INTRODUCTION
The Financial Reporting Council of Nigeria (FRC) was established under the Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023), to oversee financial reporting and promote compliance with applicable reporting standards in Nigeria.
The Act sets out the obligations that companies and professionals must comply with in relation to financial reporting, registration and filing of financial statements
CATEGORIES OF COMPANIES REGULATED AND AFFECTED BY THE FRC ACT
The Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023), applies to various entities classified as Public Interest Entities (PIEs). Section 77 of the Act, as amended, sets out the categories of entities that qualify as PIEs. These include:
- Governments and government organizations;
- Entities listed on any recognized exchange in Nigeria;
- Non-listed entities regulated by the government or any of its agencies;
- Public limited companies;
- Private companies that own or control public companies or regulated entities;
- Concession entities (these are entities that are granted the right to operate or manage public assets or services);
- Privatized entities in which the government retains an interest;
- Entities engaged by any tier of government in public works with an annual contract sum of ₦1 billion and above, and settled from public funds;
- Government licensees; and
- Other entities with an annual turnover of ₦30 billion and above.
REGISTRATION AND OBLIGATIONS OF PROFESSIONALS UNDER THE FRC ACT
The 2011 Act (as amended in 2023), also imposes obligations on professionals and certain officers involved in the financial reporting of Public Interest Entities (PIEs).
- Registration of Professionals
Section 41 of the Act requires the Financial Reporting Council to maintain a register of professionals. A person who intends to provide professional services for remuneration to a Public Interest Entity is required to be registered with the Council before providing such services.
Although the Act does not provide an exhaustive list of the professionals covered by this requirement, Section 8(1)(f) refers to professional accountants and other professionals engaged in the financial reporting process.
Regulation 34 of the FRC Audit Regulations 2020 identifies professionals who may be engaged in the financial reporting process and classifies them as “Other Assurance Service Providers.” The Regulations divide these providers into two categories:
- Internal Assurance Service Providers: These include:
- Audit Committees;
- Internal Auditors; and
- Internal Control Professionals.
- External Assurance Service Providers:
These are professionals engaged by management in the financial reporting process. They include:
- Actuaries;
- Property Valuers;
- Valuation Specialists;
- Tax Consultants;
- Information Technology Specialists;
- Legal Counsel;
- Corporate Governance Specialist.
Under Section 41(3) and (4), a person who wishes to be registered shall:
- Make a written application to the Council in the prescribed form;
- Pay the prescribed registration fee;
- Provide the information and documents required by the Council; and
- Hold a practising certificate.
Where the Council is satisfied that the applicant has met the applicable requirements, the professional is registered, and the relevant particulars are entered in the Register of Professionals.
- Registration of Professional Firms
These registration requirements also apply to firms that provide audit and other assurance services to Public Interest Entities. The FRC maintains national registers for different categories of assurance providers, including audit firms, actuarial firms, valuation firms and other assurance service firms.
With effect from 1 April 2026, only audit and assurance service firms listed on the National Audit and Assurance Firms Register are permitted to undertake, accept or continue audit or assurance engagements in Nigeria.
Therefore, Public Interest Entities, government institutions, regulated entities and other private organisations are required to:
- Verify the registration status of an audit or assurance firm before appointing the firm.
- Ensure that both the firm and the professional responsible for signing the audit engagement are registered with the FRC.
- Obligations of Professionals
Once registered, the professionals are expected to comply with the professional and reporting requirements applicable to their work under the FRC’s rules. These include:
- Certification and Disclosure Requirements:
Rule 2 of the Financial Reporting Council’s Certification Requirement for Professionals Engaged in the Financial Reporting Process sets out requirements for professionals involved in the financial reporting process which includes; External Auditors, Officers of Reporting Entities and Other Professionals providing assurance to reporting entities. These requirements state that:
- Any professional who provides assurance or certifies any part of an annual report, financial statements, accounts, returns or other financial documents must state their name and FRC registration number;
- The reporting entity must disclose the professional’s name, the name of the firm or entity with which the professional is engaged, the FRC registration numbers of the professional and firm, and a summary of the service provided; and
- A person who signs or attests to the annual report, financial statements, accounts, returns or other financial documents in the capacity of Chairman of the Audit Committee must be a professional member of an accounting body established by an Act of the National Assembly.
