Nigeria has done fairly well on IFRS, but IFRS 9 is game changer for balance sheets of banks

INNOCENT OKWUOSA holds a PhD in accounting and is a member of the Governing Council of the Institute of Chartered Accountants of Nigeria (ICAN). As well as being a Senior Lecturer in Accounting at the University of Hertfordshire in the United Kingdom, he does a wide range of consulting in accounting and financial reporting standards. In 2010 when Nigeria adopted the now very famous global standards for financial reporting known as International Financial Reporting Standards (IFRS), he was at the forefront of driving its implementation in Nigeria, helping to provide better understanding and deploying his expertise to develop capacity in-country for the implementation of IFRS in Nigeria. Eight years after Nigeria adopted the global standards OKWUOSA, in this interview with PHILLIP ISAKPA and MOSES OBAJEMU, says because financial reporting standards are in a constant flux, there is a need to continue to provide regular updates to develop local capacity to help Nigeria maintain its pass mark in adopting and implementing IFRS. Following are excerpts from the interview. PHOTO CREDIT: JAYEOLA ISAAC

We will start by asking you, where is Nigeria at this time, with regards to standards in accounting generally?

That is a very good question. First of all, if we take our minds back, Nigeria used to have an accounting standard-setting body, which was the former Nigerian Accounting Standards Board. The Nigerian Accounting Standards Board (NASB) was established as a unit, a private sector initiative of the Institute of Chartered Accountants of Nigeria (ICAN) in 1982. However, NASB was taken over and became a government agency in 1992, reporting to the Federal Ministry of Commerce. It was setting standards used by listed companies in Nigeria and the standards they produced were known as the Statement of Accounting Standards (SAS). They produced many of them that addressed specific issues in the industry. Essentially, they adapted International Accounting Standards (IAS) to suit the Nigerian environment. I cannot comment much on the qualities of those standards given what we know today, but they served their purpose.  In 2010, the Federal Executive Council (FEC) made a pronouncement that Nigeria will migrate to International Financial Reporting Standards (IFRS) effective 2012. It was within this time that NASB transformed to Financial Reporting Council in 2011, reporting to the Federal Ministry of Industry, Trade and Investment. So, Nigeria is currently one of the countries that have adopted IFRS. Globally, over 120 countries have adopted the International Financial Reporting Standards and globally speaking, it looks like what we have are two competing accounting standards in the world right now, the US GAAP and the IASB IFRS GAAP. To that extent, we can say that Nigeria, currently adopts the international best practice when it comes to financial reporting standards.

Although what happened when Nigeria adopted IFRS was the lack of local expertise and knowledge in these standards, which made Nigeria look for experts from other jurisdictions. I am aware that the “big 4” firms had to look for staff from their foreign parents and network firms, some from South Africa, some from the UK, to come and help bridge the expertise gap here in Nigeria. Since then, I can say that there has been concerted effort to develop local experts. For instance, I know that the Institute of Chartered Accountants of Nigeria, came up with a Financial Reporting Faculty, where I have served as the Deputy Chair since its inception in 2014. The faculty runs IFRS Certification programme. I helped to design that certification curriculum for them and they have been running that certification program up till now. I also helped in the implementation of IFRS for some companies and ever since then, we can say that Nigeria has been developing local expertise in that area.

You said in 2010, the Federal Executive Council decided that we should adopt the IFRS; eight years down the road, what is your assessment in terms of human capacity, in terms of broad-based and specific knowledge, what is your assessment of how far we have come?

I have shed light on the serious knowledge gap when Nigeria started, and effort of ICAN to bridge that. There were some foreigners that came in, example, IAS Seminar, I came in from UK and ran some IFRS training through Entop Consulting. There were others who engaged in filling this knowledge gap. But as is always the case, the Big 4 firms and some medium firms worked hard to fill the knowledge gap. I ran IFRS training for staff and partners of three big medium firms. So, to answer your question on my assessment in terms of human capacity, in terms of broad-based, we can say the knowledge exists thus far. However, there is a caveat which also relates to specific knowledge. Why I say caveat is because IFRS knowledge is always in a constant state of flux. Because the business environment is dynamic IFRS knowledge should continuously be updated to keep pace with changes in IFRS. So, the thing about IFRS is that, it is not static, the knowledge you get at a particular point in time needs to be renewed continuously. Therefore, it is unlikely that at any point in time, that you have all the knowledge; you have to keep updating your knowledge and as I speak to you, I continuously update my knowledge because there are new issues continuously coming up. Therefore, undertaking certification training at a point in time equips you with knowledge at that point in time, beyond that point your knowledge becomes obsolete depending on subsequent developments in the standards. This is where those in the academics or practice have advantage. But generally speaking, I can conclude by saying that knowledge gap will always be prevalent in Nigeria because of the state of the economy which dictates the type of financial transaction encountered. For example, during IFRS training, we were made to understand that CBN will not allow speculative transactions on foreign exchange, as such, hedging and derivatives instrument under the then IFRS 39, now IFRS 9 was no go area. Even after teaching that, it remains theoretical as no practical application obtains in practice in Nigeria. Securitisation is common among small companies in UK, but not common among big corporations in Nigeria.

