Public Sector Accounting and Finance · 2025

a (i) Ogogo LCDA Statement of financial performance for the year ended December 31, 2023.

Workings N’000 N’000 Revenue: Allocation from Federal Government. 10,574,100 Special emergency grant from Wazobia 544,680 Internally Generated Revenue (IGR): Court fines 1,969,200 Lock-up shops rent 1,540,800 Hawker slicense 668,700 Car park rate 454,860 Warehouse rent 373,500 Advertisement and promotion 207,000 Open shop license 568,620 Market tolls 459,900 Marriage and divorce registration 789,120 Property rate i. 1,281,240 Interest on loans to staff ii. 26,082 8,339,022 Donation and gifts: Donations 1,453,860 Gift from philanthropist 1,054,800 2,508,660 Total revenue 21,966,462 Expenditure: Employee emoluments iii. 10,478,160 Interest on loan notes iv. 135,594 Office consumables v. 1,157,760 Councillor's allowance 1,422,000 Printing and publication 1,189,980 Commission to revenue collectors 284,220 Conferences 262,440 Consultancy 85,500 Repairs and Maintenance 174,960 Telecommunication cost 338,940 Town hall meeting 1,168,020 Travel and transport 984,060 Utility bills 360,720 Special audit fees 488,340 Other expenses vi. 441,270 105 Depreciation of non- current assets: vii.

- Buildings 43,416 - Furniture and fittings 90,000 - Motor vehicles 110,124 Total expenditure 19,215,504 Surplus 2,750,958

Workings i. Property rate N’000 As per trial balance 1,318,140 Less receipts in advance 36,900 Credited to statement of financial performance 1,281,240

ii. Interest on loans to staff N’000 As per trial balance 18,900 Add accrued interest (7% X 372,600) – 18,900) 7,182 Credited to statement of financial performance 26,082

iii. Employees’ emoluments N’000 Salary of non- established post 4,793,040 Salary for established post 5,671,620 Add: Salaries outstanding 13,500 Charged to statement of financial performance 10,478,160

iv. Interest on loan notes N’000 As per trial balance 103,320 Interest payables 32,274 Charged to statement of financial performance 135,594

v. Office consumables N’000 Office consumables (1/1/23) 329,220 Add: Purchases 856,440 1,185,660 Less: closing stock at fair value 27,900 Office consumables consumed 1,157,760 106

vi. Other expenses N’000 As per trial balance 461,160 Less: Amount paid in advance c/f 19,890 Charged to statement of financial performance 441,270

(ii) Ogogo LCDA Statement of financial position as at December 31, 2023 Non-current assets: Workings N’000 N’000 Property, plant and equipment vii. 2,861,640 Financial assets (Loans and advances to staff) 372,600 Work-in-progress viii. 333,360 Current assets: Receivables ix. 3,781,332 Inventory 27,900 Cash and cash equivalents 913,140 Total assets 8,289,972 Liabilities Non-current liabilities: Loan notes 1,355,940 Current liabilities: Payable x. 2,907,414 Total liabilities 4,263,354 Net assets 4,026,618 Equity Accumulated fund b/f 1,275,660 Surplus for the year 2,750,958 Total equity 4,026,618 107

Workings i. Non- current assets schedule Life (years) 10 5 50 MV F&F Building Total N’000 N’000 N’000 N’000 Cost as at 1/1/2023 1,101,240 450,000 2,145,600 3,696,840 Additions during the year - - 50,400 50,400 Cost as at 31/12/2023 1,101,240 450,000 2,196,000 3,747,240 Depreciation: Accumulated depreciation. 1/1/2023 327,960 180,000 134,100 642,060 Annual depreciation. 110,124 90,000 43,416 243,540 Accumulated depreciation 31/12/2023 438,084 270,000 177,516 885,600 Carrying amount at 31/12/2023 663,156 180,000 2,018,484 2,861,640

ii. Work in Progress N’000 Per trial balance 369,360 Less completed portion 36,000 Balance c/f 333,360 iii. Receivables N’000 Per trial balance 3,754,260 Interest 7,182 Other expenses paid in advance 19,890 Total 3,781,332

iv. Payables N’000 Per trial balance 1,741,680 Salaries outstanding 13,500 Withholding taxes 817,200 Property rate 36,900 Interest 32,274 Contract retention 251,460 Cost to complete building 14,400 Total 2.907,414 108

b. Explanation of some terms i Materiality: The relevance of information is affected by its nature and materiality. Information is material if its omission or misstatement could influence the decisions of users or assessments made on the basis of the financial statements. Materiality depends on the nature or size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful ii Substance over form: If information is to represent faithfully the transactions and other events that it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The substance of transactions or other events is not always consistent with their legal form.

Examiner’s comment The question is in two parts. Part (a) of the question tests candidates’ knowledge of the preparation of financial performance and position of a local council development authority. Part (b) requires the candidates to explain the concept of materiality and substance over form in public sector accounting. All the candidates attempted the question and their performance was below average. The common pitfalls were candidates’ inability to explain the concepts of materiality and substance over form in details. Candidates are advised to pay more attention to the various sections of the syllabus and to make use of the Institute’s Pathfinder and the Study Texts for better performance in future examinations.

Marking guide Marks Marks a. (i) Preparation of statement of financial performance Title ½ Calculations in the statement (38 ticks @ ¼ each) 9½ Relevant workings (6 ticks @ ½ each) 3 13

(ii) Preparation of statement of financial position Title ½ Calculations in the statement of financial position (14 ticks @ ½ each) 7 Relevant workings (26 ticks @ ¼ each) 6½ 14 109

b. Definition of some terms

(i) Materiality 1½ (ii) Substance over form 1½ 3 Total 30

SECTION B

a.(i) Conditions or measures to be put in place to enhance public accountability To enhance the promotion of accountability in the public sector management in Nigeria the following conditions are canvassed:

• Rendering of account: It is expected that accounts should be rendered in all public organisations. Public accountability can be achieved only if those who receive the accounts have the power and ability to take actions on the basis of those accounts;

• Accountable leadership: The existence of leadership that genuinely believes and is committed to the notion of public accountability and will therefore ensure that the laws to safeguard public fund are enforced irrespective of the might of the public officer concerned;

• Investigative reporting/media attention: Public accountability needs the presence of active investigative media that will help to keep the leadership on their toes;

• Public enlightenment: Public accountability will be enhanced if the generality of the populace does not believe that embezzlement of public funds is part of the “political manifesto” which the political leaders must achieve while in office;

• Whistle blowing policy: “Whistle blowing’ should be encouraged in the public sector whereby any public official who encounters mismanagement or wrong doing in the conduct of government business may” blowthe whistle”” by taking the case to the public arena. The prospect that somebody may go public can deter some officials contemplating wrongdoing;

• Openness in governance: All unethical and corrupt practices should be exposed as much as possible while those who indulge in them should be promptly and severely punished in accordance to the law. To this end, there should be full implementation of the Freedom of Information Act (FOIA), 2011 so as to promote openness and feedback in public governance and management; 110

• Encouragement of due process: There should be strict compliance with due process and public procurement procedure as spelt out in the Public Procurement Act (Nigeria, 2007), this will curb corrupt practices and instil financial discipline in budget implementation by the public bureaucracy. Moreover, there should also be strict adherence to the provisions of the Fiscal Responsibility Act;

• Review of current method of asset declaration: The present method of secret declaration of assets by public officers leave much to be desired. As such there is need to institute a more open method of declaring assets so as to afford the opportunity for patriotic citizens to scrutinise and report any incorrectly declared assets to the appropriate authorities;

• Strengthening of anti-graft bodies: All anti-graft bodies such as the EFCC, ICPC, CCB and CCT should be further strengthened by way of being adequately staffed, equipped and funded to make them more effective institutional mechanisms for fighting corruption. Furthermore, other law enforcement agencies notably the police should be strengthened so as to build their capacity to detect, investigate, prosecute and deter or prevent corruption; and

• Deletion of immunity clause: The immunity clause should be expunged from the Nigerian constitution. By so doing, political leaders who are fingered for corrupt practices can be prosecuted while in office.

• Freedom of Information (FOI) Act: The FOI Act grants citizens the right to access public records, ensuring transparency in government activities. It helps expose corruption and mismanagement by making government documents available upon request.

• E-governance and Digital transparency: The adoption of electronic payment systems, online budget tracking, and digital procurement platforms has reduced fraud and improved accountability in public financial management.