- Professional Opinion on Financial Statements:
Section 44 of the Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023), requires a professional accountant who has audited an entity’s financial statements to give a clear written opinion in his report. The opinion should address:
- Whether the financial statements give a true and fair view of the financial position and performance of the entity; and
- Whether the financial statements have been prepared in accordance with the applicable provisions of the Act and other relevant laws.
- Auditor’s Responsibilities under Rule 14:
Rule 14 of the Financial Reporting Council’s Rule on Non-Compliance with Laws and Regulations sets out the responsibilities of external auditors in relation to their clients’ compliance with applicable FRC requirements. The Rule requires auditors to:
- Verify compliance with FRC requirements:
External auditors are required to ensure that their clients comply with the relevant provisions of the Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023), regulations, codes, rules, guidelines and guidance issued by the FRC. This applies whether the requirements have a direct or indirect effect on the financial statements or operations of the entity.
- Identify FRC Compliance Issues:
Auditors are expected to identify issues that could affect the validity of the financial statements, including instances where the financial statements are signed using an invalid FRC registration number or where the reporting entity has outstanding compliance issues arising from an ongoing FRC inspection or monitoring exercise.
- Confirm compliance before signing the audit opinion:
Before signing an audit opinion, the external auditor must confirm that the reporting entity and all signatories to the financial statements have fulfilled their statutory obligations to the FRC. The confirmation shall be obtained by sending an email to the FRC.
FILING OBLIGATIONS OF COMPANIES AND TIMELINES UNDER THE FRCN ACT
Public Interest Entities (“PIEs”) are subject to filing and reporting obligations under the Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023) (the “FRCN Act”). These filing obligations include:
- Filing of Annual Reports and Financial Statements with the Financial Reporting Council of Nigeria (“FRC”):
Under Section 8(1)(d) of the Act, the FRC is required to receive copies of the annual reports and financial statements of Public Interest Entities from their preparers within 60 days of approval by the board of public interest entities.
In the same vein, a PIE is required to:
- Submit a copy of its approved annual report and financial statements to the FRC;
- Submit within 60 days from the date of Board of public interest entities approval; and
- Ensure that the financial statements comply with the applicable accounting and financial reporting standards.
- Filing of Financial Statements Submitted to Other Government Authorities with the FRC:
Under Section 58(3) of the Act, where a PIE files any financial statements or report with a government department or authority such as the Corporate Affairs Commission (“CAC”), the Securities and Exchange Commission (“SEC”) etc, it must also:
- File a copy with the FRC;
- The copy must be filed with the FRC within 30 days; and
- The filing must be made in the manner prescribed by the rules of the Council.
- Filing of Qualified Audit Reports with the FRC:
Under Section 8(1)(n) and Rule 5 of the FRC Rules:
- The auditor is required to submit a copy of the relevant report to the FRC;
- The report must include a detailed explanation of the matters giving rise to the qualification;
- The submission must be made within 30 days from the date of the qualification; and
- The report must not be announced to the public until the accounting issues relating to the report have been resolved by the Council.
The Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023) imposes a number of timelines on Public Interest Entities (“PIEs”), professionals and other persons subject to the regulatory framework of the Financial Reporting Council of Nigeria (“FRC”). These timelines are important because compliance with FRC requirements does not end with the preparation or submission of financial statements. Certain filings, reports, responses to regulatory notices and records are required to be submitted to the FRC or maintained within specific periods.
For businesses and professionals, understanding these timelines is important in ensuring that FRC compliance obligations are properly incorporated into the company’s regulatory and financial reporting calendar. These timelines include:
- Filing of Annual Reports and Financial Statements
Section 8(1)(d) of the Act requires the FRC to receive copies of the annual reports and financial statements of PIEs from the preparers within 60 days of the approval of the Board of Public Interest Entities.
In practical terms, a PIE should not treat the approval of its annual financial statements by its Board as the end of its reporting obligation. The management team of a company is required to take the necessary steps to ensure that the approved annual reports and financial statements are filed with the FRC within the prescribed period.
