Financial statements are only useful if readers can trust them and compare them. This topic explains why financial reporting is regulated, where the rules come from, and how International Financial Reporting Standards (IFRS) are produced by the IFRS Foundation and the International Accounting Standards Board (IASB).
It then shows how Nigeria adopts and enforces those standards through the Financial Reporting Council of Nigeria (FRC Nigeria, or the FRC), how adoption was phased, who counts as a small and medium-sized entity (SME), and what is gained and lost by adopting one global set of standards.
Questions on this topic are short recall questions: state the objectives of the FRC, list the sources of regulation, describe the standard-setting structure or outline the steps in due process. In the diets reviewed for this page the topic appears once, in May Diet, 2022, where Question 6(b) gave 2 marks for four objectives of the FRC.
The framework also sits behind every standard studied later, because each one reaches Nigerian companies through the route described here. Read FRC Nigeria, bases of accounting and financial statement elements at Foundation level first. The next topic covers the legal framework: the Companies and Allied Matters Act (CAMA) 2020 and the sector regulators.
In 30 seconds
Regulation exists so that outside users get relevant and reliable information, so that statements can be compared across entities and years, and so that managers cannot pick the treatment that flatters them. The four sources are accounting standards, company law, sector regulation and stock exchange listing rules.
The IFRS Foundation has 22 trustees and governs; the IASB has 14 members and sets the standards; nine of 14 votes publish a standard; the IFRS Interpretations Committee gives rapid guidance; the IFRS Advisory Council advises. Due process runs from topic identification, through a discussion paper and an exposure draft, to a final standard with an effective date. In Nigeria the FRC (FRC Act 2011, amended 2023) oversees reporting.
IFRS was adopted in phases: significant and listed public interest entities in 2012, other public interest entities in 2013 and SMEs in 2014. A new IFRS applies in Nigeria from the effective date the IASB sets.
Why financial reporting is regulated
The objective of financial statements is to give information about an entity’s financial position, financial performance and cash flows that is useful to a wide range of users making economic decisions. Most of those users sit outside the business. They cannot walk into the finance office and ask for the figures they want, so they depend on the published statements.
Regulation of financial reporting is the set of laws, standards and rules that decide what those statements must contain and how the figures are measured. There are three main reasons why it is needed.
- Reliable and relevant information for outsiders. Investors, lenders and other external users make decisions on the strength of the published statements. Regulation makes sure the information they receive is fit for that purpose.
- Comparability. Rules push entities to account for similar items in the same way. A reader can then compare one entity with another, and one year of the same entity with the next.
- Control of manipulation. Without rules, management could choose whichever treatment shows the results and position in the best light. Creative accounting means using the choices and gaps in accounting rules to present a flattering picture. Window dressing means arranging transactions close to the year end so that the statement of financial position looks stronger than it is during the year. Both mislead users.
Further points are accepted in answers: regulation protects investors and the wider public interest, it supports confidence in the capital market, and it gives the courts and the tax authorities a common reference for what a proper set of accounts looks like.
The sources of regulation
Four sources of regulation apply to a Nigerian company. Each covers matters the others leave out.
| Source | What it does | Nigerian example |
|---|---|---|
| Accounting standards | Authoritative statements of how particular transactions and events are recognised, measured and presented. | IFRS Accounting Standards and International Accounting Standards (IAS) |
| Company law | Sets rules for profits available for distribution, issuing and redeeming share capital, the reserves a company must hold and how they may be used. Accounting standards do not cover these matters. | CAMA 2020 |
| Sector regulation | Adds reporting requirements for particular industries. | Central Bank of Nigeria (CBN) for banks, National Insurance Commission (NAICOM) for insurers, National Pension Commission (PENCOM) for pensions |
| Listing rules | Set the information, including financial reports, that listed entities must give the market to keep their listing. | Rules of the Nigerian Exchange Group (NGX) |
Sector rules can differ from the accounting standard. For example, the CBN prudential guidelines can require a bank to hold a larger loan-loss provision than IFRS 9 produces, and the difference is kept in a regulatory reserve.
Principles and rules
Company law is made of detailed rules. IAS and IFRS are mainly principles-based, although in practice they mix principles with some rules. A principles-based standard sets out the objective and the key requirements and leaves preparers to use judgement in applying them to their own circumstances. This lets practice develop with changes in business and user needs.