• Auditor-General’s oversight: The Office of the Auditor-General audits government accounts to ensure funds are used appropriately. It provides reports to the legislature, helping to hold officials accountable for financial mismanagement.

• Judicial reforms and special anti-corruption courts: Special courts have been established to handle corruption cases efficiently, reducing delays in prosecution and ensuring swift justice.

• Legislative oversight and public hearings: The National Assembly and State Houses of Assembly conduct public hearings and investigations to scrutinise government spending and policies, ensuring accountability.

• Public Accounts Committee (PAC): The PAC is a legislative body responsible for examining audited accounts of government entities and ensuring financial transparency. It plays a crucial role in:

• Reviewing financial reports submitted by the Auditor-General. 111

• Investigating financial irregularities in government spending.

• Ensuring compliance with financial regulations and budgetary allocations.

• Holding public officials accountable for mismanagement of funds.

ii. Assurances of integrity:

• Fiscal data should meet accepted data quality standards and budget forecasts and updates should reflect recent revenue and expenditure trends, underline macroeconomic development;

• Data in fiscal reports should be internally consistent and reconciled with relevant data from other sources. Major revisions to historical fiscal data and any changes to data classification should be explained;

• Ethical standards of behaviour for public servants should be clear and made public;

• Purchases and sales of public assets should be internally audited and audit procedures should be open to review;

• Fiscal information should be independently scrutinised. All public finances and policies should be subject to scrutiny by national audit body or an equivalent organisation that is independent of the executive and

• The national audit body or equivalent organisation should submit all reports, including its annual report to the legislature and publish them.

b. i. Some of the ethical issues are as follows: Details Ethical concern Audit response Conflict of interest (Mall development) The appointment of the former Rector as the Chairman and CEO of the real estate firm without public advertisement raises concerns about favouritism and conflict of interest. Verify the selection process to ensure transparency and review documentation on the appointment, justification, and any potential conflicts of interest that may arise. Fairness in scholarship distribution The Rector granting a request for two scholarship spots outside the established evaluation process may indicate undue influence and lack of fairness. Assess whether the selection of scholarship recipients aligns with the predefined criteria. Cross- check applicant records with oversight reports from the Ministry of Social and Humanitarian Affairs. 112 Mr. Independence of Koko previously aauditor (Mr. Koko’s worked for Ojaja State involvement) Polytechnic and later audited it, which may compromise objectivity. Examine the audit methodology to ensure independence was maintained. Assess whether alternative auditors should have been engaged. Transparency in handling financial mismanagement allegations Negative media perception and a lawsuit involving an ex-employee could impact stakeholder confidence in financial reporting. Investigate the financial mismanagement claims by reviewing audit findings and legal records. Ensure disciplinary actions and termination decisions are backed by proper documentation. Training pprogramme integrity If the IPSAS and ISA training lacks proper oversight, it could lead to inefficiencies and misuse of public funds. Review the procurement and contracting process for trainers. Ensure that training materials align with best practices and objectives. Public sector accountability in financial reporting Ensuring that trained public auditors apply IPSAS correctly in financial reporting to maintain credibility. Evaluate post-training audits to determine if attendees implement standards properly. Conduct compliance tests on financial statements prepared under IPSAS

ii. Criteria that auditors can use to decide if external confirmations can be considered under substantive procedures The following factors will be used to assist auditors to determine whether confirmations can be used as substantive procedures:

• The ability of the willing intended third party to respond o the request of the auditors.

• The cost involved maybe more and the auditors will decide to use substantive procedures instead of information from the third party.

• Where the responsible party operates in an environment in which confirmations are not an aspect of day-to-day operations.

• Where the respondent is close to the entity and responding to a confirmation maybe less reliable. 113

iii. An entity may carry out any direct procurement where:

• Goods, works or services are only available from a particular supplier or contractor, or if a particular supplier or contractor has exclusive rights in respect of the goods, works or services, and no reasonable alternative or substitute exits;

• There is an urgent need for the goods, works or services and engaging in tender proceedings or any other method of procurement is impracticable due to unforeseeable circumstances giving rise to the urgency which is not the result of dilatory conduct on the part of the procuring entity;

• Owing to a catastrophic event, there is an urgent need for the goods, works or services, making it impracticable to use other methods of procurement because of the time involved in using those methods;

• An entity which has procured goods, equipment, technology or services from a supplier or contractor, determines that:

• Additional supplies need to be procured from that supplier or contractor because of standardization;

• There is a need for compatibility with existing goods, equipment, technology or services, taking into account the effectiveness of the original procurement in meeting the needs of the procurement entity;

• The limited size of the proposed procurement in relation to the original procurement provides justification;

• The reasonableness of the price and the unsuitability of alternatives to the goods or services in question merit the decision.

• The procuring entity seeks to enter into a contract with the supplier or contractor for research, experiment, study or development, except where the contract includes the production of goods in quantities to establish commercial viability or recover research and development costs; and

• The procuring entity applies this Act for procurement that concerns national security, and determines that single-source procurement is the most appropriate method of procurement.

• The entity may procure the goods, works or services by inviting a proposal or price quotation from a single supplier or contractor. Also, the entity shall include in the record of procurement proceedings a statement of 114 the grounds for its decision and the circumstances in justification of single source procurement.

Examiner’s report The question is in two parts. Part (a) of the question is in two sections, section (i) requires the candidates to identify and explain the conditions or measures to be put in place to enhance public accountability, while section (ii) require candidates to identify IMF codes of good practices and fiscal transparency on assurance of integrity. Part (b) is in three sections, section (i) requires the candidates to describe the ethical concerns that an experienced public sector auditor will identify while providing appropriate audit responses when auditing a public sector entity, while section (ii) requires the candidates to explain the criteria for adopting external confirmation as part of substantive procedures as an auditor. Section (iii) of the question however, requires the candidates to explain the conditions under which an entity can carry out a direct procurement. Few candidates attempted the question and their performance was below average. The commonest pitfall was the inability of the candidates to properly understand the requirement of the question. Candidates are advised to make use of ICAN Pathfinders and the Study Text for better performance in the Institute’s future examinations.

Marking guide Marks Marks a. Conditions or measures to be put in place to enhance public accountability b. Identification any six conditions or measures to be put in place to enhance public accountability 3 Explanation of six conditions identified 3 Four good practices and transparency under IMF Code of practices and fiscal transparency 4 10 b.i. Ethical issues and audit response Identification of any three ethical concerns at ½ mark each 1½ Explanation of the three ethical issues identifyied at ½ mark each 1½ Explanation audit response to ethical issues identified at 1 mark each 3 ii. Criteria for adopting external confirmation Explanation of four (4) criteria that auditors can use to decide if external confirmations can be considered under substantive 115 procedures at ½ mark each. 2 iii. Conditions for direct procurement Four conditions under which an entity can carry out a direct procurement at ½ mark each 2 10 Total 20

(a) Fair presentation of financial statements for public entities entails the following

(i) Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. (ii) Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definition and recognition criteria for assets, liabilities, revenues and expenses set out in IPSASs. (iii) The application of IPSASs is presumed to result in fair presentation. (iv) Select and apply accounting policies in accordance with IPSAS 3. (v) Present information including accounting policies in a manner that meets qualitative characteristics of information. (vi) Provides additional disclosures when compliance with the special requirements of IPSASs is not sufficient to enable users understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

(b) (i) Analysis of university funding With reference to relevant IPSAs, the costs of N26,650,000 which relate to project 3 can be treated as follows:

• IPSAS 31 governs the treatment of intangible assets including research and development cost;

• IPSAS 14 governs events after the reporting date;

• Development costs can be capitalised if they meet the six criteria which are listed below: Criteria Project 3 appraisal Saleable or useable by the entity Yes - Can be sold once complete Technically feasible to complete Yes - Technically feasible Economic benefits expected to flow Yes - Can be sold commercially to generating economic benefits to university Measurable expenditure Yes - Expenditure has been measured and included in trial balance 116 Intention to complete Yes - Intending to complete Compellable Yes - Although no funding in place at year end, shortly after year end a loan was obtained so that project can be completed. Treatment: ➢ Project 3 meets the six criteria and therefore can be capitalised. Although the loan was obtained after the balance sheet date it provides information about balances at the balance sheet date i.e., the costs of project 3. ➢ The intangible asset should not be amortised until the expected economic benefits commence.