Companies that fall within the category of PIEs should therefore take this deadline into account when preparing their annual financial reporting and regulatory compliance calendars.
- Submission of Qualified Reports by Auditors
Where an audit results in a qualified audit report, Section 8(1)(n) requires the auditor to submit a copy of the report, together with a detailed explanation of the reasons for the qualification, to the FRC within 30 days from the date of the qualification.
In simple terms, where an auditor finds a significant issue with a company’s financial statements and, as a result, cannot give a full approval of the financial statements, the auditor must report the matter to the FRC within 30 days and explain why the audit report was qualified.
Companies should therefore be aware that receiving a qualified audit report may lead to additional reporting requirements to the FRC.
- Filing of Financial Statements Already Submitted to a Government Authority
Section 58(3) provides that where a PIE files its financial statements and reports with a government department or authority, it is also required to file a copy of those financial statements and reports with the FRC within 30 days.
This is an important requirement for regulated businesses because making a filing with another regulator does not necessarily mean that the company’s FRC obligations have been satisfied. A company may therefore have separate filing obligations arising from the same set of financial statements.
Businesses that are subject to multiple regulatory requirements should accordingly review their filing obligations across the relevant regulators to ensure that an FRC filing is not inadvertently overlooked.
- Restatement of Financial Statements Following an FRC Notice
The Act also provides for specific timelines where the FRC identifies non-compliance with applicable accounting or financial reporting standards.
Under section 64(2), where a notice is served following a determination of non-compliance, the affected person or PIE is required, within 60 days of service of the notice, to restate its financial statements and resubmit them to the FRC and any relevant government department or authority requiring the statements. The PIE is also required to hold a general meeting of its shareholders on the restated financial statements.
This means that an FRC compliance issue may go beyond correcting a filing or responding to a regulatory query. Depending on the circumstances, the company may be required to undertake a formal restatement process and present the restated financial statements to its shareholders.
- Restatement Following a Final Decision of the FRC
A separate restatement obligation arises under section 65 of the Act.
Where the FRC reaches a final decision that a PIE has failed to comply with its decisions or applicable financial reporting, accounting or auditing standards, the Council may serve a notice requiring the entity to restate its financial statements.
Following service of the notice, the PIE is required to restate and resubmit its financial statements to the Council and the relevant government department or authority within 60 days.
The practical implication for companies is that an unresolved FRC compliance issue can continue to affect subsequent financial reporting periods. It is therefore advisable for companies to address regulatory concerns promptly rather than allowing them to escalate into a formal restatement process.
- Frequency of Practice Reviews for Professional Accountants
The compliance obligations under the Act also extend to professionals involved in financial reporting.
Section 61(1) provides that annual quality reviews or inspections are to be conducted for professional accountants who audit more than 20 PIEs. For other professional accountants, the review is to be conducted every three years. The Council may, however, order a special inspection of any professional accountant at any time.
Professional firms should therefore maintain proper internal compliance systems and documentation on an ongoing basis, rather than preparing only when an inspection is imminent.
- Retention of Audit Working Papers and Related Information
Section 61(2) requires registered professional accounting firms and other professionals to retain audit working papers and other information relating to an audit report for a period of not less than six years.
The records are required to be maintained in sufficient detail to support the conclusions reached in the relevant report.
For professional firms, this makes proper record-keeping an important part of FRC compliance. Documents supporting an audit opinion or other professional conclusion should therefore be properly maintained and readily accessible in the event of an FRC review or inspection.
The timelines under the FRCN Act demonstrate that FRC compliance is not simply a matter of registering with the Council or filing financial statements once a year. Depending on the nature of the entity and the circumstances, a business may have obligations arising at different stages of its financial reporting process.
Businesses that fall within the scope of the FRC framework should therefore identify the obligations applicable to them and incorporate the relevant deadlines into their corporate compliance calendar. This is particularly important for companies that are subject to regulation by multiple government agencies, as a filing made with one regulator may give rise to a separate filing obligation with the FRC.
Early identification of these obligations can also help businesses avoid unnecessary penalties, regulatory queries and the more serious consequences that may arise where financial statements have to be restated.
