FINANCIAL REPORTING &

CORPORATE GOVERNANCE

SAAD K ABDULSALAM
OUTLINE

FINANCIAL
REPORTING

CORPORATE
AUDITING
GOVERNANCE
FINANCIAL
REPORTING
 Financial Reporting
• The process of reporting the results and
financial position of a business or 'reporting
entity'.
• It involves producing financial statements for
users.
• The principal objective of financial statements
is to provide information in order to satisfy the
information needs of relevant stakeholders
and to support decision making
 Users of Financial
Information
Shareholders Management Suppliers

Customers Lenders Employees

Financial
analysts and Government Public
advisers
 Segments of Financial Statements

Reports and
other national
Statement of Statement of Statement of
Statement of Notes to the disclosures
financial comprehensive changes in
cash flows accounts (these are not
position income equity
under the scope
of an auditor).
Reporting Requirements of the
SEC
• Requires all public companies to on annual and periodic basis, their audited
S.60 (1) of ISA financial statements and other returns as may be required by the Commission.

S.60 (2) • Requires certification of returns filed by the CEO and CFO.

• Requires all public companies to establish a system of internal control and report
S.61 on the effectiveness of the system in company’s annual report

• Provide penalties for contravention of Sections 60, 61, 62, 63 and 64

S.65

• Rules and Regulations requires public companies to file annual reports with the
Rule 39 (2) Commission, not later than ninety (90) days after the financial year end.

• Requires public quoted companies to file quarterly reports not later than thirty
Rule 41 (30) days from the end of each quarter

• Requires every Capital Market Operator to file annual accounts certified by an

Rule 52 (1,b) auditor not later than six (6) months after the end of the accounting year.

• Requires every Capital Market Operator to file Quarterly returns within thirty (30)
Rule 52 (1,a) days after the end of the quarter.
 Fundamental Qualitative Characteristics of Useful Financial
Information

• Information is relevant if it is • Information must faithfully

capable of making a difference represent the substance of what it
to the decisions made by users. purports to represent.
• Financial information is capable of • A faithful representation is, to the
making a difference in decisions if it maximum extent possible,
has predictive value or confirmatory complete, neutral and free from
error.
value.
• A faithful representation is affected
by level of measurement
uncertainty.

Faithful
Relevance
representation
 • Comparability
Enhancing
Qualitative
• Verifiability
Characterist • Timeliness
ics • Understandability
 International
Financial Reporting
Regulatory Framework Standards (IFRS)
Code of
Corporate
Companies and
Governance of
Allied Matters Act
Public
Companies

In the capital market,

there are sets of
regulations that guide SEC Rules and
Financial
Reporting
the preparation and Regulations
Council Act
reporting of financial
statements to make it
more useful to users Investments and
International
Standards on
Securities Act
Auditing
Limitations of Financial Reporting

General purpose
financial statements Financial statements
cannot possibly largely record only
Financial statements
provide all the Financial statements the financial effects
are based on
information that are based on of transactions and
estimates and
external users might historical information. events. Financial
judgments such as
need about a They do not reflect
estimate of useful statements do not
company or business. future events or
Users may also need
lives of assets and the
transactions that may include non-
likelihood that financial information
to consider affect the business
amounts receivable such as discussion of
information from and the way that it
will actually be the risks and
other sources, such as operates.
received. uncertainties that a
general economic
conditions and business faces.
political situation.
AUDIT
 The auditor to a public
An auditor is a
company shall be
person
registered by the
authorized to
Commission in line
review and verify
with Section 62 of the
the accuracy of
Act. Section 63 of the
business records
Who is and ensure
ISA provides that the
auditor of a public
compliance with
an tax laws. Auditors
company shall in his
audit report to the
Auditor? work in various
capacities within
company issue a
statement as to the
different
existence, adequacy
industries
and effectiveness or
(internal auditors
otherwise of the
or external
internal control system
auditor.
of the company.
 Audit Report

Opinion first;
• Affirmative statement about the auditor’s
independence and fulfillment of relevant
The New Face of Audit ethical responsibilities;
• Enhanced description of the
Reports: responsibilities of the auditor and key
features of an audit;
• Enhanced description of the respective
responsibilities of management and the
auditor regarding going concern;
• Material going concern uncertainty
reported in a separate section in the
audit report; and
• Revised reporting requirements relating
to “other information” included in an
entity’s annual report
Benefits…

The changes to the auditing

reporting standards do not
The new style auditor’s
change the underlying work
reports may result in
effort required in an ISA
enhanced disclosure by
audit, but rather focus on
management in the financial
increased transparency
statements
about the audit that was
performed
 Reporting Accountants
The directors and promoters
The reporting accountant's
of the company issuing
role is to provide certain
securities to the public are
'public' opinions required by
Prepares a report for assigned full responsibility
the rules governing capital
inclusion in a prospectus or by the Investment and
market transactions; and to
circular. Securities Act, 2007 for the
perform financial due
completeness and accuracy
diligence for the directors
of the information
and its adviser
contained in the prospectus.