(i) With reference to the relevant IPSAs the income of N67,957,500 from research grants contracts are as follows: ➢ IPSAS 9 governs the treatment of revenue from exchange transactions including income from research grants and contracts. ➢ IPSAS 23 governs revenue from grants based on percentage of completion ➢ Revenue is recognised when it is probable that future economic benefits or service potential will flow to the entity and these benefits can be measured reliably. ➢ Where revenue relates to ’rendering of services’ it must also be possible toreliably measure the stage of completion,the costs incurred and the costs to complete. ➢ In relation to the research grants and contracts, economic benefits of N67,957,500 have already flowed to the entity and can be measured reliably. ➢ Information is available on stage of completion (percentages given in note 3 of the question paper) and costs to complete are known to the university. ➢ Revenue of N60,905,910 should therefore be recognized based on the percentage of completion (see working 1 below). ➢ The remaining amount of N7,051,590 should be held as deferred income on the statement of financial position. Project Amount % complete Revenue for recognition N N 1 15,990,000 80% 12,792,000 2 22,386,000 96% 21,490,560 3 29,581,500 90% 26,623,350 Total 67,957,500 60,905,910 117

Examiner’s report The question examines candidates’ knowledge of the meaning of fair representation of financial statements for public sector entities. It also requires the candidates’ to explain with reference to relevant IPSASs the treatment of development costs and revenue from research grants contracts. Majority of the candidates attempted the question and their performance was below average. The commonest pitfall was the inability of the candidates to properly explain the treatment of development costs and revenue from research grants contracts in accordance with provisions of relevant IPSASs. Candidates are advised to read widely and ensure that they have adequate knowledge of the relevant sections of the syllabus. They should also make use of the Institute’s Pathfinders, Study Texts and other relevant learning materials for better performance in future examinations.

Marking guide Marks Marks a. Fair presentation of financial statements Stating any four points @ ½ mark each 2

b. (i) Treatment of the costs of N26,650,000 which relate to project 3 Identification of ten points @ 1 mark each 10

(ii) Treatment of the revenue of N67,957,500 from research grants contracts Identification of eight points @ 1 mark each 8 Total 20 118

Ekenga Local Government a. (i) Summary of financial data during the construction period of the construction contract Year 1 Year 2 Year 3 N’000 N’000 N’000 Initial amount of revenue agreed in contract 60,000 60,000 60,000 Variation (4,000 + 7,500) - 11,500 11,500 Total contract value 60,000 71,500 71,500 Total contract revenue 60,000 71,500 71,500 Contract costs incurred to date 30,240 88,550 123,000 Contract costs to complete 66,760 34,450 - Total estimated costs 108,000 123,000 123,000 Stage of completion 28% 77% 100%

(ii) Amounts of contract revenue and expenses recognised in the statement of financial performance To date Recognised in the prior years Recognised in the prior years Year 1 Revenue (60,000 x 28%) 16,800 - 16,800 Expenses (108,000 x 28%) 30,240 - 30,240 Year 2 Revenue (71,500 x 77% 55,055 (16,800) 38,255 Expenses (123,000 x 77%) 94,710 (30,240) 64,470 Year 3 Revenue (71,500 x 100%) 71,500 (55,055) 16,445 Expenses (123,000 x 100%) 123,000 (94,710) 28,290

b. (i) A controlling entity need not present consolidated financial statements if it meets all the following conditions: ➢ It is itself a controlled entity and the information needs of users are met by its controlling entity’s consolidated financial statements, and, in the case of a partially owned controlled entity, all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the entity not presenting consolidated financial statements; ➢ Its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); 119 ➢ It did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and ➢ Its ultimate or any intermediate controlling entity produces financial statements that are available for public use and comply with International Public sector accounting Standards (IPSASs), in which controlled entities are consolidated or are measured at fair value through surplus or deficit in accordance with this Standard. ➢ If the subsidiaries’ financial statements are prepared under different reporting dates and the consolidation would not materially affects the reports ➢ If the parent entity has significant legal or operational restrictions. ➢ IPSAS 17, if the subsidiary is classified as “held for sale”.

ii. The following examples illustrate financial benefits that an entity may receive from its involvement with another entity:

• Dividends, variable interest on debt securities, other distributions of economic benefits;

• Exposure to increases or decreases in the value of an investment in another entity;

• Exposure to loss from agreements to provide financial support, including financial support for major projects;

• Cost savings (for example, if an entity would achieve economies of scale or synergies by combining the operations or assets of the other entity with its own operations or assets);

• Residual interests in the other entity’s assets and liabilities on liquidation of that other entity; and

• Other exposures to variable benefits that are not available to other entities. Examples of non-financial benefits include:

• The ability to benefit from the specialized knowledge of another entity;

• The value to the entity of the other entity undertaking activities that assist the entity in achieving its objectives;

• Improved outcomes;

• More efficient delivery of outcomes;

• More efficient or effective production and delivery of goods and services; 120

• Having an asset and related services available earlier than otherwise would be the case; and

• Having a higher level of service quality than would otherwise be the case

Examiner’s report The question is in two parts. Part (a) of the question is in two sections. Section (i) requires candidates to prepare a summary of financial data during construction period of the contract with given stages of completion, while section (ii) requires the candidates to prepare the amount of revenue and expenses to be recognised in the statements of financial performance. Part (b) of the question requires the candidates to identify the conditions that will warrant an entity not to present consolidated financial statements in accordance to IPSAS 35 and identify examples of financial and non-financial benefits that an entity may receive from its involvement with another entity. Most of the candidates attempted the question and performance was below average. The common pitfalls were the inability of the candidates to identify the conditions that will warrant an entity not to present consolidated financial statements in accordance to IPSAS 35. Candidates are advised to read widely and to ensure that they have adequate knowledge of relevant regulations relating to public sector accounting for better performance in the Institute’s future examinations.

Marking guide Marks Marks a. (i) Preparation of summary of financial data Title ¼ Nineteen ticks at ¼ mark each 4¾ 5 (ii) Calculation of amount of revenue and expenses to be recognised in the statement of financial performance Title 1 Sixteen ticks at ¼ mark each 4 5 b.(i) Conditions that will warrant entity not to present consolidated financial statements Four conditions at 1 mark each 4 (ii) Examples of financial and non-financial benefits Identification of three financial benefits at 1 mark each 3 Identification of three non-financial benefits at 1 mark each 3 10 Total 20 121

SECTION C

a. Guidelines for grant design

i. Clarity in grant objectives. Grant objectives should be specified clearly and precisely. ii. Autonomy. Sub-national governments should have complete independence and flexibility in setting priorities. They should not be constrained by the categorical structure of programs and uncertainty associated with decision making by national officials. Tax-base sharing – allowing sub-national governments to introduce their own tax rates on national bases, formula-based revenue sharing, or block grants – is consistent with this objective. iii. Revenue adequacy. Sub-national governments should have adequate revenues to discharge designated responsibilities. iv. Responsiveness. The grant program should be flexible enough to accommodate unforeseen changes in the fiscal condition of the recipients. v. Equity (fairness). Allocated funds should vary directly with fiscal-need factors and inversely with the tax capacity of each jurisdiction. vi. Predictability. The grant mechanism should ensure predictability of sub- national governments’ shares by publishing five-year projections of funding availability. The grant formula should specify ceilings and floors for yearly fluctuations. Any major changes in the formula should be accompanied by harmless or grandfathering provisions. vii. Transparency. Both the formula and the allocations should be disseminated widely in order to achieve as broad a consensus as possible on the objectives and operation of the program. viii. Efficiency. The grant design should be neutral with respect to sub- national governments’ choices of resource allocation to different sectors or types of activity. ix. Incentive. The design should provide incentives for sound fiscal management and should discourage inefficient practices. Specific transfers should not be made to finance sub-national government deficits. x. Accountability for results. The grantor must be accountable for the design and operation of the program. The recipient must be accountable to the grantor and its citizens for financial integrity and results (i.e., 122 improvements in service delivery performance). Citizens’ voice and exit options in grant design can help advance bottom-up accountability objectives.

b. Omidan State Government Cost Benefit Ratio for each project A – E A B C D E ₦’m ₦’m ₦’m ₦’m ₦’m Estimated benefit 250 220 200 260 360 Estimated cost of investment 100 200 120 240 300 Cost benefit ratio (Benefit / Cost) 250/100 = 2.5 220/200 = 1.1 200/120 = 1.67 260/240 = 1.08 360/300 = 1.2 Ranking 1st 4th 2nd 5th 3rd Therefore, the state government should embark on projects A, C, and E respectively based on estimated cost of investment. Project Budgeted sum (₦) million Cumulative of money for investment (₦) million A 1st 100 million 1000 million C 2nd 120 million 220 million E 3rd 300 million 520 million