In addition, the IASB does IFRS updates because once a standard has been issued, you know events move on and you need to address those issues that come up and, therefore, the knowledge is on the continuous move, so to say. It is unlikely that expertise knowledge covering all IFRS will exist in Nigeria given that it is a developing economy in which some of the transactions that IFRSs address do not apply. So, I have initiated a move towards that – to have a forum of IFRS experts made up of Nigerians both home and abroad that can be a pool of that IFRS expert knowledge.

We want to come back to the issue you raised about the US GAAP and IFRS. There will be situations requiring the application of GAAP, because, I think I have seen, especially where you have international oil companies and other global players who have different reporting jurisdictions, especially in accounting, how have our local accountants been able to deal with such expectations?

One of the reasons why there was a migration to International Financial Reporting Standards, prior to that event, what investors globally were clamouring for, was harmonization of financial reporting across the globe. Harmonization means that, when you prepare your financial statement in one jurisdiction, it is comparable to what obtains in another jurisdiction; you can use the same standards to prepare the financial statement. But before then what we had was individual jurisdictions, like I gave an example of Nigeria using SAS. That was when there was a problem, because if I had a subsidiary of an oil company operating in Nigeria, and they want to prepare their financial statement in line with their local jurisdiction, such oil company has to use the Nigerian accounting standard. To incorporate such financial statement into the parent company that uses, maybe the US GAAP as the case may be, there will be translation and conversion issues, and also the interpretation of the figures themselves. So, the clamour for harmonization was justified, and that part of the harmonization was what gave birth to IFRS.

The process leading to IFRS becoming a global standard saw the EU playing a very big part, because you know the EU is a group of 27 countries and they are dominant countries with well established standards; so the question that EU was faced with was deciding if they should adopt the UK GAAP, or the German GAAP, or the Italian or French GAAP. So, that competition in EU, made them to think about getting a neutral standard, and that neutral one is the IFRS. It was the EU’s adoption of IFRS in 2005 together with IOSCO nod that gave the impetus for IFRS to be globally accepted because what happened was that those European countries exported IFRS to the countries they colonised, and that impetus started spreading, and today, we have over 120 jurisdictions that adopt IFRS. With that the harmonisation has come, although there are still some countries that are yet to adopt IFRS, the US GAAP remains, China did not adopt, so there is a difference between “whole adoption” and “convergence.” When you converge, what you do is you move your accounting standard towards IFRS, so it is close to IFRS but with some differences, which will still remain, like the Chinese GAAP is substantially converged to IFRS but yet, there are differences. In the case of the US GAAP, there was a Norwalk Agreement between the IASB and the US Financial Accounting Standards Board (FASB) in 2002 that they will work towards harmonisation or bridging the gap in their two standards. They embarked on joint projects; so, in joint projects, they will pick a standard and try and see how they can harmonize both standards. For instance, in 2010 they worked on the conceptual framework, which is the bedrock of accounting. But there were issues because the EU was pulling to have their own thinking embedded in the conceptual framework, and the US was also pulling to have their own ideas embedded in it.