The reporting accountant

Ascertains the actual
shall be liable for any loss
The reporting accountant indebtedness so as to make
occasioned by his
reviews audited financial sure that it is actually
negligence in disclosing
statements disclosed in the offer
discrepancies observed on
document.
audited financials
 Reporting Accountant’s Report
• The accountant’s report gives an independent statement,
normally supported by an opinion, of financial information for
the company concerned or, if it has subsidiaries, for the group,
which together with the other information in the prospectus
may assist potential investors in making decision whether or
not to invest.
• The reporting accountant is expected to give special attention
to any matters which have resulted in qualified auditors’
reports.
• The reporting accountant will need to consider carefully the
significance of any such qualifications for his accountant’s
reports.
• In some cases, uncertainties which gave rise to a
qualified auditors’ report in previous financial
statements may have been resolved, and it may
therefore be possible to make adjustments to the
reported results in order to avoid any need to qualify
the opinion in the accountants’ report.
• He should indicate in his report how the matter was
resolved – for example as a result of adjustments made
or additional procedures carried out.
• The reporting accountant should address his report
jointly to the directors of the company and to the
adviser.
 Reporting Accountant’s Report…
• That the financial information is based on the audited
financial statements of the company and its subsidiary
companies;
• That all adjustments considered necessary by the
reporting accountant for the purpose of his report have
The reporting been made (or that no adjustments were considered
accountant’s necessary);
opinion should • That the reporting accountant has carried out his work
draw attention to in accordance with the standard on assurance;
the following • Whether or not the financial information gives true and
matters: fair view.
• If the reporting accountant has reservations on any
material matters, then his accountant’s report must be
qualified. All reasons for the qualification must be
stated, together with the amounts involved if this
relevant and practicable..
 CORPORATE
GOVERNANCE
 Corporate governance is the system of
rules, practices and processes by which a
firm is directed and controlled. It
essentially involves balancing the
interests of a company's many
stakeholders, such as shareholders,
management, customers, suppliers,
financiers, government and the
community.
 Benefits of good Corporate
Governance

“ The presence of an
“ Good corporate governance effective corporate
should contribute to better governance system, within
company performance by an individual company and
helping a board discharge its across an economy as a
duties in the best interests of whole, helps to provide a
shareholders; if it is ignored, the degree of confidence that is
consequences may well be necessary for the proper
vulnerability or poor functioning of a market
performance. Good governance economy. As a result, the
should facilitate efficient, cost of capital is lower and
effective and entrepreneurial firms are encouraged to use
management that can deliver resources more efficiently,
shareholder value over the thereby underpinning
longer term” growth
- FRC, Combine Code, June 2008 - OECD Principles of
Corporate Governance 2004
 • 2003 code issued by SEC/CAC was developed by
the Atedo Peterside Committee
• In September 2008 the SEC set up a committee

Corporate under the chairmanship of AB Mahmud SAN to

review the 2003 code.
Governance • The review was initiated amidst significant
Corporate Governance failures
Code • The SEC Code came into operations in April 2011.
• Other applicable codes include the National
Code and Code developed by other relevant
regulators
Principles of the SEC Code Objectives of the SEC Code
To ensuring the highest standards of
transparency, accountability and good
Enhanced Governance structure
corporate governance,
Greater protection of shareholder rights Applies to all public companies
especially public quoted companies and
Improved Risk Management and Audit companies seeking to raise funds from
the market through issuance of
Greater disclosures securities or seeking listing of
introduction.
Enhanced stakeholder relations

Enhanced sustainability appreciation

 Structure of the SEC Code

• Part A – Application of the Code

• Part B – The Board of Directors
• Part C – Relationship with Shareholders
The Code is • Part D – Relationship with Stakeholders
structured in nine • Part E – Risk Management and Audit
(9) parts as
• Part F – Accountability and Reporting
follows:
• Part G – Communication
• Part H – Code of Ethics
• Part I – Interpretation
 Responsibilities of the Board

Accountable and responsible for the performance and affairs of the

company.

Define the company’s strategic goals and ensure that resources are
effectively deployed to achieve those goals.

Oversees the effective performance of Management and ensures

good corporate governance in the company.

