It is my pleasure to present the keynote address at this most auspicious conference on “Adopting IFRS: Financial Reporting, Risk Management and Corporate Governance”. This conference could not have come at a better time, given the deadline for adoption of IFRS in Nigeria by January 2012. In this regard, I wish to commend the organisers, the TL First Integrated Management Group UK, for this conference and expect that the issues which have been carefully listed in the programme will be discussed by participants at the various sessions and thereafter proffer solutions that would enable us meet the December 31, 2011 deadline.

Financial Reporting Financial Reporting is a process that creates stewardship assertions in the form of financial and non-financial business information statements reflecting the results of activities and transactions of an entity for a period of time. It is to a large extent a studied assessment of the operational performance of an entity expressed in financial terms to reflect the economic exercise of fiduciary obligation. Crockett (2002) opined that financial reporting covers the mechanism for providing information about the financial conditions, performance and, importantly, risk profile of enterprises to all potential users. It is therefore one of the most basic elements of the financial infrastructure.

The objective of financial reporting includes, but not limited to, the following:

Ensuring accountability of management with whom capital resource have been entrusted.
Provides common information that would be useful in making economic decisions, such as uniform assessment of the cash flow prospects of the entity; and
Provides information about an entity’s resources, changes in resources, and claims during the period under review.
In order to fulfil the stated objectives, financial reporting must have the attributes of relevance, representational faithfulness, comparability, consistency, and must be easily understood, with reasonable consideration in each case.

The Central Bank of Nigeria is primarily responsible for the regulation and supervision of banks and other financial institutions while; the external auditors, on their part, are saddled with the role of reviewing the institutions’ records, and preparing the financial statement from where opinion is formed on the accuracy and correctness of the financial statement. I am sure we have not forgotten so soon the adverse consequences of the inaccurate and unreliable reporting of the financial condition of Enron Corporation in the United States of America (USA). The scandal did not only result in the collapse of the company, but it also led to the disintegration of its auditors.

International Financial Reporting Standards (IFRS) IFRS are a set of accounting rules (standards) developed and issued by the International Accounting Standards Board (IASB), an independent accounting standards body based in London, UK, which is “committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in financial, commercial and industrial activities to help participants in the world’s capital markets and other users make economic decisions”.

Benefits of Adoption:

• A business can present its financial statement on the same basis as its foreign competitors.
  Comparisons become easier.
• Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide.
• Companies also may need to convert to IFRS if they are subsidiaries of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS.
• Global consolidation of multinational firm’s performance is facilitated.
  Companies may also benefit by using IFRS if they wish to raise capital from abroad.
• Reduced information asymmetry.
• Audit efficiency, reliance and excellent labour mobility is facilitated.
• Supervision and risk assessment becomes easier with equal basis of presentation.
• Removes balance sheet window dressing thereby strengthening Financial Stability especially with the adoption of same financial reporting dates.
• Facilitates inflow of Direct Foreign Investment (DFI) thereby increasing level of economic activities and reducing pressure on the value of the local currency.
• Greater market liquidity and cost of capital. This will be another impetus to financial and economic stability thereby facilitating growth.
• Greater transparency especially when seen from the International Monetary Fund (IMF) viewpoint.
  Convergence

There is a growing acceptance of IFRS as a basis for financial reporting across the world and Nigeria is not an exception. Convergence is widely used in connection with IFRS and the accounting standards of countries. It is a modified version of adoption. Convergence to a single set of International Standards is regarded as a key to economic development according to a survey carried out by the International Federation of Accountants (IFAC) on leaders of the accounting profession worldwide. The survey concluded that convergence is not only desirable, it is essential in an economy that is quickly dissolving borders. Convergence gives IFRS standards an authority and credibility that cannot be equalled by any other set of standards. There is growing evidence that the world economies are more inter-connected and symbiotic than anyone can really understand. Judging from the recent global financial crisis, it is obvious that nations truly desirous of moving forward are now coming to force their countries from the limits of the present system of financial reporting standards.

Nigeria indeed is part of the globalization. In recent times, a number of Nigerian Companies have raised capital from International stock markets, others have established significant presence in other jurisdictions. Also, a good number of Nigerian entities hold the securities of non-Nigerian issuers. Therefore, for a better understanding and appreciation of the risks and consequently, making decisions about the flow of economic capital, it makes sense that financial statements prepared in Nigeria use global financial reporting benchmarks.

With these facts, the Federal Government accepted the recommendation of the Committee on the Roadmap to the Adoption of IFRS in Nigeria that it will be in the interest of the Nigerian economy for reporting entities in Nigeria to adopt globally accepted high quality accounting standards by fully converging Nigerian National Accounting Standards with IFRS, which will culminate in full adoption, compliance and implementation of IFRS with effect from January 1, 2012. Over 100 nations and reporting jurisdictions permit or require IFRS for domestic listed companies. Although approximately 90 countries have fully confirmed with IFRS as promulgated by the IASB, other countries including Canada, Korea, and Nigeria are expected to migrate to IFRS by 2012.