Nigeria, the United Kingdom, Canada and Australia all work this way: company law deals with a few specific matters and the accounting profession develops detailed practice through standards. In some countries the content of the accounts is prescribed in great detail by law. Users there often regard principles-based reporting as less rigorous. The two approaches can complement each other.
The IFRS Foundation and the IASB
The International Accounting Standards Committee (IASC) was set up in 1973 to harmonise accounting around the world, and issued its first International Accounting Standards in 1975. A body called the Standing Interpretations Committee (SIC) issued interpretations where practice differed. In 2001 a new structure was introduced under the IASC Foundation, which was renamed the IFRS Foundation in 2010. The IASB replaced the IASC as the standard setter.
The structure today, which includes the International Sustainability Standards Board (ISSB), is shown below.
The Trustees
The IFRS Foundation is a not-for-profit organisation run by 22 trustees. They are responsible for the governance of the Foundation and the bodies within it, and for fundraising. They appoint the members of the IASB, the ISSB, the IFRS Interpretations Committee and the IFRS Advisory Council.
The Constitution requires a broad international basis: six trustees from Asia and Oceania, six from Europe, six from the Americas, one from Africa and three from any area, subject to overall geographical balance. The trustees decide by simple majority, except that changes to the Constitution need a 75% majority. A Monitoring Board of public authorities gives the Foundation a formal link to the public bodies that rely on its standards.
The IASB
The IASB is the standard-setting body of the Foundation. It has full responsibility for technical matters, including issuing IFRS Accounting Standards and revising IAS, and full discretion over its technical agenda. Its objectives are to:
- develop, in the public interest, a single set of high-quality global accounting standards;
- promote the use and rigorous application of those standards;
- take account of the special needs of small and medium-sized entities and emerging economies; and
- promote and facilitate the adoption of IFRS through convergence of national and international standards.
The Board has 14 members, appointed by the Trustees for their technical expertise. The Constitution aims at four members from Asia and Oceania, four from Europe, four from the Americas, one from Africa and one from any area. A member serves an initial term of five years, which may be renewed once for a further three years. Each member has one vote.
Publishing an exposure draft, an IFRS Standard (which includes a revised IAS) or a final interpretation requires approval by nine of the 14 members. If the Board has 13 members or fewer, eight votes are enough.
The IFRS Interpretations Committee and the Advisory Council
The IFRS Interpretations Committee gives rapid guidance where differing interpretations of a standard are possible. It interprets IAS and IFRS, gives timely guidance on issues the standards do not cover (within the Conceptual Framework), and publishes draft interpretations for public comment. After reviewing the responses it seeks IASB approval for the final interpretation, known as an IFRS Interpretation (IFRIC).
The IFRS Advisory Council is a forum through which the IASB hears views from different countries and industries. Its members are experts from many countries and business sectors who advise the Board.
IFRS, IAS, SIC and IFRIC
Standards written before 2001 were called International Accounting Standards (IAS) and their interpretations were SIC interpretations. The IASB adopted all IAS and SIC that were in force in 2001. Standards written since then are called IFRS and their interpretations IFRIC. The term IFRS is also used for the whole body of standards, so it covers IAS, IFRS, SIC and IFRIC together. Many IAS and SIC have since been replaced or amended.
The Skills level examines these standards: IAS 1, 2, 7, 8, 10, 12, 16, 20, 21, 23, 27, 28, 32, 33, 36, 37, 38 and 40; IFRS 3, 5, 7, 9, 10, 13, 15, 16 and 18; and IFRS S1, together with the Conceptual Framework. Interpretations are not examined at this level.
Developing and revising a standard
IFRS are made through international due process, which involves widespread consultation. Due process normally, but not necessarily, follows these steps.
- A subject is identified as suitable for a new or revised standard.
- National accounting rules and practice are studied, and views are exchanged with national standard setters such as the FRC.
- An advisory group is set up to advise the IASB.
- A discussion document is issued for public comment.
- After the comments, and with the required level of IASB approval, an exposure draft is issued. It includes the opinions of any dissenting Board members and the basis for the Board’s conclusions.
- Comments on the exposure draft and discussion document are considered. The Board decides whether to hold a public hearing, whether to run field tests and whether a revised exposure draft is needed when deliberations point to substantial change.
- The final standard is published with the dissenting opinions and the basis for conclusions. It carries an effective date and guidance on transition to the new rules.
