Enforcing Good Corporate Governance, Financial Reporting

Obinna Chima

Corporate governance is an essential pillar in enhancing investor confidence and ensuring the stability of financial markets, as well as to support economic growth. The legal foundations that support corporate governance structures are essential for preserving accountability, transparency, and equity, all of which increase market confidence. Strong corporate governance procedures also guarantee that companies, as well as public institutions, are run sensibly, morally and in compliance with the law, as financial markets grow more intricate and linked.

That is why in an era marked by increasing global economic complexities, the Financial Reporting Council of Nigeria (FRC) stands as a crucial pillar in upholding transparency and accountability within the nation’s financial ecosystem.

The Council serves as a cornerstone in Nigeria’s economic landscape and continues to champion transparency, accountability, and good corporate governance.

The FRC was established to develop, enforce, and promote compliance with financial reporting (accounting, auditing, valuation & actuarial), corporate governance, and sustainability reporting standards in Nigeria.

Its functions, as outlined in the FRCN Act 2011 (as amended), are designed to ensure that public interest entities (PIEs) adhere to international best practices, thereby safeguarding the interests of investors, stakeholders, as well as the general public.

By publishing globally aligned standards and enforcing their compliance, it directly provides a foundation upon which good governance, both in public and private organisations, can be attained.

That is because transparent and reliable financial statements will make Nigeria an attractive destination for international investors, increasing capital inflows into the country. High-quality financial reporting and robust corporate governance standards WILL also enhance Nigeria’s reputation in the global market, driving economic growth and creating jobs.

By enforcing compliance with financial reporting standards, FRC mitigates the risk of financial malpractices, ensuring a stable and predictable business environment.

Also, the Council’s focus on good corporate governance encourages businesses to adopt sustainable practices, contributing to long-term economic and social development.

Good corporate governance fosters a positive image and builds trust among stakeholders, including investors, customers, employees, and the wider community. Studies have shown a strong correlation between good corporate governance and improved financial performance, as companies with sound governance practices tend to have better access to capital, lower borrowing costs, and enhanced investor confidence.

Also, by establishing clear lines of accountability and implementing effective risk management systems, good corporate governance helps to mitigate potential risks and prevent financial losses. This proactive approach to risk management can safeguard a company’s assets and protect its long-term viability.

These efforts not only boost the confidence of investors but also position Nigeria as a more attractive investment destination on the global stage.

As a regulatory body, FRC is mandated to implement the provisions of the law as passed by the legislature.

Under the leadership of its Executive Secretary/CEO, Dr. Rabiu Olowo, the Council has taken its true form as an independent regulator that serves the greater public interest.

Olowo’s commitment to enhancing the Council’s capacity to monitor and enforce compliance with financial reporting and corporate governance standards reflects his determination to build on the Council’s legacy.

Additionally, in order to strengthen Nigeria’s financial ecosystem, the FRC has also redefined PIEs under Section 77 of the amended FRC Act 2011.

The National Assembly, in April 2023, passed the Financial Reporting Council of Nigeria (Amendment) Act, 2023, which amended some provisions of the Financial Reporting Council of Nigeria Act of 2011. The FRC Amendment Act became effective on May 3, 2023, and was published in the Federal Republic of Nigeria Official Gazette of July 19, 2023.

The new reclassification marked a pivotal shift in the regulatory landscape and underscored the FRC’s commitment to safeguarding the public interest.

The expanded definition of PIEs is not only a regulatory milestone but also a strategic move to enhance transparency, accountability, and investor confidence in Nigeria’s economy today.

The revised definition of PIEs encompasses a broad range of entities, including governments and government organisations, listed entities, non-listed entities that are regulated, public limited companies, private companies that are holding companies of public or regulated entities, concession entities, privatised entities with government interests, entities engaged in public works with significant contracts, licensees of government, and all entities with an annual turnover of N30 billion and above.

This expanded scope ensures that all entities with significant public impact, and those who draw from the nation’s commonwealth of resources, regardless of their listing status, are held to the highest standards of financial reporting and corporate governance.

The reclassification also has broader implications for Nigeria’s economic stability and growth. Non-listed entities, particularly those with large turnovers or public contracts, play a vital role in driving economic development.

Ensuring their compliance with international financial reporting standards mitigates risks and contributes to the stability and sustainability of the economy. This is especially relevant in sectors such as infrastructure and public-private partnerships, where mismanagement or lack of transparency could have far-reaching consequences for the public.

For instance, one aspect of this reclassification is the inclusion of non-listed entities, particularly those with substantial turnover or regulatory oversight, who often operate in sectors critical to Nigeria’s economic development, such as manufacturing, infrastructure, and energy.

By classifying these entities as PIEs, FRC ensures that they are subject to the same rigorous standards as listed companies, thereby enhancing transparency and accountability.

The revised definition of Public Interest Entities under the amended FRC Act 2011, was clearly a significant step forward in Nigeria’s regulatory framework. This move demonstrated the Council’s ability to adapt to evolving economic realities and its commitment to protecting the public interest in an increasingly dynamic business environment.

Looking ahead, the FRC’s role will continue to be vital in shaping Nigeria’s economic future, especially as it embraces digital technologies to streamline regulatory processes; enhance the efficiency of financial reporting and foster collaboration with stakeholders, including professional bodies, businesses, and investors, to promote a culture of compliance and ethical conduct.

Therefore, the FRC’s commitment to enforcing good corporate governance and financial reporting is essential for building a resilient and sustainable economy. By upholding the principles of transparency and accountability, the FRC is laying the foundation for a prosperous future for the country.