Micro and Macro effects of IFRS The increasing global acceptance of IFRS demands that micro and macroeconomic agents and accountants display a smattering knowledge of the changes warranted by the IFRS adoption. A micro-analytic implication is that once a critical mass of Nigerian and multinational entities in key sectors of the economy begins to report their financial results using IFRS, there will be pressure for all companies to follow suite in order to enable investors and other users to better compare financial results. Beyond the issue of financial reports, the IFRS will affect almost every aspect of an entity’s operations from its IT systems to its tax reporting requirement, inventory control, fixed assets, financial assets, etc. On a macro-scale, the adoption of IFRS will warrant amendments of various laws and regulations that have provisional effect or implications on financial reporting. Examples are CAMA 1990, BOFIA 1991, Investments & Securities Act (ISA) 2007, etc.

Risk Management The objective of IFRS 7 (Financial Instruments: Disclosure) states that entities should “provide disclosures in their financial statements that enable users to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. Complying with this entails that IFRS compliant entities should have in place risk management framework which all stakeholders must assume ownership of their actions/inactions.

To accomplish this, operators should ensure that conscious efforts are made to identify risks, assess them qualitatively and quantitatively, and monitor then on an on-going enterprise-wide both at the micro and macro entity basis.

Corporate Governance Corporate governance deals with how organisations are directed and controlled. The Organisation for Economic Cooperation and Development (OECD) defines corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring determining performance”

A review of corporate governance practice in Nigeria revealed that largely the institutions and the legal framework for effective corporate governance appear to be in existence, but compliance and/or enforcement appear to be weak or non-existent. The Central Bank of Nigeria has issued a Code of Corporate Governance for banks in its attempt to strengthen its enforcement mechanism as a regulatory agency. It has also set tenures for the boards of directors as well as rules for the appointment of external auditors and its zero tolerance for infractions.

In other words, adhering to the contents of the codes promise to produce safe, sound, stable and growing banking institutions and a financial system

with positive effect on building and sustaining public confidence. I believe that Corporate Governance in many banks failed for reasons that included the fact that executive management were being misled, participating themselves in obtaining unsecured loans at the expense of the depositors and not having the qualifications to enforce good governance on bank management.

Challenges of Adopting IFRS

Although expected to be highly beneficial, some challenges have been identified with the adoption of IFRS. Some of these are: a. Cultural influence: In the U.S. for instance, it is stated that FASB can maintain and had maintained its high quality standards and public enforcement, but whether IASB would be able to do same brings doubt to U.S. businesses. b. Costly: Implementation involves additional expenditure for training and other logistics. Some developed economies with existing effective GAAPs may not benefit up to the cost of adoption; e.g. U.S.A. c. Hard to regulate in all countries: It will diminish a country’s power over accounting. d. Some accounting issues like Extraordinary Loss/Gain are not allowed under IFRS. e. Resistance to change: There is bound to be some level of opposition to such material change based on the nature of human beings. This resistance will, however, be removed with proper communication and training. f. Time involving: Lot of time is required for planning, logistics and implementation, especially in the restatement of prior year financial statements. g. It could also witness volatility in profitability; i.e. where realized and unrealized gain from foreign exchange transactions had to be booked in the income statement. In years where it is unfavourable, there could be a big jump from profitability to huge losses and vice versa.

Whatever the challenges/misgivings, the benefits arising from the adoption of IFRS will definitely override these challenges, especially for the emerging economies and developing countries.

In conclusion, measures taken by the Central Bank of Nigeria in ensuring a sound, safe, and virile financial sector landscape in the country include the strengthening of the institutional coordination through the Financial Services Regulation Coordination Committee (FSRCC), adoption of a common accounting year end for all banks aimed at improving data integrity and comparability, conducting own-risk assessments and relying less on classification by rating agencies, limiting the tenors of Chief Executives / Directors of Banks to 10 years and non – Executive Directors to 12 years, limiting the tenors of a bank’s auditing firm to 10 years, sound and timely regulation and supervision of the financial sector; stringent demand for transparency in the financial sector and improved transparency in structured credit instruments for easy assessments of associated risks.

We should remind ourselves that IFRS reporting demands that Nigerian entities must give a true and fair view if their financial accounts and by so doing boost investor confidence through full disclosure, lower the cost o investment capital, develop a more efficient capital market, aid a robust regulation and supervision, and aid the availability of useful date, among others.

The former CBN assure you that the Central Bank of Nigeria is strongly in support of the IFRS in moving the banks and entities in that direction by collaboration with the Nigeria Accounting Standards Board (NASB) in ensuring banks comply with International Financial Reporting Standards (IFRS) in the preparation of their financial statements. All that is required of the auditors is to ensure that the entities being audited report accurately their financials.