One of such issue is including stewardship as one of the objectives of financial reporting. While the EU wanted ‘stewardship’ to be one of the objectives, the US was saying “stewardship should not be’, because we have the market for corporate control”. So, since they have the market for corporate control, why should they bother about ‘stewardship’, that was why after the issuance of the conceptual framework in 2010, US saw that if they adopt IFRS, they [would] have surrendered to a foreign regulation, and as you know, the US sees itself as a dominant player and leader in the world economy; their economy is huge. I have embarked on this detailed explanation to show that even though we are saying that the adoption of IFRS by over 120 jurisdictions has resulted in harmonisation, it is not so in practice, so the situations I have described above supports your point that there will be situations requiring the application of local GAAPs. And this will be for countries that followed the convergence route, like China and Japan, the condorsement route and outright rejection of IFRS adoption like the US. How are Nigerian accountants able to deal with such a situation, I am not entirely sure as these countries do not fall within common experience. However what may obtain is that local subsidiaries of companies with headquarters in such countries operating in Nigeria will prepare their financial statements using IFRS. It will now be left with accountants of their parent companies in China, Japan or US to deal with translation and conversion to the relevant GAAPs. It is unlikely to be the problem of Nigerian accountants unless they are employed abroad in those countries.

I can understand why US is not adopting IFRS; so, when IFRS was adopted in Nigeria, one of the messages was that we are importers of capital, and to import capital, you need a standard that exporters of capitals will be comfortable with. So, if that is the case, the US being an exporter of capital felt they did not need IFRS, because if it is meant for countries that need FDIs, they don’t need FDIs. So, they refused to adopt IFRS and stuck up to US GAAP and that is why the US GAAP has survived till today while other countries have been consumed by IFRS.

Now, because you mentioned importers and exporters of capital, and you have nailed it by saying that we are importers of capital. So, as importers of capital, we are going to be importing capital from China, which you say is neither here nor there with regards to IFRS, and then importers of capital from the US, how are practitioners who are involved in working with investors from these jurisdictions into Nigeria deal with the issue of standards?

I can say that we have been making efforts as a country to meet the expectations of those capital exporting countries in terms of reporting and then the template has been on, but whether that is the perception of the outsiders, is a different ball game altogether because when we adopted these standards, the issue moved from adoption to correct implementation, according to global expectation. One thing is to say we have adopted, but did you properly adopt and coupled with the fact that this is an emerging market, and emerging markets are known for weak institutions. So, when they say they have done something, the developed countries have doubt. I remember one conference I attended in Geneva on the future of financial reporting; they were assessing the state of IFRS adoption in EU, and the guest speaker was asking the question, “can you say IFRS implementation in countries like Slovenia, Estonia, Latvia, Lithuania and Slovakia; those Eastern European countries, compared to the UK or France. So, it is the same when you talk about an emerging market like Nigeria adopting IFRS, the institutional capability may not be there and so investors may not be fully convinced that it has been properly done, because there are other challenges within the economy that may make it difficult for you to do it exactly the way it should.

So, coming to your question with regards to IFRS, and then importers of capital from China and US, how are practitioners who are involved in working with investors from these jurisdictions into Nigeria deal with the issue of standards? I will say those from China will not be an issue because China is almost an emerging market like Nigeria, though a huge market, I don’t think its investors care much about IFRS like those from US and Europe. So, it is investors from Europe and US that these practitioners you are talking about should worry about. My advice is they should just insist in convincing them that Nigeria has adopted IFRS and is serious about its implementation which is the reason for the existence of Financial Reporting Council. At least half bread is better than none in this respect; bad implementation is better than no implementation. This is why this pool of expert knowledge should be developed.

That takes me to the role of accountants in the cases of corporate failures that we have had in the past. After going through the books of these organisations, some auditors have returned with verdicts of good health, compliance with the law, but shortly after, you begin to see signs of distress. Is it a case of collusion with the business managers or they are not just doing their jobs?

Another interesting question; incidentally I teach corporate governance in my University and in all the corporate failures, accusing fingers were pointed at accountants as having contributed to them. Take the latest case of Carillion in UK, where Deloitte and KPMG, rival Big Four firms, were the company’s internal and external auditors respectively. It may be a bit different with internal audit, but I think there is what we call audit expectation gap, which is like a big gulf between the role of an external auditor as an accountant and the actual thing that happens in practice. Until we are all in this knowledge, that gap will always be there, and we will be having a wrong expectation of the role of the accountant in this.

I will talk a little about the audit expectation gap when it comes to external audit. The auditor has a different understanding of what his role is; the public has a different expectation of what the auditor ought to do when he carries out the audit. For instance, the auditor or the accountant understands that when he does a routine audit, the objective is not to discover fraud, but the public expects the auditor to find fraud, so you see [there lies] the expectation gap. The auditor wants to form an opinion as to whether the financial statement presents a true and fair view, whether transactions are faithfully represented in the financial statement. A faithful representation will be understood by the auditor, but might not be understood by the public, and therefore when he carries out the audit and comes out with that verdict that the transactions have been faithfully represented, once there is fraud, the public will say he didn’t do his job very well.