Formulates and manage the risk management framework and ensure

the integrity of financial reports among others.
 Composition of the Board

The position
Board of a
of the The
company to
chairman remuneratio EDs should
be of a
The Board non- should be ns of the not be
sufficient There
Membership should also executives non- Executive involved in
size relative should be at
should not be a mix of should form Executive Directors be the
to the scale least one
be less than executive the majority and should disclosed in determinati
and independent
five (5). and non- of the be separate the on of their
complexity director.
executive, Board, from that of company’s remuneratio
of the
the Chief annual ns.
company’s
Executive report.
operations
Officer.
 Family and Interlocking
Multiple Directorships
Directorships

Not more than two (2) members of the

No limit on the number of concurrent same family should sit on the Board of a
directorship a director of a company may public company. This is to ensure the
hold. independence of the Board.
The Board to give careful consideration to
other obligations and commitments of Companies are also enjoined to
nominees in assessing their suitability for discourage cross membership of the
appointment to the Board. Board of two or more companies.
The reason for this is that concurrent
service on too many Boards may interfere This is aimed at safeguarding objectivity
with the ability of an individual to
and independence of the Board.
effectively discharge his responsibilities as
a Director.
 Board Committees

Governance/
Statutory Audit Risk Management
Remuneration
Committee Committee
Committee

• Boards are required to meet at least once every quarter to

ensure effective performance of its oversight function and
the monitoring of Management’s performance.
• Directors are enjoined to attend at least two-thirds of
Board meetings.
 Performance Evaluation of the
Appointment to the Board Remuneration
Board
• The Board is required • Companies are required to • The Board is required to
develop a comprehensive establish a system for the
to develop a written remuneration policy for evaluation of its
and transparent Directors and Senior performance and that of its
procedure for Management Committees, the Chairman
appointment of Board • The policy should define the and the individual Directors.
criteria and mechanism for • The chairman should oversee
members. determining levels of the annual evaluation of the
• The biographical remuneration and the performance of the Chief
information of frequency of review, and the Executive.
proposed Directors process for determining • The Chief Executive is
executive and non-executive required to perform an
should be provided to compensation and the extent annual evaluation of the
the shareholders. to which Executive Director’s Executive Directors based on
reward is linked to corporate agreed criteria and
and individual performance performance indicators.
 Orientation/Training of
Conflicts of Interest Tenure and Re-election
Director
• Companies are required to • The Board is required to • Under this provision,
adopt a policy to guide the establish, a formal Directors should be
Board and individual orientation and other presented for re-election
Directors on conflict of training programmes for at least once every three
interest situations. new Directors. (3) years.
• Directors are to promptly • It is mandatory for all
disclose any real or Directors to participate in
potential conflict of relevant continuing
interest regarding matters education programmes to
before the Board. update their knowledge
• Directors with such and assist them in the
conflict of interest effective discharge of their
situation are not expected duties
to participate in any
deliberations or voting on
the matter at the Board
meeting.
 Meetings of Shareholders
The Board is required to ensure that Shareholders are also allowed free
all shareholders are treated fairly and discussions during meetings and The venue of meetings should be such
given equal access to information sufficient time to participate and that it is accessible to all shareholders.
about the company. contribute effectively at the meetings.

The Role of Shareholders’ Associations

The Board is to ensure transparency in dealings with Shareholders’ Associations.

Relationship with the Associations should be in line with the Code of Conduct for
Shareholders’ Associations issued by the Securities and Exchange Commission (SEC).
 Relationship with Other Stakeholders

The Code requires companies to address sustainability issues

such as paying attention to its stakeholders like employees,
host community and consumers and other social and ethical
issues in its community such as corruption and health matters.
 Internal Audit Function
• All companies are required to establish an
effective risk-based internal audit
function.
• The purpose, authority and responsibility
Rotation of External Auditors of the internal audit activity are required
• Audit firms and audit partners are to be clearly and formally defined in an
required to be rotated in order to audit charter to be approved by the
safeguard the integrity of the external Board.
audit process. • The internal audit unit is required to
• While audit partners are to be rotated report to the Audit Committee while
from time to time. maintaining a line of communication with
• Audit firms should be retained for no the Chief Executive.
more than ten (10) years continuously.
• An Audit Firm disengaged after ten (10) Companies are
years of continuous service may be re-
appointed seven (7) years after its enjoined to have a
disengagement whistle blowing
policy …
 Companies are required
to make increased
disclosures to foster good
corporate governance.

The Board has a duty The Chief Executive

to ensure that the and the CFO to certify
company’s annual
report contains a
Accountability that the financial
statements present a
wide range of
information specified
and Reporting true and fair view of
the affairs of the
in the Code. company.

The company is also

required under the code to
state in its annual report the
level of compliance with the
code.
Communication Policy
Companies are required to adopt and
Companies are to be guided by the
implement a communications policy
principle of timeliness, accuracy and
that enables the Board and
continuous disclosure of information
Management to disseminate
regarding the activities of the
information about the operations of
company.
the company.
 Companies are required to have a
Code of Ethics and statement of
business practices. The Code of
Ethics for Directors should contain
certain minimum provisions
including their duty to act honestly
and other fiduciary duties of a
Director.

Code
of The Board is has the
Ethics
All Directors, Management
and employees are required responsibility for
to abide by these codes formulating both the
while the Board has a duty
to monitor adherence and Code of Ethics and
ensure that breaches are the Statement of
sanctioned. Business practices.
Thank you