By Michael Eboh

As companies begin the adoption, implementation and conversion to the International Financial Reporting Standards in the presentation of their financial statements, shareholders have been called upon to ensure that they understand critical elements of the standard and its impact on the activities of the various companies.

Speaking at the annual Audit Committee members’ seminar for Nigeria Shareholders’ Solidarity Association, NSSA, organized by KPMG Professional Services, Mrs. Toyin Gbagi, Partner, Consumer Markets, KPMG, cautioned shareholders on the need to make IFRS literacy a key agenda, stating that with the adoption, “it is no more business as usual.”

She said shareholders should request entity-specific IFRS presentations by management and advisors from time to time, in areas that are unclear and ensure that they understand key risk factors and the critical impact of the adoption to business.

According to her, audit committee members should make sure that they comprehend management’s basis for the fair value models and approaches, adding that there is also the need for increased capacity for change.

Gbagi noted that IFRS adoption puts forward a number of disclosure issues, such as the fact that companies are required to disclose in their financial statements the effect of exchange rate changes, both unrealized exchange gains and losses, on cash and cash equivalents held or due in a foreign currency and report it in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and the end of the period.

“An entity shall disclose the presentation currency; information about the assumptions it makes about the future and other major sources of estimation uncertainty at the end of the reporting period; and shall disclose the date when the financial statements were authorized for issue and who gave that authorization,” she added.

Financial instruments

According to her, for each type of risk arising from financial instruments, an entity shall disclose: the exposures to the risk and how they arise; its objectives, policies and processes for managing the risk and the methods used to measure the risk; and any changes from the previous period.

Gbagi highlighted a number of key areas for audit committee members to focus in the current year, namely that they should focus on their top priority, which is financial reporting and related internal control risk.

She further noted that audit committee members should continue to monitor accounting judgments and estimates, and prepare for accounting changes; consider whether the financial statements and disclosures tell the company’s story, especially going by the importance of transparency.

She said, “Audit committee members should also focus on the company’s plans to grow and innovate; reassess the company’s vulnerability to business interruption and its crisis readiness and understand how technology change and innovation are transforming the business landscape and impacting the company.

“The audit committee members should also focus on asymmetric information risk and seek out dissenting views among others; consider the impact of the regulatory environment on compliance programmes and business plans; understand the company’s significant tax risks and how they are being managed and modeled and also ensure that they monitor the Securities and Exchange Commission’s, SEC/Financial Reporting Council, FRC, initiatives on auditor independence and transparency, and consider the implications for the audit committee.”