If we think about the process of discovering fraud, it is a completely different assignment and when you carry out the annual audit, it is not with the purpose of finding fraud. When the company wants the auditor to investigate whether there is fraud in the financial system, that is a different assignment; so the auditor has to be specially engaged for it, but the annual audit he does is not aimed at discovering fraud but rather finding out if the financial statement presents a true and fair view, so that explains the expectation gap.

Having said that, it does not really mean that some auditors are not careless or have not failed to do what is expected of them. If you take the case of Enron, we will all agree that Arthur Anderson was culpable in that failure because the signs were there, and it is not that Arthur Anderson did not see the signs. But that brings us to a different issue and also a challenge that could be faced in every profession, because every profession has its own challenges. So this challenge is a different discussion beyond audit expectation gap into the realm of what the accountant is expected to do when challenged in his/her profession. For instance, there were different complex financial instruments designed by the CFO of Enron, Andrew S. Fastow, and in those complex designs, we can say there was no transparency in them. That, ordinarily, puts the auditor on enquiry because within the accounting profession we say, when the auditor is put on enquiry he should probe to the ‘bottom’, that’s the language we use and that means that he should do more and not dwell on the surface. So, those complex financial instruments engaged in by Enron, would have put Arthur Anderson on enquiry and they would have carried out additional work to be able to assure themselves; they would have taken extra steps to investigate those transactions, so we cannot say Arthur Anderson wasn’t aware of those transactions. It narrows down to the issue of professional challenges, and as an auditor, how do you handle professional challenges? That brings us to the roles of ethics in accounting, and that is where the failure came in, because if we talk about corporate governance mechanisms, the auditor is just an essential one, but the other bits are beyond the auditor. Did the auditor fulfil this external mechanism role? The answer here will be a definite no. But we must see it as an exception as we cannot use the failure of one firm or few firms to generalise about the profession. Accountants have been doing fantastic work saving millions of companies and promoting the smooth operation of the capital market. Accounting is the language of business and without accounting, it will be difficult for capitals to flow. So let us see accountants from that light rather than the few as there will always be a Judas among 12 disciples.

We hear about “red flag”, meaning auditors have the responsibility to flag off when issues like that arise. To be more specific, we have situations in the banking industry where we have seen things occur in the last few years and red flags weren’t raised.

Yes, those are the things I am talking about. It is not as if the auditor is not aware of that. If the auditor follows the procedure or process of carrying out the audit, they will reveal some of these things, but how they handle that is a different ball game, which varies from firm to firm and raises also the issue of ethics and professionalism. It could be the case of the few firms I have talked about but not the entire profession.

In Nigeria for instance, chartered accountants are more or less exempted from tax practices, they specify that you must be a member of the Chartered Institute of Taxation to practice and the chartered accountants have been making a case, is there any difference as such because most of these tax practitioners are also chartered accountants?

I think I need to clarify something. In Nigeria today, ICAN is one of the two professional accounting bodies mentioned by the enabling act allowed to practise tax. Therefore, it is not correct to say ICAN is exempted from tax, we can say allowed to practice tax. Let us take ICAN, ICAN was created by an Act of Parliament No. 15 of 1 September 1965 and since then, its members have been practicing taxation in the ordinary course of their profession. The Chartered Institute of Taxation of Nigeria you mentioned started February 1982 as Association of Tax Administrators and Practitioners. Thereafter, it transformed into Nigeria Institute of Taxation, which was formally launched on February 21, 1982 and statutorily recognised in 1987. So ask yourself who has been practising tax from 1965 in Nigeria till when the Chartered Institute of Taxation of Nigeria (CITN) came on board; who has been practising tax in Nigeria? Was there a vacuum? There was no vacuum. The ICAN chartered accountant was the tax practitioner. In fact, it is implied that as a chartered accountant, one of the functions you carry out in the ordinary course of your business is that of tax, if you look at the history of how CITN came on board, you will discover that it was chartered accountants that started the CITN and it was a faculty within ICAN before metamorphosing into a profession to balkanize the work that accountants do.  So again, I attribute this to the peculiarities of weak institution that are associated with emerging and developing countries. Why should a chartered accountant practising tax be a problem? In UK, there is similar body like CITN, but ICAEW has Tax Faculty and practice tax, even ACCA despite not being fully on ground like ICAEW practices Tax. The best tax practitioners in Nigeria today who are at the forefront of Nigeria tax policies example PWC Tax Partner Taiwo Oyedele, Deloitte Tax Partner Yemi or the KPMG Tax partner, then Albert Folorunsho of Pedabo are all ICAN members who have been practising tax before this issue. Are you saying these should not be allowed to practice tax? I think we should leave politics in profession, although I know of academic research around boundary work and social identity of the profession. That does not obtain here, and we should be matured about it.