For companies and professionals, obtaining appropriate regulatory and legal guidance at the planning stage can therefore help ensure that FRC requirements are identified and addressed before they become compliance issues.
OFFENCES, PENALTIES AND EFFECTS OF NON-COMPLIANCE
Compliance with the requirements of the Financial Reporting Council of Nigeria (“FRC”) is not merely a procedural requirement. The Financial Reporting Council of Nigeria Act, 2011 (as amended in 2023) provides specific consequences where a person, professional or Public Interest Entity (“PIE”) fails to comply with the requirements of the Act, applicable accounting and financial reporting standards, or decisions of the Council.
The consequences of non-compliance vary depending on the nature of the default and may include monetary penalties, imprisonment, restatement of financial statements, additional disclosure requirements and sanctions against professionals. Businesses should therefore understand the potential consequences of non-compliance and not wait until a regulatory issue has escalated before taking steps to address it.
- Failure to File Annual Reports and Financial Statements
Section 8(1)(d) requires annual reports and financial statements of PIEs to be filed with the FRC within 60 days of approval by the Board Public Interest Entities. Similarly, section 58(3) requires a PIE that has filed its financial statements or reports with a government department or authority to also file a copy with the FRC within 30 days.
Although these sections do not prescribe a specific monetary fine for each instance of late or non-filing, Rule 6 of the Financial Reporting Council of Nigeria (FRCN) Rules and Regulations provides that entities that fail to comply with these filing requirements may be subject to civil, administrative and criminal sanctions within the framework of the FRC Act.
This is particularly important for businesses that are subject to several regulatory filing obligations. Filing financial statements with another regulator does not remove the separate obligation to file them with the FRC where the Act requires it.
- Failure to Submit Qualified or Modified Audit Reports
Section 8(1)(n) requires the FRC to receive copies of qualified reports, together with detailed explanations for the qualification, from auditors within 30 days from the date of the qualification.
The FRC has clarified under Rule 5 that this requirement is not limited to reports described strictly as “qualified reports”. It covers reports containing an emphasis of matter, qualified opinion, adverse opinion, disclaimer of opinion and other opinions issued by external auditors other than an unqualified opinion.
While section 8(1)(n) does not itself prescribe a specific fine for failure to submit such reports within the required period, non-compliance may expose the relevant professional to the enforcement and sanctioning powers available to the Council under the Act.
- Failure to Comply with Accounting and Financial Reporting Standards
Section 64(1) provides that a person who fails to comply with the prescribed accounting and financial reporting standards developed by the Council, or a decision of the Council that a PIE has failed to comply with its pronouncements, commits an offence.
Upon conviction, the person may be liable to a fine of up to ₦10,000,000, imprisonment for a term of up to two years, or both.
The provision demonstrates that compliance with applicable financial reporting standards is not simply a matter of best practice. Where a company or relevant person fails to comply with the applicable requirements, the consequences can extend to criminal liability.
- Failure to Comply with an FRC Restatement Notice
The Act also provides for specific sanctions where a PIE fails to comply with an FRC notice requiring the restatement of its financial statements.
Under section 64(3), a PIE that fails to comply with the notice issued under section 64(2) commits an offence and may, upon conviction, be liable to a fine of up to ₦20,000,000. The PIE is also required to restate the relevant financial statements within a further 30 days.
This means that the consequences of an FRC finding do not end with the initial regulatory notice. Failure to take corrective action within the prescribed period may result in a further financial penalty and an additional obligation to restate the company’s financial statements.
- Deregistration and Warning of Registered Professionals
Non-compliance under the FRCN Act may also affect the professional engaged in the financial reporting process. Section 48 of the Act gives the Council the power to deregister a professional who has been registered under section 41 where certain circumstances arise.
A professional may be deregistered where the registration was obtained through fraud or misrepresentation, where the professional no longer satisfies the requirements for registration under section 41(5), or where the professional has acted in breach of any rule or regulation made by the Council.
The Council may, however, take a less severe approach where the breach relates to a rule made by the Council. Under section 48(2), rather than immediately deregistering the professional, the Council may issue a warning to the professional.
