BY PETER EGWUATU

The Institute of Chartered Accountant of Nigeria, ICAN, has charged both quoted and unquoted companies to adopt the International Financial Reporting Standards, IFRS, in order to help the nation attract foreign direct investment.

While fielding questions during IFRS training session for journalists in Lagos,Registrar/Chief Executive, ICAN, Mr. Rotimi Omotoso, said that the wholesale adoption of IFRS is both expedient and strategic to Nigeria’s quest for foreign direct investment and accelerated economic development process.

Omotoso, who was represented by Olusoji Odukoya, Deputy Registrar in charge of Corporate Services, said the propensity to attract foreign direct investments will increase with more reliable and credible financial statements as the nation’s risk profile would be known and predictable. “Investors are attracted to environments where the rewards are high relative to risks; availability of reliable information contributes to the lowering of the risk”, he said.

On what the companies stand to gain from the exercise, Omotoso assured them that the adoption would push down their cost of raising funds, saying that the local stock exchange will become busier and more active as entities with IFRS-based financial reports continue to attract FDIs.

His words: “The cost of raising funds depends significantly on the quality of information available to potential and existing investors, as well as the basis of accounting policies applied. Indeed, lack of knowledge of the basis of accounting implies higher risks and higher cost of raising funds. Accordingly, the cost of raising funds will be much lower with IFRS statements. Indeed, the use of IFRS will reduce cost of raising funds.

Inevitably, local stock exchange will become busier and more active as entities with IFRS-based financial reports continue to attract FDIs.”

The ICAN registrar explained that the desire of Nigeria to achieve Vision 20: 2020 goals has made it mandatory for it and over 122 other countries to adopt IFRS standards, which unambiguously define the treatment of various accounting issues and have started to significantly impact the process, quality and reliability of financial statements globally.

“Given the nation’s drive towards achieving its Vision 20: 2020 goals, it is expedient and in the best interest of the nation to raise and benchmark of the quality of its financial reporting on current global best practices by adopting IFRS. Today, global commerce is increasingly polarised and into multinational corporations (MNCs) and national companies. Clearly, financial reporting is responding to this business dynamic by following in this direction.

“As it is common knowledge, most national companies do not have foreign subsidiaries while their financial statements are mainly for tax assessment purposes and possibly to provide information to local banks in order to secure credit facilities; whereas, MNCs play in different jurisdictions through their subsidiaries, which prepare financial report in compliance with various local GAAPs.

This entails huge conversion cost of their financial statements during consolidation. Since these MNCs often seek financing from various capital markets. Comparability of financial reports was huge problem leading, in many cases, to inefficient and sub-optimal investment decisions. Thus, the adoption of IFRS will help to obviate these encumbrances in addition to other benefits,” he stated.