For some clarification, the balkanisation of the profession of accounting, what is your take because we have seen a number of other groups emerge, like ANAN, CITN and others; is it that ICAN was not able to accommodate the expansion of ideas, was the umbrella too small?

I doubt whether it is because of the size of the umbrella, I think it is more of individual ambition and ego. It is very similar to the Nigerian political parties, where if you are not given the gubernatorial ticket, you migrate to another party. I think it is just individual ambition, and the worst part of it is the way some people go about it. Let us take the case of the forensic auditors’, for instance, which is a different situation to CITN and ANAN; I find it difficult to understand how you want to be a forensic auditor, when you have not been trained in the rudiments of accounting and audit before, because the name is ‘forensic auditor’. It connotes a specialized area of accounting and auditing, yet you have not been an auditor, not to talk of specializing. By definition, forensic auditing is a specialisation within the field of accounting, and forensic auditors often provide expert testimony during trial proceedings which may involve fraud. I have just talked about audit expectation gap which applies naturally to accountants in their field. At the other end, a forensic audit could also cover situations that do not involve fraud or embezzlement, such as disputes related to a bankruptcy, who practice bankruptcy and insolvency today. Then, you will see people making claim that it is a different field. I mean, who is the auditor of this world? It is the accountant, because there is no other profession that does audit, that is what the professional accountant does, that is what he is trained to do, so you have to be an accountant first before auditor, and you cannot talk about forensic auditor without first being an auditor. The specialised field is about evidence, legal being involved in that, but the basic process of carrying out audit, he must know that first of all, because you cannot just jump to say you want to bring pieces of evidence before the law or whatever. What evidences are you bringing of audit when you don’t know the basics, and again it has to do with the problem of an emerging economy, because it is harder to manage certain things in developing countries because of its weak institutional settings, systems are not well established. Rather than focusing on development and economic objectives, you see people paying more attention to politics and then lose the professional touch to the profession.

There is this perception that the fiscal authorities have not done much, especially in the last three and a half years, by way of economic re-engineering, just like we had in the past. During Ngozi Okonjo-Iweala’s time, we had some reforms and initiatives that spurred business activities, but in recent times, we have not seen many policies that could have helped to revamp and revive the economy; what do you think we are missing?

I sometimes may not like to dabble into the economic policies of the government, but if I could just touch it a little; about the area that we seem to miss when we talk about economic development in Nigeria is the attention that the government pays to some sectors. We know that Nigeria pays so much attention to the oil sector, the president has just read the budget and I was trying to analyse the sources of income from the budget and you see oil revenue constituting the bulk of it, then the non-oil revenue maybe in form of tax and then you see budgeting for deficit amounting to about N1.8 trillion, and you wonder what is going on. We need to ask ourselves what drives the economy. If you look at the western world right now, the emphasis is shifting to a term they use to describe the kind of economy they want and that is ‘knowledge-based economy’.

In a knowledge-based economy, intellectual and human capital become the greatest asset that drives the economy; human capital, intellectual capital, it is no longer the financial capital or the natural capital like oil. So the question is to what extent has intellectual and about human capital development in Nigeria be budgeted for? What can we pin down to being the effort of the government towards the development of intellectual and human capital because if we budget in such a way that we can develop the intellectual and human capital, we won’t be talking about oil as driving our economy. If we budget and plan for an economy that is knowledge-based –, the budget will be different and the economic activities that will emerge from it different.