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to identify and explain the principles that should guide grant design of fiscal transfers. Part (b) of the question require the candidates to calculate cost benefit ratios of given projects, rank the projects and advice the state government on the project that should be undertaken. Majority of the candidates attempted the question and their performance was average. The common pitfalls were the inability of the candidates to explain the principles that should guide grant design of fiscal transfers, while in part (b)many of the candidates could not calculate cost benefit ratios of the projects using other appropriate techniques. Candidates are advised to make use of Pathfinders and the Study Text of the Institute for better performance in the Institute’s future examinations. 123

Marking guide Marks Marks a. Guidelines for grant design Identification of five guidelines 2½ Explanation of guidelines identified 5 7½

b. Calculation of the cost benefit ratio of each project Title ½ Calculation of cost benefit ratio 2½ Ranking 2½ Advising the state government on the project that should be undertaken 2 7½ Total 15

a. Total public debt: Total public debt can be described as the aggregate of external debt, domestic debt, guarantees, and contingent liabilities - including debt owed by central and local government and by public (state-owned) corporations.For instance, external debt is debt owed to lenders outside the country, e.g., Euro bond while internal debt is the government’s obligations to domestic lenders.

b. Debt sustainability: When government is able to service all its debts without undue stress or adjustments to its income and expenditure balance in the medium to long term. Debt is sustainable when government’s current and future streams of income cover expenditure. To evaluate countries’ debt sustainability, it is necessary to monitor debt trends along with emerging domestic and external vulnerabilities and systemic risks that threaten debt sustainability. The objectives of DSA: i Assessing debt carrying capacity:To evaluate government’s ability to finance its programs and at the same time service the ensuing debt without undue pressure on its income stream compromising the macroeconomic stability of the country. ii Guiding borrowing decisions: To reduce chances of excessive build-up of debt by providing insight for the government on responsible borrowing. iii Ensuring fiscal stability: Ensuring that government mains a balance between debt levels and economic growth to avoid excessive debt accumulation and limit risk of debt distress. 124 iv Compliance with international standards: To help guide countries and donors in mobilising critical financing for low-income countries and most especially, align Nigeria’s debt management practices with global frameworks set by institutions like World Bank and IMF. v Monitoring debt to GDP ratio: Ensuring that Nigeria’s debt remains within acceptable limit such as the self-imposed 40% threshold and the 55% limit recommended by the World Bank and IMF.

c. Benefits DSA include: i To guide the government on optimal funding options for its projects and programs; ii To examine the impact of on-going fiscal policy reforms of the government and monetary policy objectives on public debt management strategies and provide policy advice. iii To evaluate the solvency and liquidity status of the country’s total public debt portfolio, taking into account current and future debt obligations; iv To determine the fiscal space available to the government with a view to determining the borrowing limit, given the current debt level; v To detect current and potential future fiscal stress that might be caused by external shocks with a view to preventing and resolving the crises; and vi To evaluate the risks inherent with the current total debt portfolio and proffer mitigating measures. vii To ensure compliance with global standards set by international organisations like World Bank and IMF. viii Enhances transparency and credibility reassuring foreign investors confidence in the country’s debt management.

d. Actions to take in order to reduce debt burden:

i. Prioritise expenditure ii. Convert debt into equity or assets iii. Stop contraction of new debt iv. Limit debt service payments

v. Consolidate debt and refinance existing debt vi. Reschedule debt payments

Examiner’s report The question is in four parts. Part (a) of the question requires the candidates to explain what constitutes “total public debt” while part (b) require the candidates to define “debt sustainability” and the main objective of conducting a “debt sustainability” exercise. Part (c) requires the candidates to explain the benefits of conducting an annual debt sustainability analysis Part (d) requires the candidates to explain the actions which can be taken to reduce accumulation of public debt. Majority of the candidates attempted the question and their performance was average. The common pitfalls were the inability of many candidates to define “debt sustainability” and the main objective of conducting a “debt sustainability” exercise. Also, many candidates could not explain the actions which can be taken to reduce accumulation of public debt. Candidates are advised to make use of Pathfinders and the Study Text of the Institute for better performance in the future examinations.

Marking guide Marks Marks a. Explanation of total public debt Brief discussion of the concept 2

b. Definition and objectives of debt sustainability Definition of the debt sustainability 2 Identification of three objectives of debt sustainability exercise 3 5

c. Benefits of debt sustainability analysis Identification of five benefits 5

d. Actions to reduce accumulation of debt Identification of three actions 3 Total 15

a. General reasons for borrowing The following are some of the reasons that have been advanced to justify the need for a country to borrow: i Huge and persistent budget deficit: The government borrows when its expenditure is greater than its revenue (budget deficit), especially after its taxing capacity has been stretched to the limit. ii Balance of payments disequilibrium: Excessive reliance on foreign resources to sustain domestic production processes, and on foreign goods and services beyond the nation’s foreign exchange earning capacity may lead government into contracting debt obligations. iii Rapidly increasing population: In most developing countries, population is growing faster than the level of national output. The need arises for government borrowing to expand public enterprises and public utilities to cater for the welfare of the people. iv Implementation of development programmes: To promote economic development usually requires provision of new and upgrading of existing social and economic infrastructural facilities like roads, railways, electricity, schools and hospitals. The tax revenue of government may be insufficient to execute such projects, hence the resort to government borrowing. v Economic instability: A stable economy naturally provides an enabling environment for economic growth and development. Public debt of the internal type may be contracted to control inflation, while both internal and external borrowings may be used to stimulate economic activities during economic depression. vi Natural disasters: Government has the responsibility to provide relief to victims of earthquakes, floods and fire disasters, famines, sectarian violence and other natural calamities. Government borrowing may be justified because such occurrences are never expected nor budgeted for. vii Fluctuations in government revenue: Most countries operate mono cultural economies depending on only one (or very few) export product for foreign exchange earnings. A sudden poor performance of such product in the international market would reduce income considerably and adversely affect budget implementation. Any country that finds itself in such a situation may have no option than to borrow to bridge the financial resource gap. viii War-time borrowing: Financial resources needed to prosecute wars are usually beyond the capacity of government. Hence, the need to borrow arises to avoid devastating consequences of defeat ix Debt servicing: New debt with favourable terms and conditions may be undertaken to service old debts thereby reducing the burden of debt on the economy.

b. Arewa State Government Cost effectiveness of method A Year Cash flow Discounting factor (1 +

r) – t PV N’000 N’000 0 1,500,000 1 1,500,000 4 300,000 0.6830 204,900 8 300,000 0.4665 139,950 12 300,000 0.3186 95,580 16 300,000 0.2176 65,280 20 300,000 0.1486 44,580 24 300,000 0.1015 30,450 28 300,000 0.0693 20,790 Total 2,101,530 Total = ₦2,101,530,000 in the next 28 years. Cost effectiveness of method B Year Cash flow Discounting factor (1 + r) - t PV N’000 N’000 0 1,250,000 1 1,250,000 3 150,000 0.7513 112,695 6 150,000 0.5645 84,675 9 150,000 0.4241 63,615 12 150,000 0.3186 47,790 15 150,000 0.2394 35,910 18 150,000 0.1798 26,970 21 150,000 0.1351 20,265 24 150,000 0.1015 15,225 27 150,000 0.0763 11,445 Total 1,668,590 Total = ₦1,668,590,000 in the next 28 years. Decision: Based on the outcomes of these methods, Method B is cost effective and it is preferable because it has the lowest cost and shorter life span.

Examiner’s report The question is in two parts, part (a) of the question requires candidates to identify and explain general reasons for borrowing. Part (b) of the question requires the candidates to carry out investment appraisal using cost effectiveness approach. Most of the candidates attempted the question and their performance was below average. The commonest pitfall was the inability of many candidates to use the cost effectiveness approach of investment appraisal, while considering a given life span and maintenance cost of the projects. Also, few candidates were able to identify and explain reasons for borrowing. Candidates are advised to make use of Pathfinders and the Study Text of the Institute for better performance in the Institute’s future examination.