The effect of this provision is that FRC compliance is not limited to maintaining registration. Registered professionals are expected to continue to satisfy the applicable requirements and comply with the rules and regulations of the Council throughout the period of their registration. A breach may therefore result in a warning or, depending on the circumstances, the loss of the professional’s FRC registration.
- Restatement Following a Final Decision of the Council
Section 65 addresses situations where the Council reaches a final decision that a PIE has failed to comply with its decisions under the Act or with applicable financial reporting, accounting or auditing standards.
In such circumstances, the Council is required to serve a notice on the entity for the immediate restatement of its financial statements. The PIE then has 60 days from the service of the notice to restate and resubmit its financial statements to the Council and the relevant government department or authority.
Where the entity fails to comply, section 65(3) provides for a fine of up to ₦10,000,000 and requires the entity to restate the financial statements within a further 30 days.
For a company, this can have consequences beyond the immediate financial cost. A required restatement may require additional professional work, further regulatory engagement and disclosure of the non-compliance in subsequent financial statements.
- Failure to Pay FRC Levies
The Act also imposes annual levies on specified professionals, publicly quoted companies and other PIEs.
Section 33 provides for different levy amounts depending on the category of person or entity and, in the case of certain PIEs, the applicable turnover or market capitalisation threshold.
Failure to pay the prescribed levy when due attracts a penalty of 10% of the amount due for every month of default, cumulatively for up to ten months.
Where the default continues thereafter, the defaulting person may be prosecuted and, upon conviction, may be liable to a fine of up to three times the amount due, in addition to the accrued penalties. In the case of a company, the Chief Executive Officer may also be liable to a fine of up to ₦500,000 or imprisonment for a term of up to six months.
The financial implication of failing to pay an FRC levy can therefore increase significantly where the default is allowed to continue. Companies should ensure that applicable FRC levies are identified and included in their annual regulatory compliance calendar.
- Engaging an Unregistered Professional
An important consideration for businesses is the status of the professionals engaged to provide services to PIEs.
Section 41(2) provides that a person shall not hold an appointment or offer any service for remuneration as a professional for PIEs unless the person is registered under the Act.
A person who contravenes this requirement commits an offence and, under section 41(6), may upon conviction be liable to a fine of up to ₦500,000, imprisonment for a term of up to six months, or both.
This places an important responsibility on companies when appointing professionals for services connected with financial reporting. Businesses should not only consider whether a professional is suitably qualified but should also confirm whether the professional has the registration required under the FRC framework for the relevant engagement.
The provisions on offences and penalties show that FRC compliance can create obligations for both the entity and the professionals involved in its financial reporting process.
For businesses, the risk is not limited to the payment of a fine. Non-compliance may result in the restatement of financial statements, additional professional costs, regulatory scrutiny, disclosure of non-compliance in subsequent financial statements and, in appropriate cases, criminal liability.
Companies should therefore consider FRC compliance as part of their broader corporate regulatory compliance framework. This includes determining whether the company falls within the category of a PIE, ensuring that the appropriate professionals are registered where required, monitoring filing and payment deadlines, maintaining proper financial reporting records and responding promptly to any regulatory notice or inspection.
Early legal and regulatory review can also help a company identify potential areas of non-compliance before they result in enforcement action. For businesses operating in regulated sectors or dealing with complex financial reporting requirements, obtaining professional advice on the company’s FRC obligations can therefore be an important part of managing regulatory risk.
OTHER IMPORTANT NOTICES (MISCELLANEOUS)
Sections 72 to 76 of the Financial Reporting Council of Nigeria Act contain some miscellaneous provisions which, although not directly dealing with the day-to-day preparation of financial statements, are relevant to understanding how the FRC operates and how its regulatory requirements are communicated and administered.
Reference to the Former Nigerian Accounting Standards Board: Section 74 repealed the Nigerian Accounting Standards Board Act, 2003. In addition, section 75 provides that references to the Nigerian Accounting Standards Board in section 335(1) of CAMA and other relevant legislation are to be construed as references to the Financial Reporting Council established under the FRCN Act.
Overall, these provisions show that compliance with the FRC framework requires businesses and professionals to look beyond the principal provisions of the Act and remain aware of the rules, regulations, notices and other pronouncements issued by the Council from time to time.
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