I know about a Nigerian, Chinedu Echeruo who developed an app. Later bought by Apple for $1 billion. Such human capital abound in Nigeria in computer village, Alaba, Onitsha, Aba market, but are left fallow because we do not budget to harness them. For example, the FRCN/Stanbic conference is about software developed by Nigerian bankers. That is the kind of economy that we are talking about. So, if we are to talk about innovations that we can bring to our economy, we won’t be laying emphasis on oil as it is what accountants refer to as a wasting asset. We can see what is happening in technology, there is Dubai smart city that is about to do away with professional services. Globally many countries are banning fossil fuel cars with South Korea announcing an early date of 2020,  we now have alternative energy in electric cars. If that is the future of economies, why are we still concentrating on oil, why can’t we look for alternatives?

We are talking about sustainable development and Nigeria has signed on to the SDGs. SDG 1 is No Poverty; SDG 2 is Zero Hunger, SDG 3 is Good Health, SDG 4 is Quality Education and SDG 5 is Gender Equality and SDG 6 is Clean Water and Sanitation. How has the budget provided for these? These are the things that would have improved human life and make for the intellectual and human capital development. I thought that this budget would have told us how the government will work to achieve the SDGs. If we are saying no poverty, whereas 87 million Nigerians are living in abject poverty and we are now the poverty capital of the world, talk about quality education when we have 12.3 million children out of school, and I think ASSU is on strike, how are we going to meet all these SDGs and what is economy if it doesn’t transform the life of the citizens that you are governing for the better? These are innovations that we should be talking about. Even SDG 12 is talking about responsible production and consumption. Look at the oil companies in Nigeria, from where all those trillions of revenues will come from in the budget, if we also think about SDG goals where you will say responsible production and consumption, the oil companies would have stopped flaring gas. You say you don’t have electricity; meanwhile, the gas being flared would have been enough to electrify the whole country. So, if we have planned for responsible production and consumption, these are the things that our budget should be talking about. Like I said I feel sad talking about Nigeria economy and its inherent waste.

Let us return to IFRS, the midwifing of IFRS. I know that the Financial Reporting Council is supposed to be the successor of NASB and it is supposed to be the major midwife of IFRS. What is your take on the IFRS implementation and the development of expertise for it in the country?

FRC is the regulatory body for financial reporting, but FRC has its own challenges when it comes to expertise. If you visit FRC office, you would see the staff they have may not be able to match the responsibilities entrusted on them. This is not the fault of the CEO or the staff but that of resources. The act establishing it makes provision for

Directorate of Accounting Standards – Private Sector

Directorate of Accounting Standards – Public Sector

Directorate of Auditing Practice Standards

Directorate of Actuarial Standards

Directorate of Valuation Standards

Directorate of Inspection and Monitoring

Directorate of Corporate Governance

Each of these directorates is supposed t be headed by a director but presently there is no one director at FRC. This may be resources issues. As you can see, they ought to be in charge of Accounting standard for public sector, as well as Corporate governance. If we talk about Corporate Governance, that includes Public Governance. They are in charge of regulating the accounting profession, and directorate of Auditing Practice standard and Inspection and Monitoring ought to go on the field and visit all the listed companies in Nigeria and see what the “big 4” firms and medium firms are doing in terms of audit? That is the Director of Practice standard. Then ask yourself, how many staff does FRC have? If you look at it, they are supposed to issue the standards, but they opted to adopt IFRS. The process of adopting IFRS should have been a very rigorous process. If you look at the EU, the EU does endorsement. The process of endorsement means that the IFRS is subjected to scrutiny to find out whether it fits the environment? To do that, you ought to have expert knowledge. But the FRC is not doing that. When the former secretary was there, what we did was a wholesome adoption. But even in the UK today, the SMEs have not adopted IFRS. Despite the developed nature of the economy the small enterprises were not forced to adopt IFRS; and that is also the issue that happened in Nigeria that made Eco Hotels to take FRC to court to say they are not supposed to do that. Could it be lack of knowledge within FRC, I don’t know. As you know the court ruled that the FRCN lacked the express powers to regulate private companies that routinely file returns only with the FIRS and CAC.

So the FRC has a big mandate, but I am not sure about commensurate resources to be able to fulfil those mandates. Expertise is bound to suffer because it is about human capital and intellectual capital development that I spoke about before. That is why we have proposed, at ICAN, to corroborate with them in areas like examining audit firms. ICAN has been doing that because it is ICAN members that in audit and ICAN has a well- developed practice monitoring department within its Secretariat which monitors its members in practice. Like I said before, ICAN also has Financial Reporting Faculty, where there are people who have developed IFRS skills, implemented IFRS, and have created IFRS update for their clients. So, opportunity for corporation here.