Marking guide Marks Marks a. General reasons for borrowing Identification of five general reasons for borrowing at ½ mark each 2½ Explanation of five general reasons identified at ½ mark each 2½ 5

b. Determination the cost effectiveness on each method Determination the cost effectiveness on method A (16 ticks @ ¼ each) 4 Determination the cost effectiveness on method B (20 ticks @ ¼ each) 5 Decision 1 10 Total 15 ICAN/251/Q/B6 Examination No......................... THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA SKILLS LEVEL EXAMINATION – MAY 2025 CORPORATE STRATEGIC MANAGEMENT & ETHICS EXAMINATION INSTRUCTIONS PLEASE READ THESE INSTRUCTIONS BEFORE THE COMMENCEMENT OF THE PAPER

1. Check your pockets, purse, mathematical set, etc. to ensure that you do not have prohibited items such as telephone handset, electronic storage device, programmable devices, wristwatches or any form of written material on you in the examination hall. You will be stopped from continuing with the examination and liable to further disciplinary actions including cancellation of examination result if caught.

2. Write your EXAMINATION NUMBER in the space provided above.

3. Do NOT write anything on your question paper EXCEPT your examination number.

4. Do NOT write anything on your docket.

5. Read all instructions in each section of the question paper carefully before answering the questions.

6. Do NOT answer more than the number of questions required in each section, otherwise, you will be penalised. 7. All solutions should be written in BLUE or BLACK INK. Any solution written in PENCIL or any other COLOUR OF INK will not be marked.

8. You are required to attempt Question ONE (compulsory), any TWO Questions in Section B and any TWO Questions in Section C.

9. Check that you have collected the correct question paper for the examination you are writing. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA SKILLS LEVEL EXAMINATION – MAY 2025 CORPORATE STRATEGIC MANAGEMENT & ETHICS Time Allowed: 31/4 hours (including 15 minutes reading time) INSTRUCTION: YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF THE SEVEN QUESTIONS IN THIS PAPER

SECTION A: COMPULSORY QUESTION (30 MARKS) QUESTION 1 ZetaTech Solutions, a mid-sized technology company based in Nigeria, specialises in providing innovative software solutions for small and medium-sized enterprises (SMEs). The company has seen steady growth over the past decade. This is driven by its ability to create affordable and scalable solutions. However, the industry landscape has changed dramatically in recent years, influenced by external forces and internal challenges. Firstly, the Nigerian government has recently introduced new regulations to improve data privacy and cyber-security. Compliance with these regulations and heightened insecurity in many parts of the country have increased operational costs for tech companies. Also, the inflation rate has risen to 18%, and the naira has depreciated significantly against major foreign currencies. The SMEs, ZetaTech’s primary clientele, are struggling, which has led to delays in payments and a reduced number of new contracts. However, there is a growing adoption of digital tools among young entrepreneurs, creating opportunities for ZetaTech. Despite this fact, traditional SMEs remain hesitant to transition to digital solutions. Furthermore, the rapid advancement of Artificial Intelligence (AI) and machine learning is reshaping the industry. Competitors have started to integrate these technologies into their offerings, while ZetaTech is still playing catch-up. There is increasing pressure from stakeholders for companies to adopt sustainable practices, including energy-efficient software development. A recent lawsuit against a rival firm for intellectual property infringement has raised awareness of the need for stronger legal framework in the industry. The tech industry has low entry barriers, leading to an influx of startups offering cheaper alternatives. However, ZetaTech’s established reputation provides some insulation. SMEs have significant bargaining power due to the availability of multiple alternatives in the market. ZetaTech relies heavily on cloud service providers and software development tools, giving suppliers of these services considerable leverage. Open-source software and do-it-yourself platforms are gaining popularity, posing a threat to ZetaTech’s offerings. Competition is intense, with both local startups and international firms vying for market share. ZetaTech’s Chief Executive Officer, Adebanjo Oke, has emphasised the importance of agility in responding to industry changes. The leadership team has outlined a strategic plan focused on three key areas: (1) Investing in AI and machine learning capabilities to enhance product offerings. (2) Strengthening relationships with SMEs through tailored customer support. (3) Expanding into West African markets to diversify revenue streams. Despite the ambitious plan, execution has been slow due to resistance from middle management and inadequate resource allocation. Employees have voiced concerns about unclear communication from leadership, resulting in low morale and a high labour turnover.

Required: a. From the above scenario,

i. Use the PESTEL framework to identify and explain key elements of the environment that could shape the success of ZetaTech’s strategies (6 Marks) ii. Identify and justify from the external environment, the TWO top factors that could significantly impact ZetaTech’s strategy (4 Marks)

b. Using the Porter’s 5-force model,

i. Identify and explain the key elements, from the given scenario, that shape ZetaTech’s competitive environment (5 Marks) ii. Suggest ways that ZetaTech can mitigate the threats posed by each of the forces to maintain its competitive position (5 Marks)

c. Using the transformational leadership style, suggest to Adebanjo Oke, ways of mitigating challenges posed by middle management and thereby, ensuring success in the company’s strategy implementation (10 Marks) (Total 30 Marks)

SECTION B: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE QUESTIONS IN THIS SECTION (40 MARKS) QUESTION 2 Purity Life Beverages, a bottled water company, prides itself in promoting health and wellness. The company’s tagline, “Pure water, pure life,” reflects its commitment to sustainability and social responsibility. Purity Life sources water from a spring located in a rural community. The company has always maintained that its operations support the community by providing jobs and contributing to local development projects. INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

(a) Tadepe State Government Journal entries to record the loss of fund DR CR N’ million N’ million Non-personal advances 30 Ministry of Health 21 Other charges 9 Being fraudulent payment/overpayment made and discovered within the current financial year

(b) Tadepe State Government Statement of financial performance for the year ended December 31, 2024 Code Details N’ million N’ million Revenue 20010 Statutory allocation from Federal Government 148,500.00 20020 Share of state internally generated revenue 24,690.00 20030 Licences and fees (Wk 1) 450.00 20040 Profit on sale of land 9.00 20050 Rates (Wk 1) 555.00 20060 Rent on local government property (Wk 1) 516.00 20070 Share of value added tax 72.00 20080 Other grants 1,680.00 20090 Miscellaneous receipts 183.00 Capital grant from Federal Government 450.00 Total revenue 177,105.00 Expenditure 30040 Personnel emoluments (Wk 2) 55,299.00 30050 Ministry of Finance (Wk 2) 39,265.50 30060 Ministry of Education 132.00 30030 Consolidated revenue fund charges 318.00 30080 Agriculture and water resources 126.00 30020 Office of the Secretary to the Government 99.00 30070 Primary health care department (Wk 2) 135.00 30090 Ministry of Works and Housing (Wk 2) 6,090.00 30100 Ministry of Commerce and Industry 114.00 30130 Other charges (Wk 2) 15.00 30120 Miscellaneous 654.00 30110 Ministry of Local Government and Chieftaincy 42.00 Depreciation (Wk 3)

- Motor vehicles 3,015.00 - Building 900.00 - Furniture 150.00 - Equipment 1,140.75 - Plant and machinery 2,250.00 175 Office stationery (Wk 4) 67.50 Total expenditure 109,812.75 Surplus for the year 67,292.25 Accumulated net surplus/ (deficit) b/f (1,491.00) Accumulated net surplus/ (deficit) c/f 65,801.25

(c) Tadepe State Government Statement of financial position as at December 31, 2024 Cost/ valuation Accum. Dep/Amort Carrying amount Non-current assets N’ million N’ million N’ million Property, plant and equipment:(Wk 5) Motor vehicles 15,075.00 6,015.00 9060.00 Land and building (land is N 15billion) 60,000.00 6,900.00 53,100.00 Land for primary health centers 786.00 786.00 Furniture 1,500.00 258.00 1,242.00 Equipment 7,605.00 1,215.75 6,389.25 Plant and machinery 15,000.00 3,750.00 11,250.00 Total 99,966.00 18,138.75 81,827.25 Current assets Receivables: Rates 405.00 Licenses and fees 240.00 Rent of state government property 186.00 Non-personal advance 30.00 Inventories-Office stationeries 19.50 Investment in land 75.00 Cash and cash equivalents (Wk 6) 73,194.00 Total current assets 74,149.50 Total assets 155,976.75 Net assets/ equity Reserves 90,000.00 Net surplus 65,801.25 Total net assets/equity 155,801.25 Current liabilities Accrued expenses: Consultancy 45.00 Utility bill 18.00 Salaries and wages 69.00 Repairs and maintenance 27.00 Insurance 16.50 Total current liabilities 175.50 Total equity and liabilities 155,976.75 176

