their accounts. In a number of these institutions of government, annual accounts are not prepared not to talk of their being published.
The various governments do not render account of income and expenditure to the people who elected them into the exalted offices they find themselves.
In Nigeria, there is lack of openness and transparency in the conduct of government business which is the basis of the current suspicion among the various arms of government.
The recent outburst of the Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi alleging that $43.6 billion of oil money earned between 2003-2012 have not been remitted to the federation account, arose from the fact that there is poor record keeping and lack of inter-agency coordination at the federal level. This unwholesome practice cannot be allowed to continue.
Adam Smith in his famous book, Enquiry into the Wealth of Nations wrote that “Being the managers of other people’s money rather than their own, it cannot be expected that they [managers] should watch over it with the same anxious vigilance which [they would] watch over their own. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company”.
Going by this theory public officers cannot be expected and trusted to watch over the nation’s resources without adequate monitoring.
The desire of the Financial Reporting Council (FRC) of Nigeria, therefore, to ensure that agencies of government prepare annual financial statement in the international financial reporting standard, is a welcome development that should be supported by all.
Indications are that at the moment, even the Central Bank of Nigeria that has demanded that all banks operating in the country should have their accounts in IFRS, has not been able to prepare its own in the same format. It is the same story at the NNPC and other regulators in the country. If these institutions of government to which others report to, do not comply with set standards, how can they enforce such on others?
This practice of agencies of government and companies has been the source of corruption in the country. If agencies of government and companies operating in the country adopt open financial reporting, adequate disclosure of sources and uses of funds, there will be little or no room for massive corruption.
At the moment, agencies of government and companies adopt single audit practice. As it is known elsewhere, single practice is a huge avenue for fraudulent financial reporting; be it a professional firm or professional service entity. As it is at the moment, by appointing a licensed individual professional accounting service provider, there is usually no second partner audit quality review and if a one-man professional service entity, he will never prepare reliable financial statements for the entity he or she manages.
To checkmate this, FRC is insisting that professional bodies should withdraw practicing licence given to individuals and licence firms and that regulators should ensure that their licences are operated on institutional platforms. Looking at Government Business Entities, their financial reports are poorly monitored. This is what is giving room for poor financial reporting amongst a number of them.
According to the FRC, the three key objectives for financial statement presentation state that information should be presented in the financial statements in a manner that:
Portrays a cohesive financial picture of an entity’s activities and that the relationship between items across financial statements should be clear.
Such items in an entity’s financial statements should complement each other as much as possible. The statement should disaggregate information so that it is useful in predicting an entity’s future cash flows. This requires financial information that is disaggregated into reasonably homogeneous groups of items. If items differ economically, users may wish to take that into account differently in predicting future cash flows. Such financial statements should help users assess an entity’s liquidity and financial flexibility.
Sadly, FRC has said that other than the banks, the other financial institutions have weak financial reporting. A significant number of them did not pass the IFRS readiness test. Except for NAICOM’s effort, not more than 20 insurance companies would have been able to submit their 2012 financial statements (prepared using IFRS) to SEC. This was largely the cause of their late filing.
The move by FRC to sanitise the system has led it to demand attestation to published financial statements with individual and joint liability by relevant external auditors. Every partner in charge of any audit is required to append his or her FRC registration number after the signature mark of the firm of accountants he or she is associated with. Attestation of the financial statements of government business entities and the resultant sanctions shall assist the country in keeping faith with the on-going fight against corruption.
Nigerians must stand behind the FRC in its desire to ask firms and government entities to provide management assessment of internal controls including information systems controls with independent attestation; code of ethics for financial officers and certification of financial statements by CEOs and CFOs; real time disclosures on material changes in financial conditions or operations; and forfeiture by CEOs and CFOs, of certain bonuses received from the company and profits realised from the sale of company shares owned by them, where the company is required to prepare an accounting statement.
The FRC should be encouraged by government to immediately commence audit quality inspections. Audit firms should be inspected regularly to ascertain the quality of staff they have in their employment. This way, the hydra-headed monster called corruption currently eating up the nation will be substantially dealt with.