Fees for waiver is fraudulent – shareholders
We are guided by law – FRC

By Nkiruka Nnorom

SHAREHOLDERS in the nation’s capital market have taken a swipe on the Financial Reporting Council of Nigeria, FRCN, over alleged waiver fees it places on Chief Finance Officers, CFOs, and audit committee chairmen of quoted companies, who are not members of the Institute of Chartered Accountants of Nigeria, ICAN.

The waiver fee, amounting to N600,000, according to information available to Financial Vanguard, would enable persons in those two positions who are yet to comply with the FRC requirement to continue to endorse the financial reports of their companies.

Financial Vanguard also gathered that during the tenure of Jim Obazee, the former Executive Secretary of FRC, directors of companies that belong to any professional body such as Chartered Insurance Institute of Nigeria, CIIN; Nigeria Institute of Management, NIM; Chartered Institute of Bankers of Nigeria, CIBN; and Institute of Directors, IoD, among many others, were certified and given FRC numbers upon payment of certain fee (N350,000) to allow them attest to accuracy and integrity of their financial statements.

Financial Vanguard learnt that afterwards, a circular was issued by the FRC insisting that only CFOs and audit committee chairmen who are ICAN members would be qualified to continue to perform the function otherwise they will seek waiver from the Council, a development which stakeholders in the capital market are kicking against.

Stakeholders, especially equity investors, who are irked by the development have described the action by the FRC as fraudulent, saying that having initially billed the directors regardless of the professional bodies they belong to, registered and issued them FRC numbers, they should be allowed to continue to perform the role without recourse to ICAN membership.

FRC reacts
In a swift response, FRC said that its actions are clearly guided by its extant rules and the Act of the National Assembly establishing the Council.

The Council explained that its Rule 2 section (a) provides that “any professional providing assurance or certifying any part of an annual report, financial statement and other documents of financial nature must be registered with the Agency.”

It, therefore, explained that company directors regardless of their professional bodies were required to first of all register with the Council at a fee, while companies whose CFOs and/or audit committee chairman were not chartered accountants applying to the Council for consideration were meant to pay statutorily fee of N100,000 and N500,000 application and management time spent respectively.

FRC Circular
The FRC had in a circular titled “Transitional Concessions Agreed between the Nigerian Stock Exchange and the Financial Reporting Council of Nigeria (FRC) Regarding Rules 1 and 2 of the FRC’s Rules”, dated March 29, 2016, directed that CEOs, CFOs and the most senior persons in finance function in entities should certify, in accordance with Section 7(2g) of the FRC Act, 2011, the annual report, financial statements, accounts, financial report, returns and other documents of a financial nature, indicating their FRC registration numbers.

The FRC noted in the circular that where the CEO has not obtained the FRC registration number, two directors of the company who possess the FRC number should sign in the stead.

According to the Council, “From 29 March through to March 31, 2016, the FRC shall open a window to process requests for waivers of the provisions of Rule 1 for special cases which will be decided on their individual merit”. It, therefore, directed the NSE to henceforth accept filing of audited accounts from only companies that have complied with the provisions or where exemption has been granted to show proof of a duly issued waiver letter from the Council.

Financial Vanguard, however, gathered that despite possession of FRC registration numbers, CEOs and CFOs who are not ICAN members are made to part with N600,000 to append their signatures to any financial document.

Shareholders position

In his reaction to the development, Mr. Adebayo Adeleke, former Secretary General of Independent Shareholders Association of Nigeria, stated: “For the FRC to have taken money from people, to have issued them certificate with the intention that they were authorised to sign financial statements, only for the same FRC to turn round and say that they can longer sign, that only chartered accounts should sign; that is extremely fraudulent.”

He informed that following the FRC directive, the Exchange has been insisting that only accountants should sign financial reports and accounts of companies.

Adeleke called on the current leadership of FRC to reverse the rule, saying that Jim Obazee as an individual, was not authorised under the law that set up the FRC to issue a rule because he did not have a Board. “It was just a one-man show and the law that set up the FRC did not vest such level of authority and power in the Executive Secretary. The current leadership of FRC must revert that, otherwise something systemic is wrong with all of us and we are not fighting corruption in any form,” he emphasised.

Also reacting, Mr. Patrcik Ajudua, National Chairman, New Dimension Shareholders Association, said the development is a way of creating more revenue for the Agency at the expense of shareholder investment.

Arm-twisting the companies

“This act of arm-twisting the companies to enforce an illegal rule is not justifiable and must be rejected by all stakeholders,” he said, adding “Consequently, any attempt by FRC to continue this charge must be resisted by all legal means in the overall interest of our investment, capital market and the Nigeria legal system”.
On the qualification of audit committee chairman, Ajudua said; “The issue of the audit committee is covered by Sec 359 (4), (5) & (6) of the Companies and Allied Matter Act as amended. The CAMA didn’t state that audit committee chairman must be a chartered accountant and shareholders subscribing to investment in the company must be accountants.”

He said though the thought and reasoning behind the circular could actually be very proactive, progressive and tends to promote financial knowledge based audit committee members, but “Such rule must be subjected to the sanctity of our existing body of laws to be enforceable in Nigeria. Assuming the FRC maintains the view it has powers to regulate these areas over CAMA, it should seek an amendment to its existing enabling status to incorporate such foreign UK codes”.

FRC disagrees

Reacting to the claim, the Executive Secretary of the Council. Mr. Daniel Asapokhai, insisted that signing financial statements as CFOs and audit committee chairman requires basic knowledge of accounting and therefore the people occupying the position must belong to professional accounting body.
He told Financial Vanguard that the controversial fee of N600,000 comprised mandatory application fee of N100,000 to notify the Council of inability of a company to comply with the set rule and invitation for deliberation with the Council towards resolving the issue and another N500,000, which is money paid to Council for time spent in resolving any concern.

He explained that the fee does not amount to waiver nor does it mean that the issue being brought before the Council would be assented to.
He said: “If you have a situation that you need to make application with the Council to clarify, there is a specified fee for making that application because you are saying you have an issue but you think it can be resolved working with the Council. So, there is a fee for the time spent looking into your affair and working out a way forward. The fee is not for waiver, but for time and effort to resolve the situation.

Where the issue is not resolved, the company will be in clear violation of the rule, and what will be applicable to you will be fines and penalties as specified by the rule, he added.

“So, really, it is not about waiver fee, it is trying to ensure that people get to a situation where they are doing the right thing; where they are complying with the rule. Most companies want to comply with the rule. So, when somebody is approaching you, it is to demonstrate that we are on our way to meeting the rule, but for one reason or the other, we are not where we wish to be.”

Speaking further, he said: “These are recently introduced regulations; people are getting used to them and the level of compliance will improve over time. When you release new regulation, you get feedback from stakeholders.

Over time, you also go through processes to review them and if changes are warranted, you make such changes. So, the Council is no different. In due course, we will be reviewing a number of existing regulations and if changes are warranted in any of the existing regulations, those changes will be made.

“But at each point in time, the applicable rules should be complied with by operators and by large, most people understand the rules and comply”.

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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.