BY MICHAEL EBOH

KPMG Professional Services has called on shareholders and audit committee members of public companies to properly scrutinize the financial statements of companies, especially under the new International Financial Reporting Standards, IFRS, dispensation, to identify weak disclosures, manipulated estimates and non-usage of fair values, saying these are signposts of fraudulent financial reporting.

Speaking at the KPMG/Nigeria Shareholders’ Solidarity Association’s annual seminar for audit committee members in Lagos, Mr. Femi Awotoye, Partner, Audit Services, KPMG, said under the IFRS, companies are required to present their results and tell the full story behind the results.

According to him, manipulated estimates are the biggest financial fraud that can be recorded in an IFRS financial statement, notably in areas of loans, provisioning for loans and debtors among others.

He said, “Audit committee members should ensure that they understand all significant estimates; how have estimates historically matched up with actual and the extent of the use of models.

“Audit committee members should find out if some estimates are recorded as audit adjustments or not even recorded and should seek to understand how minor change in assumption can change the results.”

He further stated that in the new IFRS dispensation, missing disclosures will be easy to detect, adding that weak disclosures as regard financial risk management may point to fraudulent reporting.

According to him, under IFRS, regulators identify omitted disclosures as fraud sign. That is, there is something to hide.

Awotoye urged shareholders and audit committee members to ensure an internal coherence between the different components that make up the annual report and also evaluate processes used to obtain information, ensuring that sufficient disclosures are made.

He further advised that the member of the audit committee ensure that a link is formed from old to new and that disclosed changes are generally understandable.

He said big ticket items affected in the account should be determined, while the impact of the changes on expectations by stakeholders should also be evaluated.

He advised audit committee members on the need to evaluate the impact of IFRS adoption on key performance indicators and drive management to manage expectations where significant changes occur and also evaluate the extent to which incentives may encourage fraudulent financial reporting.

He said, “Audit committee members should receive relevant training on IFRS to ensure sufficient level of knowledge for discharging duties and keep knowledge current.

“Having a profound knowledge of the business is a key element of understanding and interpreting IFRS financial statements. Understand the story behind the financial performance your companies are reporting.

“IFRS involves judgement. Audit committees should understand areas involving estimates and their effect on reporting results.

“Audit committee members must ask probing questions and have frank discussions with management and auditors.”