Workings Wk 1: Analysis of receipts transferred to statement of performance (SFP) Details Licences and fees Rates Rent of government property N’ million N’ million N’ million Cashbook 390 450 480 Receivables b/f (180) (300) (150) 210 150 330 Receivables c/f 240 405 186 Transfer to SFP 450 555 516 Wk 2: Analysis of expenses charged to SFP Details Works and housing Health Finance Personnel Other charges N’ million N’ million N’ million N’ million N’ million Cashbook 6,438 261 39,300 55,230 33 Motor vehicles (75) Cost of land (300) Cost of medical equipment (105) Office stationeries ______ _____ (75) ______ ____ Net payment 6,063 156 39,225 55,230 33 Accruals b/f Consultancy (45) Utility ____ ___ ____ _____ (27) 6,063 156 39,180 55,230 6 Prepayment b/f Insurance 24 Accruals c/f Consultancy 45 Utility 18 Repairs and maintenance 27 Salaries and wages 69 Insurance ____ ___ 16.5 ____ ____ 6,090 156 39,265.50 55,299 24 Duplication/falsification ____ (21) ____ ____ (9) Balance charged to SFP 6,090 135 39,265.50 55,299 15 177 Wk 3: Calculation of depreciation charged to SFP Details Plant and machinery N’ million N’ million N’ million N’ million N’ million Cost as at 1/1/24 15,000 45,000 1,500 7,500 15,000 Additions 75 ___ ___ 105 _____ Cost as at 31/12/24 15,075 45,000 1,500 7,605 15,000 Depreciation rates 20% 2% 10% 15% 15% Charged to SFP 3,015 900 150 1,140.75 2,250 Wk 4: Office stationery charged to SFP Details N’ million Bal as at 1/1/24 12 Additions 75 87 Bal as at 31/12/24 (19.5) Amount charge to SFP 67.5 Wk 5: Property, plant and equipment schedule Details Motor vehicles Building Furniture Equipment Motor Plant and vehicles Building Furniture Equipment machinery N’ million N’ million N’ million N’ million N’ million Cost as at 1/1/24 15,000 45,000 1,500 7,500 15,000 Additions 75 ___ _____ 105 ____ Cost as at 31/12/18 15,075 45,000 1,500 7,605 15,000 Depreciation rate per annum 20% 2% 10% 15% 15% Acc. Dep. as at 1/1/24 3,000 6,000 108 75 1,500 Depreciation charged 3,015 900 150 1,140.75 2,250 Acc. Dep. as at 31/12/24 6,015 6,900 258 1,215.75 3,750 Carrying amount 9,060 38,100 1,242 6,389.25 11,250 178 Wk 6: Cashbook for the year ended December 31, 2024 Details N’ million N’ million Balance b/f 48 Receipts Statutory allocation from Federal Government 148,500 Share of state internally generated revenue 24690 Licences and fees 390 Sale of land 234 Rates 450 Rent of government property 480 Share of value added tax 72 Other grants 1,680 Miscellaneous receipts 183 Total receipts 176,727 Payments Personnel emolument 55,230 Ministry of Finance 39,300 Ministry of Education 132 Consolidated revenue fund charges 318 Agriculture and water resources 126 Office of the Secretary 99 Ministry of Health 261 Ministry of Works and Housing 6,438 Ministry of Commerce and Industry 114 Other charges 33 Miscellaneous 654 Capital expenditure 786 Ministry of Local Government and Chieftaincy Affairs 42 Total payments 103,533 Balance c/f 73,194

Examiner’s report The question is in three parts. Part (a) of the question tests candidates’ knowledge on the preparation of journal entries to record loss of government fund. Parts (b) and (c) require the candidates to prepare statements of financial performance and position. All the candidates attempted the question and their performance was below average The common pitfalls were the inability of the candidates to prepare journal entries to record loss of government fund. Candidates are advised to have adequate knowledge of the relevant provisions of the syllabus and to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examinations. 179

Marking guide Marks Marks (a) Journal entries Title ¼ Entries ¾ Narration 1 2

(b) Statement of financial performance Title ¼ Correct calculation of total revenue 2¾ Correct calculation of total expenditure 4¾ Correct calculation of net surplus for the year ½ Accumulated net surplus/ (deficit) b/f ¼ Correct calculation of surplus carried forward ½

Workings Correct calculation of income to be recognised during the year. ¾ Correct calculation of expenses to be charged during the year. 2½ Correct calculation of depreciation charges for the year . 1¼ Calculation of office stationeries to be charged during the year ½ 14

(c) Statement of financial position Title ¼ Correct calculation of total non-current assets 5 Correct calculation of total current assets 2 Correct calculation of total assets ¼ Correct calculation of total current liabilities/ total liabilities. 1½ Correct calculation of reserves and net surplus ½ Correct calculation of total assets and equity ½

Workings Property, plant and equipment schedule Correct calculation of cost at the end of the year. 1¼ Correct calculation of accumulated depreciation at the year end. 1¼ Adjusted cashbook Recognition of balance b/f ¼ Correct calculation of total receipts ½ Correct calculation of total payments ½ Correct calculation of closing balance ¼ 14 Total 30 180

(a) To further promote accountability in public sector finance management in Nigeria the following strategies are canvassed:

(i) Accountability need to be integrated with all aspects of public sector finance management in order to preserve the public trust in government and its officials. All persons in positions of public leadership must demonstrate moral leadership and leadership by example. Anybody who has responsibility to manage any aspect of the public’s business has to show accountable leadership.

(ii) To make democracy and democratic accountability work, there must be credible elections where the people are allowed to freely and transparently choose their political leaders.

(iii) It is essential for the judiciary to be strengthened and made truly independent. One way of achieving this is by ensuring the financial autonomy of the judiciary.

(iv) Whistle blowing should be encouraged in the public sector whereby any public official who encounter mismanagement or wrong doing in the conduct of government business may blow the whistle by taking the case to the public arena. The prospect that somebody may go public can deter some officials contemplating wrong doing.

(v) All unethical and corrupt practices should be exposed, as much as possible, while those who indulge in them should be- promptly and severely punished in accordance to the law. To this end, there should be full implementation of the Freedom of Information Act (FOIA) so as to promote openness and feedback in public governance and management.

(vi) The use of civil society groups and the mass media as means of strengthening accountability is still rather under developed in Nigeria. As such, it will advance the cause of public accountability in no small way if the development and growth of civil society organisations (CSO) are encouraged in the country.

(vii) There should be strict compliance with due process and public procurement procedure as spelt in the Public Procurement Act (2007), as doing this will help curb corrupt practices and instill financial discipline in budget implementation by the public bureaucracy. Moreover, there should also be strict adherence to the provisions of the Fiscal Responsibility Act.

(viii) The present method of secret declaration of assets by public officers leaves much to be desired. As such, there is need to institute a more open method of declaring assets, so as to afford the opportunity for patriotic citizens to 181 scrutinise and report any incorrectly declared assets to the appropriate authorities.

(ix) All public organisations should be audited regularly and the release of such audit reports should be expeditious and timely. Cases of frequent delay of audit reports do not augur well for accountability and should be avoided.

(x) To make the Public Complaints Commission (PCC) more effective, it should be constitutionally conferred with enforcement powers.

(xi) All anti-graft bodies, such as, the EFCC, ICPC, etc. should be further strengthened by way of being adequately staffed, equipped and funded to make them more effective institutional mechanisms for fighting corruption. Furthermore, other law enforcement agencies notably the police should be strengthened, so as to build their capacity to detect, investigate, prosecute and even deter or prevent corruption.

(xii) There is need for ethical reawakening through public ethical training and reorientation of public officers and members of the larger society to help them rediscover the traditional African virtues of honesty, integrity and hardwork. Since citizens can no longer afford to be passive onlookers while corrupt public officials loot the national treasury, they should endeavour to be proactive in enforcing public accountability.

(xiii) The immunity clause should be expunged from the Nigerian constitution. By so doing, political leaders who are suspected for corrupt practices can be prosecuted while in office. Furthermore, those who rig elections should be prosecuted in accordance with the law as a way of creating some deterrence. A special electoral court should be established in this regard.

(b) Code of ethics and basic postulates for the auditing standards

(i) Codes of ethics

• Integrity: Auditors have a duty to adhere to high standards of behaviour in the course of their work and in their relationships with the staff of audited entities.

• Independence, objectivity and impartiality: Personal or external interests should not impair the independence of auditors. There is a need for objectivity and impartiality in the work and the reports, which should be accurate and objective. Conclusions in opinions and reports should be based exclusively on evidence obtained and assembled in accordance with the SAI’s auditing standards.