But as I said before, the IFRS knowledge is not static. As we are talking today, the banks are grappling with implementation of IFRS 9 and the implementation of IFRS 9 will change the balance sheet of banks. Even in the UK, it is a big issue, and because nobody has done it before, finding expertise will be difficult in Nigeria and also within FRC. This is why we are now working to create this pool of IFRS expertise knowledge in Nigeria.

Focussing on IFRS 9, and how it could change the balance sheet of banks, can you throw more light on this?

IFRS 9 became effective January 2018, it means that most banks may be reporting on it for the first time. Specifically, it has proposed that banks adopt a radical change in their loan loss provisioning. Previously under IAS 39, banks were allowed to adopt the incurred loss model which is based on incurred bad loans but under IAS 9, banks are expected to adopt expected loss model when making provision for non-performing loans. The problem here is that expected loss is futuristic, what do you expect to happen in case of bad loans. This implies a kind of provision based on modelling which the banks are not used to, hence the term grappling that I used.

So when you say they are “grappling with it”, what do you mean?

Yes, it is the modelling, it is the methodology of assessing that loan loss provisioning that they are grappling with, because they have not done that before, and they are going to do it for the first time. That will mean a significant change to what they have been doing before, and for some, it may mean changing their accounting system or software used in deriving the reporting figure or that used in the preparation of their accounts.

The point is about knowledge; they are grappling with the implementation of IFRS 9, which could also be as a result of lack of expertise. What are the initiatives in place to ensure that there are enough expertise and knowledge?

I cannot actually speak for individual banks but as usual they may resort to bringing in expertise from jurisdiction that have practiced it, like the UK. The problem is that FRCN does not allow early adoption otherwise some banks would have tried it in practice, but we are in a situation where they all have to do it at the same time, so there is nobody to learn from. Again it may be down to the Big 4 firms but this expertise ought to be available elsewhere.

That is why there is now a group of experts that have come together, which I have started with some other IFRS experts. It has some partners from the “big 4” firms in charge of IFRS, we also have members from the Financial Reporting Faculty of ICAN. So we have come together to form this group and the group has agreed to take up the IFRS knowledge gap within the economy and bridge it, because one of the things that happens is that the process of setting the standards, requires consultation and an exposure draft is issued; IASB invites comments from member countries especially those who have adopted IFRS. But within Nigeria, we don’t have that rigorous process through which these comments get to IASB. So, this IFRS Expert group has agreed to come together to bridge that gap. They will now make comments, especially picking issues that are within the context of Nigeria and send to IASB so that the Nigerian voice can be heard. It is expected that through this process expertise will be developed, because these people have been involved in the implementation of IFRS in Nigeria. They know what clients want, they know the issues and shortcomings, they know the directions and peculiar problems of companies in the country, and these peculiar problems are never reflected in the standard setting and this is what the IFRS experts will be doing going forward. And one of the other thing they will be doing is to work in collaboration with a financial and business newspaper like your publication, business a.m. to disseminate information, through a series of articles written by these experts and published periodically to enlighten users of financial information in Nigeria about current developments in IFRS, about direction moving forward and about expectations as it applies to the environment and listed companies in Nigeria; and this group has been formed already.

Do you think the world will continue to speak about the “big 4” forever? Globally and then locally, the “big 4” are still dominating, when will we start to have some clout about the indigenous accounting practices, must they be in relation to global affiliations and stuff like that?

That is a good question. Personally, I doubt whether there will be that indigenous firm, without affiliation, that can gather that clout or name that we can associate with even the medium-sized firms, not to talk of the “big 4”. But nothing is impossible in Nigeria. I doubt, because what has happened is that even the local firms themselves, that are trying to come up, have to enter into a network of firms bearing foreign names to be able to come up and get that kind of clout that will make them begin to get some good audit clients. For instance, we have the likes of Baker Tilly, it is not a “big 4” firm, it is a group of indigenous firms that bought the franchise. There are also other firms like Grant Thornton, Mazars etc. But you know the thing about audit is the reputation of your firm, there is always this understanding everywhere that if you are audited by a “big 4,” your audit is fine, not by unknown firms. This is where the local content in the Petroleum Industry Bill could help. The path to acquiring such reputation lies in the mergers of these indigenous or local firms. Problem however is that they find it difficult to agree to merge, so they are likely going to remain small in future paving way for the Big 4 and medium firms to dominate, that is why I say that, I doubt.