BY MICHAEL EBOH

The Financial Reporting Council of Nigeria, FRC, said it is considering a review of some of its rules and will bar managing directors, chief financial officers and executive directors from audit committees of public companies.

Speaking at the KPMG Chief Financial Officers’ Forum in Lagos, Mr. Jim Obazee, Executive Secretary/Chief Executive Officer, FRC, said it is seeking to ensure that audit committees of companies are composed only of non-executive directors and comprising individuals with broad knowledge of accounting and ability to effectively interpret financial statements.

This, he said, is in furtherance of FRC’s drive towards enshrining good corporate governance among public companies and ensuring integrity in the financials of the firms.

According to him, we are going to put forward a law that will ensure that audit committees are composed only of non-executive directors.

He said; “For the sake of good corporate governance, increased integrity and confidence in the financials of companies, managing directors, chief financial officers and other executive directors of the Board of a company, have no need to be in the audit committee.

“One would ask, what is the role of the CFO in the audit committee? It is the CFO that prepared the account, why is it necessary that he or she be in the audit committee?

“One of the duties of the audit committee is to ensure checks and balances and also ensure the integrity of the financial report. The committee can only invite the CFO to explain certain things and then, he or she can leave.”

He said, with the proposed law, sanctions will be imposed on companies that default in the presentation of their financial statement.

According to him, when     the law becomes operational, certain members of audit committees of defaulting companies, especially the chairmen, will be removed from the committee, and barred from becoming members of audit committee of any company for some period of time.

Continuing, Obazee said, “Foreign investors are reacting positively to economic transformation in Nigeria including the country’s movement towards International Financial Reporting Standards adoption, as they expect application of IFRS to have positive cash flow effects.

“These effects could include reduced contracting costs or reduced scope for managerial rent extraction associated with greater financial reporting transparency and provide convergence benefits.

“Foreign investors may react negatively to movement towards IFRS if, for example, they believed that IFRS would decrease financial reporting quality.

This could occur in economies or accommodate countries’ differing political and economic features that hitherto led to existing difference in domestic accounting standards.”

Speaking earlier, Mr. Tola Adeyemi, Partner & Head, Audit Services, KPMG, said the forum is aimed at promoting interaction between CFOs of companies and regulators.

He further stated that the forum will help CFOs network among themselves and sharing of best practices, with the aim of promoting best standards among companies.