• Professional secrecy: Auditors should not disclose information obtained in the auditing process to third parties, except for the purposes of meeting the SAI’s statutory responsibilities. 182

• Competence: Auditors must not undertake work which they are not competent to perform.

(ii) Basic postulates for the auditing standards

• The Supreme Audit Institutions (SAI), that is, the Auditor General, should consider compliance with the INTOSAI auditing standards in all matters that are deemed material. Certain standards may not be applicable to some of the work done by SAIs, including those organised as Courts of Account, nor to the non-audit work conducted by the SAI. The SAI should determine the applicable standards for such work to ensure that it is of consistently high quality.

• The SAI should apply its own judgment to the diverse situations that arise in the course of government auditing.

• With increased public consciousness, the demand for public accountability of persons or entities managing public resources has become increasingly evident so there is a need for the accountability process to be in place and operating effectively.

• Development of adequate information, control, evaluation and reporting systems within the government will facilitate the accountability process. The management is responsible for correctness and sufficiency of the form and content of the financial reports and other information.

• Appropriate authorities should ensure the promulgation of acceptable accounting standards for financial reporting and disclosure relevant to the needs of the government and audited entities should develop specific and measurable objectives and performance targets.

• Consistent application of acceptable accounting standards should result in the fair presentation of the financial position and the results of operations.

• The existence of an adequate system of internal control minimises the risk of errors and irregularities. It is the responsibility of the audited entity to develop adequate internal control systems to protect its resources. It is also the obligation of the audited entity to ensure that controls are in place and functioning to help ensure that applicable statutes and regulations are complied with and that probity and propriety are observed in decision-making. The auditor should submit proposals and recommendations where controls are found to be inadequate or missing. 183

• Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit.

• All audit activities should be within the SAI’s audit mandate.

• Legislative enactments would facilitate the co-operation of audited entities in maintaining and providing access to all relevant data necessary for a comprehensive assessment of the activities under audit.

• SAIs should work towards improving techniques for auditing the validity of performance measures.

• SAIs should avoid conflict of interest between the auditor and the audited entity.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to discuss strategies that must be adopted to promote accountability in the public sector finance management in Nigeria. Part (b) is in two sections, section (i) requires the candidates to identify and explain the codes of ethics of International Organisation of Supreme Audit Institutions (INTOSAI), while section (ii) requires the candidates to identify basic postulates for the auditing standards of INTOSAI. Most of the candidates attempted this question and their performance was average. The commonest pitfall was the inability of the candidates to demonstrate proper understanding of the requirements of the question. Candidates are advised to make use of ICAN Pathfinders and the Study Text for better performance in the Institute’s future examinations.

Marking guide Marks Marks (a) Strategies that must be adopted to promote accountability in the public sector Any five strategies 10 (b). Code of ethics and basic postulates for the auditing standards (i). Identification of four code of ethics concerns 2 Explanation of the code of ethics identified 2 (ii). Identification of six postulates auditing standards 6 10 Total 20 184

(i) Disclosures to be made in respect of social benefits as provided by IPSAS 42- Social Benefits: An entity shall disclose information that: (i) Explains the characteristics of its social benefit schemes; and (ii) Explains the demographic, economic and other external factors that may affect its social benefit schemes. In order to meet the requirements above, an entity shall disclose: (i) Information about the characteristics of its social benefit schemes, including:

• The nature of the social benefits provided by the schemes (e.g. retirement benefits, unemployment benefits, child benefits);

• Key features of the social benefit schemes, such as a description of the legislative framework governing the schemes, a summary of the main eligibility criteria that must be satisfied to receive the social benefits and a statement about how additional information about the scheme can be obtained; and

• A description of how the schemes are funded, including whether the funding for the schemes is provided by means of a budget appropriation, a transfer from another public sector entity or by other means.

(ii) If a scheme is funded (whether in full or in part) by social contributions, the entity shall provide:

• A cross reference to the location of information about those social contributions and any dedicated assets (where this information is included in the entity’s financial statements); or

• A statement regarding the availability of information on those social contributions and any dedicated assets in another entity’s financial statements and how that information can be obtained.

• A description of the key demographic, economic and other external factors that influence the level of expenditure under the social benefit schemes. This description may be presented in aggregate, where the same demographic, economic and other external factors impact several social benefit schemes in a similar manner;

• The total expenditure on social benefits recognised in the statement of financial performance, analysed by social benefit scheme; and

• A description of any significant amendments to the social benefit schemes made during the reporting period, along with the description of the expected effect of the amendments. Amendments to a social benefit scheme include, but not limited to: ➢ Changes to the social benefits provided; and ➢ Changes to the eligibility criteria, including the individuals and/or households covered by the social benefit scheme. 185

(b) Kando State Government Preparation of journal entries for three IDP camps Details DR N’000 CR N’000 2023 Social benefits expenses 23,500 Payables 23,500 To recognise social benefits (bedding materials) as well as liability Social benefits expenses 16,200 Payables 16,200 To recognise social benefits (salaries of IDP personnel) as well as liability Assets (Inventory of food items) 6,500 Donation 6,500 To recognise inventory (food items) received from Red Cross Society Social benefits expenses 12,500 Payables 12,500 To recognise social benefits (sanitation materials) as well as liability Assets (food items) 20,500 Donation 20,500 To recognise inventory (food items) received from UNDP 2024 Payables 23,500 Bank 23,500 Being payment of liability (bedding materials) Payables 16,200 Bank 16,200 Being payment of liability (salaries of personnel) Social benefit expenses 6,500 Inventory 6,500 Being delivery of inventory of food items from Red Cross Society to IDPs Payables 12,500 Bank 12,500 Being payment of liability (sanitation materials) Social benefit expenses 20,500 Inventory 20,500 Being delivery of inventory of food items form UNDP to IDPs 186

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to identify the disclosures to be made by an entity in respect of social benefits as provided by IPSAS 42 - Social Benefits, while part (b) of the question requires the candidates to record cost estimates and donations that were made to some Internally Displaced Persons (IDP), using journal entries. Majority of the candidates attempted the question, but their performance was below average. The commonest pitfall was the inability of the candidates to properly identify the disclosures to be made by an entity in respect of social benefits as provided by IPSAS 42 - Social Benefits. Candidates are advised to read widely and ensure they have adequate knowledge of the relevant sections of the syllabus. They should also make use of the Pathfinder and the Study Text of the Institute and other relevant learning materials on this aspect of the syllabus for better performance in future examinations.

Marking guide Marks Marks (a) Disclosures to be made as provided by IPSAS 42- Social Benefits Identification of ten disclosures 10

(b) Preparation of journal entries for three IDP camps Correct journal entries 5 10 correct narrations 5 10 Total 20

(a) Uses of budget Budgets are used for the following:

(i) Planning: Budgets are plans in which monetary values are assigned to what are to be achieved in a determinable future time, for example, a year.

(ii) Communication: Budgets assist in communicating horizontally and vertically. When budgets are being prepared, individuals, groups, communities and associations will inform government about their areas of interests. This is upward communication. When the budget is approved, government communicates the details to members of the public and publishes it in selected newspapers. This is an example of downward communication. 187

(iii) Motivation: Government motivates its staff through promotions and improved conditions of service, for assisting in the full and successful implementation of the budget.

(iv) Standard for measurement of performance: Since a budget is a target, it is a measure of performance. What is achieved is recorded and compared with the target. The process of implementation draws management attention to problematic areas.

(v) Evaluation of economic and social policy: Budgets are used to solve social problems of inflation and unemployment.

(vi) Cost reduction technique project appraisal: Evaluation of operations and procedures may result in cost savings.

(b) Okoko State Government Farm Project Cash budget for January to March 2026 January February March Receipts N’000 N’000 N’000 Bal B/F 13,000 55,500 (7,000) Sales –November 2025 50,000 - - Sales –December 2025 150,000 100,000 - Sales – January 2026 200,000 120,000 80,000 Sales – February 2026 - 210,000 126,000 Sales –March 2026 - - 225,000 Monthly allocation 100,000 100,000 100,000 (A) Total receipts 513,000 585,500 524,000 Payments Purchases- December 2025 70,000 - - Purchases- January 2026 200,000 50,000 Purchases- February 2026 - 280,000 70,000 Purchases- March 2026 - - 320,000 Overheads 187,500 262,500 300,000 (B) Total payments 457,500 592,500 690,000 (C) (Total receipts – Total payments) 55,500 (7,000) (166,000)

Examiner’s report The question is in two parts. Part (a) of the question requires candidates to identify and explain uses of budget in the public sector, while part (b) of the question deals with the preparation of state government cash budget. Most of the candidates attempted the question and performance was above average. 188 The common pitfalls were the inability of some candidates to identify and explain the uses of budget in the public sector. Candidates are advised to read widely and ensure that they have adequate knowledge of relevant regulations relating to public sector accounting for better performance in the Institute’s future examinations.