A standard is revised by the same process. The Board works with national standard setters, which respond to due process documents with comment letters, carry out research on the effects of proposals in their own country and organise local events to support implementation. Regional groups also help: the Pan African Federation of Accountants is one community in which African standard setters take part.
National standard setters know local reporting and legal requirements and can represent local stakeholders in the international debate, so the IASB treats them as partners.
The Financial Reporting Council of Nigeria
The Nigerian Accounting Standards Board (NASB) was formed in 1982 by the Institute of Chartered Accountants of Nigeria. It issued Statements of Accounting Standards (SAS). The Companies and Allied Matters Act 1990, section 335, gave these standards legal force by requiring company accounts to comply with them. The NASB became a parastatal in 1992 under the Federal Ministry of Industry, Trade and Investment.
A parastatal is an agency owned or controlled wholly or partly by government that serves the state indirectly. The Nigerian Accounting Standards Board Act No. 22 of 2003 set out the Board’s status, authority and duties.
The Financial Reporting Council of Nigeria Act No. 6 of 2011 repealed the 2003 Act and set up the FRC in place of the NASB. The FRC is a federal government parastatal. The Financial Reporting Council of Nigeria (Amendment) Act 2023, signed on 3 May 2023, amended the 2011 Act.
It reduced the size of the governing board, gave the Council wider oversight of financial reporting and corporate governance, and redefined public interest entities (PIEs) to include government and its organisations and entities listed on a recognised exchange in Nigeria. The FRC announced that it would start comprehensive compliance monitoring under the amended Act from 1 January 2024.
In 2025 the Federal Government paused the annual dues provisions of the amended Act for review. The Act remains law.
The objects of the FRC
The Act gives the FRC eight main objects. Any four earn full marks when a question asks for four.
- Protect investors and other stakeholders’ interests.
- Give guidance on financial reporting and corporate governance to professional, institutional and regulatory bodies in Nigeria.
- Ensure good corporate governance practices in the public and private sectors.
- Ensure the accuracy and reliability of financial reports and corporate disclosures, under the laws and regulations in force.
- Harmonise the activities of the professional and regulatory bodies that deal with corporate governance and financial reporting.
- Promote the highest standards among auditors and other professionals in the financial reporting process.
- Enhance the credibility of financial reporting.
- Improve the quality of accountancy and audit services, actuarial and valuation work, and corporate governance standards.
Directorates
The FRC works through seven directorates: Accounting Standards (private sector), Accounting Standards (public sector), Auditing Practices Standards, Actuarial Standards, Valuation Standards, Inspection and Monitoring, and Corporate Governance.
The Directorate of Accounting Standards for the private sector has these responsibilities:
- develop the accounting and financial reporting standards for the private sector, including small and medium-scale enterprises;
- promote general acceptance and adoption of those standards by preparers and users;
- promote compliance with the standards it develops or reviews;
- review the standards from time to time in line with the social, economic and political environment;
- promote compliance with the standards the Council adopts;
- promote, in the public interest, the standards for the statements of public interest entities; and
- perform other duties the Board considers necessary for the efficient performance of the Council’s functions.
How IFRS applies in Nigeria
No country applies IFRS without the approval of its own regulators, and every jurisdiction has some formal route for approval. The FRC has not published a formal adoption procedure. It follows the IASB’s timetable, so a new IFRS becomes applicable in Nigeria on the effective date the IASB prescribes. Early adoption before that date is not generally allowed unless the FRC permits it.
The FRC’s sustainability roadmap, for instance, does allow early adopters of IFRS S1 and S2.
The FRC moved Nigeria from Nigerian standards to IFRS through a roadmap with phases. Each phase required a category of entity to comply by a given date.
| Phase | Entities | Adopted |
|---|---|---|
| 1 | Significant public interest entities and listed entities: government business entities; entities with equity or debt listed or traded in domestic or foreign markets or over the counter; and other organisations required by law to file returns with regulators. Private entities in financial services belong here. Private companies that file returns only with the Corporate Affairs Commission (CAC) and the Federal Inland Revenue Service (now the Nigeria Revenue Service) are excluded. | 2012 |
| 2 | All other public interest entities: unquoted private companies of significant public interest because of the nature of their business, size or number of employees. | 2013 |
| 3 | Small and medium-sized entities, which apply the IFRS for SMEs. | 2014 |
Small and medium-sized entities
The roadmap describes an SME by these features. It is not a public interest entity and may lack public accountability. Its equity and debt instruments are not traded, nor in the process of becoming traded. It does not hold assets in a fiduciary capacity for a broad group of outsiders as one of its main businesses.
Its turnover is not more than ₦120 million and its net assets are not more than ₦60 million, or the amounts the CAC fixes under section 394(3) of CAMA 2020. It has no foreign board members. No member is a government, a government agency, a government corporation or a nominee of one. Its directors hold at least 51% of its equity share capital. SMEs apply the IFRS for SMEs.
A micro-sized entity is one that is neither a public interest entity nor an SME. It may use either the IFRS for SMEs or the Small and Medium-sized Entities Guidelines on Accounting (SMEGA) Level 3 issued by the United Nations Conference on Trade and Development.
The ideas in more depth
Advantages and disadvantages of a conceptual framework
A conceptual framework is a statement of generally accepted theoretical principles that forms the frame of reference for financial reporting. It supports both the development of standards and their interpretation.
The advantages are that standards rest on the same principles, so the approach is not haphazard; that standard setters are less open to political pressure, because a proposal must fit the framework; that standards take a consistent approach, rather than one concentrating on profit and another on the valuation of net assets; and that principles avoid the need for a mass of detailed rules.
The disadvantages are that users differ, so a single framework may not suit every one of them; that the variety of user needs may call for different standards built on different concepts; and that it is not clear a framework makes standards easier to prepare and apply.
The IASB’s Conceptual Framework assists the IASB to develop standards on consistent concepts, assists preparers to develop accounting policies where no standard applies, and assists everyone to understand and interpret IFRS. It is not itself an IFRS and overrides none of them. The next topics in this course study its content.
Advantages and disadvantages of convergence with IFRS
Advantages. Investors and analysts can compare entities in different countries, which matters as institutions invest abroad. International groups find consolidation simpler when every member uses the same framework, and management can monitor performance across the group more easily. Cross-border trade may grow because entities can assess the position of foreign customers and suppliers. Access to international finance improves because banks and investors understand the statements they receive.
Disadvantages. National law may conflict with IFRS, particularly where statements are prepared mainly for tax, so laws may need rewriting. Cultural differences mean one set of standards may not meet every need. Some countries consider their own framework satisfactory or better. The United States has not adopted IFRS for this reason.
The role of national standard setters
Convergence changed what a national standard setter does. It used to produce national standards. Today it contributes to international standard setting, responds to IASB proposals, researches local effects and supports implementation at home. The FRC does these things for Nigeria.
Sources and references
- IFRS Foundation Constitution: governance of the Foundation, the Trustees, the IASB and the voting rules for publishing standards.
- Financial Reporting Council of Nigeria Act No. 6 of 2011, and the Financial Reporting Council of Nigeria (Amendment) Act 2023, signed 3 May 2023.
- Nigerian Accounting Standards Board Act No. 22 of 2003 (repealed by the 2011 Act).
- Companies and Allied Matters Act 2020, section 394(3): conditions for a small company.
- FRC Nigeria roadmap for the adoption of IFRS.
These points are stated as at 5 November 2026.
Worked examples
Example 1: the small company test. Three private companies have no foreign members and none has a government member. Ikeja Print Ltd has turnover of ₦95 million, net assets of ₦48 million and directors holding 55% of the shares. Onitsha Foods Ltd has turnover of ₦130 million, net assets of ₦50 million and directors holding 60%. Kano Textiles Ltd has turnover of ₦80 million, net assets of ₦40 million and directors holding 45%.
Required: say which companies meet the small company conditions in section 394(3) of CAMA 2020, and why.
- Set the limits. Turnover must be not more than ₦120 million. Net assets must be not more than ₦60 million. Directors must hold at least 51%. Members must be Nigerian and none may represent the public sector. The conditions are cumulative, so failing one means the company is not small.
- Ikeja Print. Turnover ₦95 million is within ₦120 million. Net assets ₦48 million are within ₦60 million. Directors hold 55%, which is at least 51%. All conditions are met, so it is a small company.
- Onitsha Foods. Turnover ₦130 million exceeds ₦120 million by ₦10 million. It fails the turnover condition and is not small, although its net assets and directors’ shareholding are within the limits.
- Kano Textiles. Turnover ₦80 million and net assets ₦40 million are within the limits. Directors hold 45%, which is below 51%. It fails the shareholding condition and is not small.
Example 2: the first year of a new standard. The IASB issues a standard effective for annual reporting periods beginning on or after 1 January 2027. Because the FRC follows the IASB’s dates, the standard applies in Nigeria from the same date. Required: state the first financial year to which it applies for entities with year ends of 31 December, 30 June, 30 September and 31 March.
- Test the start date. The standard applies to a year only if the year begins on or after 1 January 2027. The year end alone does not decide the answer.
- 31 December. The year 1 January 2027 to 31 December 2027 begins on 1 January 2027. It is the first year.
- 30 June. The year to 30 June 2027 began on 1 July 2026, which is too early. The next year, 1 July 2027 to 30 June 2028, is the first. Answer: the year ended 30 June 2028.
- 30 September. The year to 30 September 2027 began on 1 October 2026, which is too early. Answer: the year ended 30 September 2028.
- 31 March. The year to 31 March 2027 began on 1 April 2026, which is too early. The year 1 April 2027 to 31 March 2028 begins after 1 January 2027. Answer: the year ended 31 March 2028.
How to answer in the exam
The verbs used on this topic ask for different amounts of writing, and the marks follow the verb.
- State, list or identify. Give the point with no explanation. A question on four FRC objectives gave 2 marks, which is ½ mark for each objective, so one short line each is enough. Learn the eight objectives and write four.
- Define. Give the meaning in one sentence, then stop. Add an example only if the question asks for one.
- Explain or describe. Make the point and give the reason or the detail. A typical “explain THREE reasons” question gives 1 mark for each, so three points with a reason earn full marks.
- Outline. Give the steps in order. Due process questions give about 1 mark for each step, so list five or more.
- Discuss. Give both sides. For convergence, set out advantages and disadvantages, and write as many well-made points as the question has marks.
On “state and explain” questions, the number of well-made points that earns full marks equals the number of marks, because each earns 1 mark. Write in short numbered points and keep to the number asked.
Common mistakes in the exam
- Mixing up the IFRS Foundation (22 trustees, governance) and the IASB (14 members, standard setting).
- Saying nine votes are always needed. Nine applies to a 14-member Board and eight to a Board of 13 or fewer.
- Calling the IFRS Interpretations Committee a standard setter for IFRS. It gives interpretations and the IASB approves the final one.
- Saying the FRC Act 2011 replaced CAMA. It replaced the 2003 NASB Act and deals with financial reporting standards and oversight.
- Quoting the wrong adoption years. Phase 1 was 2012, Phase 2 was 2013 and the SMEs followed in 2014.
- Quoting the small company turnover limit as ₦60 million. That is the net assets limit; turnover is ₦120 million.
- Treating the four sources of regulation as one. Name all four, because each earns a mark.
Quick revision
- Why regulate: relevant and reliable information, comparability, control of creative accounting and window dressing.
- Four sources: accounting standards, company law, sector regulation, listing rules.
- IFRS Foundation: 22 trustees (6 Asia/Oceania, 6 Europe, 6 Americas, 1 Africa, 3 any). IASB: 14 members, five-year term renewable once for three years, nine votes to publish.
- Interpretations Committee: rapid guidance. Advisory Council: advises. Monitoring Board: link to public authorities.
- Due process: topic, national practice, advisory group, discussion paper, exposure draft, hearings and field tests, final standard with effective date.
- FRC Nigeria: Act No. 6 of 2011, amended in 2023. Eight objects, seven directorates.
- IFRS phases: 2012 listed and significant PIEs; 2013 other PIEs; 2014 SMEs. New IFRS applies from the IASB effective date.
- Small company (CAMA 2020, s.394(3)): turnover not more than ₦120 million, net assets not more than ₦60 million, directors hold at least 51%.
Practice questions
These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.
Recall check: multiple choice
Question 1. Which of the following is a source of regulation of financial reporting?
- The personal preference of the directors
- Stock exchange listing rules
- The audit firm’s own policy
- The customers’ expectations
Show the answer
B. Listing rules are one of the four sources, with accounting standards, company law and sector regulation.
Question 2. The number of trustees of the IFRS Foundation is:
- 14
- 16
- 18
- 22
Show the answer
D. There are 22 trustees. The IASB is the body with 14 members.
Question 3. How many IASB members must approve an IFRS Standard when the Board has 14 members?
- Nine
- Eight
- Ten
- Fourteen
Show the answer
A. Nine of 14 members. Eight votes are enough only if the Board has 13 members or fewer.
Question 4. The body that gives rapid guidance where differing interpretations of a standard are possible is the:
- IFRS Advisory Council
- Trustees of the IFRS Foundation
- IFRS Interpretations Committee
- Monitoring Board
Show the answer
C. The IFRS Interpretations Committee issues interpretations, which the IASB approves in final form.
Question 5. The body set up in Nigeria in 2011 in place of the Nigerian Accounting Standards Board is the:
- Corporate Affairs Commission
- Financial Reporting Council of Nigeria
- Securities and Exchange Commission
- Central Bank of Nigeria
Show the answer
B. The Financial Reporting Council of Nigeria Act No. 6 of 2011 repealed the 2003 Act and created the FRC.
Question 6. Phase 1 of the IFRS roadmap in Nigeria applied to:
- Small and medium-sized entities
- Unquoted public interest entities
- Micro-sized entities
- Significant public interest entities and listed entities
Show the answer
D. Phase 1, adopted in 2012, covered listed and significant public interest entities. SMEs were Phase 3.
Question 7. Which of the following is an advantage of convergence with IFRS?
- It removes any conflict with national law
- It makes every country report the same profit
- It lets investors compare entities in different countries more easily
- It removes the need for an audit
Show the answer
C. Common standards improve comparison across countries. Conflicts with national law remain a disadvantage.
Question 8. After the IASB receives comments on a discussion document, it normally:
- Issues an exposure draft
- Publishes the final standard
- Appoints new trustees
- Fixes the effective date of the standard
Show the answer
A. The exposure draft follows the discussion document. The final standard and its effective date come after comments on the exposure draft.
Question 9. To be a small company under section 394(3) of CAMA 2020, a company’s turnover must be not more than:
- ₦2 million
- ₦60 million
- ₦100 million
- ₦120 million
Show the answer
D. The turnover limit is ₦120 million. The ₦60 million figure is the limit on net assets.
Question 10. A new IFRS Standard issued by the IASB becomes applicable in Nigeria:
- When the Nigerian Exchange Group approves it
- On the effective date the IASB sets, because the FRC follows the IASB’s dates
- Only after the National Assembly passes a new Act
- On 1 January of the year after publication
Show the answer
B. The FRC has no separate adoption procedure and follows the IASB’s effective date.
Section B style: written questions
Question 11 (10 marks). (a) Explain THREE reasons why financial reporting is regulated. (3 marks) (b) Identify the FOUR sources of regulation of financial reporting and describe each in one sentence. (4 marks) (c) State FOUR objectives of the Financial Reporting Council of Nigeria under its Act. (2 marks) (d) State who appoints the members of the IASB. (1 mark)
Question 12 (15 marks). (a) Describe the roles of the Trustees of the IFRS Foundation, the IASB, the IFRS Interpretations Committee and the IFRS Advisory Council. (8 marks) (b) Outline FIVE steps in the due process for developing a new standard. (5 marks) (c) State how many IASB members must approve the publication of a standard, and explain how the number changes with the size of the Board. (2 marks)
A further written question
Question 13 (20 marks). Alpha Bank Plc is listed on the Nigerian Exchange. Beta Telecom Ltd is an unquoted private company of significant public interest. Gamma Stores Ltd is a private company with turnover of ₦95 million and net assets of ₦48 million. All its members are Nigerian individuals, none represents government, and its directors hold 55% of the shares.
Delta Foods Ltd is a private company with turnover of ₦130 million, net assets of ₦50 million, Nigerian members only and directors holding 60% of the shares.
(a) State the phase of the IFRS roadmap into which Alpha, Beta and Gamma fall and the reporting framework each applies. (6 marks)
(b) Test Gamma and Delta against the conditions for a small company under section 394(3) of CAMA 2020 and state your conclusion on each. (6 marks)
(c) Discuss THREE advantages and TWO disadvantages of convergence with IFRS. (5 marks)
(d) State THREE responsibilities of the Directorate of Accounting Standards (private sector) of the FRC. (3 marks)
Model answers
Show the model answer to Question 11
(a) (1 mark each, any three) Outside users depend on published statements, so regulation makes the information relevant and reliable for their decisions. Regulation makes entities account for similar items in the same way, so statements can be compared between entities and between years. Without regulation management could choose the treatment that flatters results, and could use creative accounting or window dressing to mislead users.
(b) (1 mark each) Accounting standards: authoritative statements of how transactions are recognised, measured and presented. Company law: rules on distributable profit, share capital and reserves, such as CAMA 2020. Sector regulation: extra requirements for industries such as banking and insurance, set by bodies like the CBN and NAICOM. Listing rules: information that listed entities must give the stock exchange to keep their listing.
(c) (½ mark each, any four) Protect investors and other stakeholders; give guidance on financial reporting and corporate governance; ensure good corporate governance in both sectors; ensure the accuracy and reliability of financial reports; harmonise professional and regulatory bodies; promote high standards among auditors and other professionals; enhance the credibility of financial reporting; improve the quality of accountancy, audit, actuarial and valuation services.
(d) The Trustees of the IFRS Foundation appoint the members of the IASB. (1)
Show the model answer to Question 12
(a) (2 marks for each body) Trustees: 22 individuals who govern the Foundation and the bodies within it, raise funds and appoint the members of the IASB and the other bodies. IASB: the standard-setting body with 14 members; it develops and publishes IFRS Accounting Standards and has full discretion over its technical agenda.
IFRS Interpretations Committee: gives rapid guidance where interpretations differ, publishes draft interpretations for comment and seeks IASB approval of the final interpretation. IFRS Advisory Council: a forum through which experts from different countries and industries advise the IASB.
(b) (1 mark each, any five) A subject is identified; national rules and practice are studied; an advisory group is set up; a discussion document is issued for comment; an exposure draft is issued; comments are considered, including whether to hold hearings, run field tests or issue a revised draft; the final standard is published with an effective date and transition guidance.
(c) Nine of the 14 members must approve publication. (1) If the Board has 13 members or fewer, eight members are enough. (1)
Show the model answer to Question 13
(a) (2 marks each) Alpha Bank Plc: a listed entity, so Phase 1 (adopted in 2012), applying full IFRS Accounting Standards. Beta Telecom Ltd: an unquoted public interest entity, so Phase 2 (adopted in 2013), applying full IFRS. Gamma Stores Ltd: a small entity without public accountability, so Phase 3 (adopted in 2014), applying the IFRS for SMEs.
(b) Gamma (3 marks):
- turnover of ₦95 million is not more than ₦120 million (1)
- net assets of ₦48 million are not more than ₦60 million (1)
- directors hold 55%, at least 51%, and the members are Nigerian with no government member
All conditions are met, so Gamma is a small company. (1) Delta (3 marks): turnover of ₦130 million exceeds ₦120 million, so the turnover condition fails (2).
The conditions are cumulative, so Delta is not a small company even though net assets of ₦50 million and directors’ holding of 60% are within the limits. (1)
(c) (1 mark each, three advantages and two disadvantages) Advantages:
- investors can compare entities across countries
- group accounts are simpler to prepare when every member uses one framework
- access to international finance is easier because lenders and investors understand the statements
- cross-border trade is easier to assess
Disadvantages: national law, especially where accounts serve tax, may conflict with IFRS; cultural differences mean one set of standards may not suit everyone; some countries, such as the United States, consider their own framework satisfactory.
(d) (1 mark each, any three) Develop the standards for private sector and SME financial statements; promote general acceptance and adoption of the standards by preparers and users; promote compliance with the standards; review the standards from time to time in line with the environment; promote the standards for public interest entities.
Pathfinder on The regulatory framework: IASB, IFRS adoption and FRC Nigeria
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Part (b) asks for four main objectives of the Financial Reporting Council of Nigeria (2 marks). The other parts of the question belong to the Conceptual Framework topics.
Revise first: The Financial Reporting Council of Nigeria
Part (b) asks for the sources of accounting regulation in Nigeria (3 marks). Part (a) belongs to the provisions topic.
Revise first: The sources of regulation
Part (a) asks for the main sources of regulation (3 marks) and two reasons why financial reporting should be regulated (2 marks). Part (b) belongs to the presentation topics.
Revise first: Why financial reporting is regulated
Part (a) asks for five responsibilities of the Directorate of Accounting Standards of the Financial Reporting Council of Nigeria (5 marks). Parts (b) and (c) belong to the legal framework and Conceptual Framework topics.
Revise first: The Financial Reporting Council of Nigeria
Source: ICAN Pathfinder, Financial Reporting. Diets covered: Every diet in the Pathfinder, from November Diet, 2021 to May Diet, 2026, was reviewed here. The diets listed above test this topic or include it within a longer question..
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