Marking guide Marks Marks a. Uses of budget Identification of five uses of budget 5 Explanation of uses of budget identified 5 10

b. Preparation of cash budget Title 1 Calculation of total receipts 4½ Calculation of total payments 3 Surplus (Total receipts – Total payments) 1½ 10 Total 20

(a) Key aspects of environmental sustainability include:

(i) Conserving natural resources: This involves using resources like water, forests and minerals at a rate that allows for replenishment and avoids depletion.

(ii) Protecting ecosystems: Preserving biodiversity, habitats and ecological processes to maintain healthy and resilient natural systems.

(iii) Reducing pollution: Minimising the release of harmful substances into the environment, including air and water pollution.

(iv) Combating climate change: Reducing greenhouse gas emissions, transitioning to renewable energy sources and adapting to the impacts of climate change.

(v) Promoting sustainable consumption and production: Encouraging responsible consumption patterns and production methods that minimise environmental impact.

(vi) Supporting sustainable development: Integrating environmental considerations into economic and social development planning. Examples of environmental sustainability in practice:

(i) Renewable energy: Utilising solar, wind and other renewable energy sources to reduce reliance on fossil fuels.

(ii) Sustainable agriculture: Employing agricultural practices like crop rotation, no-till farming, and integrated pest management to protect soil health and minimise pesticide use. 189

(iii) Sustainable forestry: Implementing selective logging and reforestation practices to ensure long-term forest health.

(iv) Waste reduction and recycling: Reducing waste generation through conscious consumption choices and diverting materials from landfills through recycling programmes.

(v) Water conservation: Implementing water-efficient technologies and practices to reduce water consumption and protect water resources.

(vi) Green building: Designing and constructing green buildings that minimise energy and water consumption, usage sustainable materials and promoting healthy indoor environments.

(b) Problems facing state governments in financing projects through capital market The problems include: (i) Poor accounting system on the part of the state government; (ii) Lack of qualified personnel to effectively evaluate, appraise and monitor projects; (iii) Poor performance of existing state government projects, which act as disincentive to potential investors; (iv) Inability of government to introduce and market viable projects to the investing public; (v) Lack of awareness of the potential investment by the investing public; and (vi) Preference for short-term investments by the public.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to identify and explain the key aspects of environmental sustainability with examples, while part (b) of the question requires the candidates to identify problems facing the state government in financing projects through the capital market. Most of the candidates attempted the question and their performance was average. The common pitfalls were the inability of the candidates to identify and explain the key aspects of environmental sustainability with examples, while in part (b) some of the candidates could not identify problems facing the state government in financing projects through the capital market. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examinations. 190

Marking guide Marks Marks (a) Key aspects and examples of environmental sustainability include Identification of five key aspects 2½ Explanation of key aspects identified 2½ Identification of five examples 2½ Explanation of examples identified 2½ 10

(b) Problems facing state governments in financing projects through capital market Identification of five problems 5 Total 15

(a) Debt Sustainability Analysis (DSA) This is when government is able to service all its debts without undue stress or adjustments to its revenue and expenditure balances in the medium to long term. Debt is sustainable when government’s current and future streams of income cover expenditure. Objectives of DSA (i) To evaluate government’s ability to finance its programmes and at the same time service the ensuing debt without undue pressure on its revenue stream. (ii) To reduce chances of excessive increase of debt. (iii) To recommend for a borrowing that limits risk of debt distress. (iv) To help guide countries and donors in mobilising critical financing for low-income countries. Benefits of DSA (i) To integrate fiscal and debt issues more effectively into economic analysis. (ii) To make comparison across countries, as it raises the profile of fiscal and debt issues in low-income countries. (iii) To dissuade policy makers from pursuing policies that deliver short–term benefits at the cost of creating unsustainable debts in the future. (iv) To allow policy makers to identify the economic sectors that are responsible for excessive debt accumulation. (v) To assess the impact of and response to powerful technological and demographic changes that constrains government policies in the long-run. (vi) To quantify the fiscal impact of population aging, immigration and other long–run population changes. 191

(b) Objectives of debt conversion programme As stated in the guidelines on debt conversion programme for Nigeria, the scheme is established to:

(i) Reduce Nigeria’s external debt service, thereby reducing the stock of outstanding foreign currency-denominated debt in order to alleviate debt service burden; (ii) Improve and make economic environment attractive to foreign investors; (iii) Serve as additional incentive for repatriation of flight capital; (iv) Stimulate employment-generating investments in industries with significant dependence on local input; (v) Encourage the creation and development of export-oriented industries, thereby diversifying the export base of the Nigerian economy; and (vi) Increase access to appropriate technology, external market and other benefits associated with foreign investment.

Examiner’s report The question is in two parts. Part (a) of the question requires the candidates to explain the term “Debt Sustainability Analysis”, its objectives and benefits, while part (b) asks the candidates to identify the objectives of debt conversion programme. Few of the candidates attempted the question and their performance was below average. The common pitfalls were the inability of some candidates to explain the term “Debt Sustainability Analysis”, its objectives and benefits. Also, some candidates could not identify the objectives of debt conversion programme. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the future examinations.

Marking guide Marks Marks a. Debt Sustainability Analysis (DSA) Explanation of DSA 2 Identification of three objectives 3 Identification of five benefits 5 10

b. Debt conversion programme Identification of five objectives 5 Total 15 192

(a) Phases of the business cycle

(i) Expansion: The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand and supply of goods and services. Debtors are generally paying their debts on time; the velocity of the money supply is high and investment is high. This process continues as long as economic conditions are favourable for expansion.

(ii) Peak: The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum limit of growth is attained. The economic indicators do not grow further and are at their highest. Prices are at their peak. This stage marks the reversal point in the trend of economic growth. Consumers tend to restructure their budgets at this point.

(iii) Recession: The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

(iv) Depression: There is a commensurate rise in unemployment. The growth in the economy continues to decline and as this fall below the steady growth line, the stage is called a depression.

(v) Trough: In the depression stage, the economy’s growth rate becomes negative. There is further decline until the prices of factors, as well as the demand and supply of goods and services, contract to reach their lowest point. The economy eventually reaches the trough. It is the negative saturation point for an economy. There is extensive depletion of national income and expenditure.

(vi) Recovery: After the trough, the economy moves to the stage of recovery. In this phase, there is a turnaround in the economy, and it begins to recover from the negative growth rate. Demand starts to pick up due to low prices and, consequently, supply begins to increase. The population develops a positive attitude towards investment and employment and production starts increasing. Employment begins to rise and, due to accumulated cash balances with the bankers, lending also shows positive signals. In this phase, depreciated capital is replaced, leading to new investments in the production process. Recovery continues until the economy returns to steady growth levels. 193

(b) Procedure of cost effectiveness analysis in the appraisal of a public project The procedures are:

(i) Objective definition: The objective is to determine the actual target. What are the projects?

(ii) Sourcing and assessment of alternatives: After the public project has been determined, what are the cost alternatives that are available? The information in this regard must be collated.

(iii) Selection of measure to be adopted: The types of approaches which will enable management to achieve the set objectives within a reasonable period of time must be determined.

(iv) Development of cost estimates: Cost estimates should be collated, addressing the issues of what to include and how to measure them.

(v) Taken the final decision: Having ascertained the adequacy of cost effectiveness measures and relying on the information on cost estimates, the public sector organisation determines the final decision, based on the principle of least cost.

Examiner’s report The question is in two parts. Part (a) of the question requires candidates to identify and explain the phases of a typical business cycle. Part (b) of the question requires the candidates to identify the procedure of cost effectiveness analysis in the appraisal of public project. Majority of the candidates attempted the question and their performance was above average. The commonest pitfall was the inability of many candidates only to identify and explain the phases of a typical business cycle. Also, only few candidates were able to identify the procedure of cost effectiveness analysis in the appraisal of public project. Candidates are advised to make use of the Pathfinder and the Study Text of the Institute for better performance in the Institute’s future examination. 194

Marking guide Marks Marks a. Phases of the business cycle Identification of any five phases 2½ Explanation of phases identified 7½ 10

b. Procedure of cost effectiveness analysis in the appraisal of a public project Identification of procedures 5 Total 15 195 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA