SUNNIE OMEIZA-MICHAEL
Some companies are not just favourably disposed to giving out information. They prefer secrecy even when they are doing business with peoples’ monies under trust
Disclosure means the giving out of information, either voluntarily or to be in
compliance with legal regulations or workplace rules. In law, disclosure refers to a process that may form part of legal proceedings, whereby parties inform (disclose) to other parties the existence of any relevant documents that are, or have been, in their control. In company law or corporate law, disclosure refers to public companies giving out information about their financial reports and operations profile, which might be kept secret if the company was a private company or a company not mandated by law to publish such reports. In Nigeria, some companies are not just favourably disposed to giving out information. They prefer secrecy even when they are doing business with peoples’ monies under trust. Bank customers struggle with all forms of hidden charges. From media reports, the Securities & Exchange Commission (SEC), Nigeria’s regulator of the capital market,
recently queried nine firms for failure to publish their annual reports and accounts.
Today, in the face of the current financial meltdown, companies remain the main drivers of the economy. Bail out packages are arranged for them, their shares are traded in various stock exchanges, they remit the largest chunk of employees’ taxes to the various inland revenue services, they remain the largest employers of labour and so on. Sound corporate governance is crucial for stability in the various markets that make up the economy. Corporate governance is sustained by full disclosures and checks and balances. Companies operating in Nigeria should brace up for the tenets of full disclosures according to laid down standards by the Nigerian Accounting Standards Board (NASB) and other sector-specific regulators like the Central Bank of Nigeria (CBN) as concerning financial institutions. From NASB reports, the board Is the only recognised independent body in Nigeria responsible for the development and issuance of Statements of Accounting Standards
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for users and preparers of financial statements, investors, commercial enterprises and regulatory agencies of government.
Full disclosure by companies builds and sustains confidence in investors, shareholders, customers and regulators. Rumours are on the streets about various companies because the companies have refused to make public their financial reports that would have informed the people who either peddle these rumours or those fed with the rumours. People would still invest or leave their investments in companies they are better informed of in terms of their wellbeing. Earlier this month, the Group Managing Director/CEO of First Bank of Nigeria Plc, Mr. Lamido Sanusi, made a case for full disclosures by banks in the face of perceived confidence crises.
The Central Bank recently sent bank examiners to all the banks to monitor their transactions and send feedback data to its headquarters for monitoring and disclosure purposes. This action underscores the importance of full disclosure as it relates to the much needed confidence in the banking system. To ensure transparency and deepen the confidence of the banking public, the CBN had to compel banks to make full disclosures of their interest rates and charges on their websites for public consumption. According to the rules of the Securities & Exchange Commission (SEC) and the CBN, all money deposit banks, discount houses and insurance companies are expected to publish their reports four months after their financial year-end.
The issue of lack of trust has mitigated against the deepening of credit in the financial sector. We do not have adequate data on borrowers and business people which can be used as guaranty against fraudulent sources of credit information. The CBN has recently licensed the first and only credit bureau in the country. More credit bureaux should be licensed to capture more credit data. This is also a form of disclosure but on the part of individuals who want to access credit from the financial institutions. This helps the lending institutions tread a safer path of business transactions.
Further into the issue of full disclosure is the case made for helpful disclosures for investors to have a better understanding of financial data published in annual reports. Cash flow statements should be stated in their simplest form for the understanding of lay men among shareholders of companies and prospective investors. Earnings data should be stated in plain languages after stating them in their professional content form. Providers of these company reports should seek to help all likely users of the reports to have a clear and unambiguous understanding of what all those figures mean. We expect these companies to give information in such areas as bad debts, risk assets, non-performing loans by insider directors, vulnerability to external market forces.
Nigerian companies’ shares are being quoted in foreign exchanges, banks and insurance companies are opening branches abroad and Nigeria, being not a closed economy, is opened to influences from the global economy just as we see today. Foreign companies are also listing their shares on our local exchange. A convergence of reporting standards is crucial to a good understanding of accounting reports irrespective of which company is publishing them. The proposed Financial Reporting Council (FRC) by the Federal Executive Council is a welcome idea. Nigeria should also begin to make moves to align its accounting standards with International Financial Reporting Standard (IFRS) to which the European Union and many developed countries are already aligned.
According to reports from the International Financial Reporting Standards (IFRS) portal, As global capital markets become increasingly integrated, many countries are moving to International Financial Reporting Standards (IFRS). For example, most European Union countries, various countries in Asia Pacific and many other countries around the world use IFRS for financial reporting. Moving forward, other countries including the United States, Japan, Korea and Canada are also planning IFRS convergence in the next few years. The United States SEC requires full disclosure from companies that wish to be publicly traded on the major U.S. exchanges. By enforcing this rule, the SEC attempts to instill confidence in investors that the financial marketplace is efficient and transparent so that individual investors can take part in it for material profit.
Many banks and insurance companies now have offshore branches and subsidiaries across various countries and continents necessitating a common international standard of reporting. In Nigeria, the Nigerian Accounting Standard Board (NASB) sets the reporting content standard to which all company accounts published conform. The work of the NASB is similar to those of other National Accounting Standard Setting bodies like the Financial Accounting Standards Board, USA; Accounting Standards Board, UK; Australian Accounting Research Foundation, Australia; Malaysian Accounting Standard Board (MASB), etc.
We are concerned about the recovery and stability of the Nigerian economy in the face of this current credit crisis. Managers of the Nigerian Economy should stay close to happenings in other economies to understudy causes and effects arising from policies they may be implementing to fight the global economic meltdown. According to reports from the Securities & Exchange Commission (SEC) of the United States, the Commission is taken some definite steps to address issues affecting the various markets in the US. The mission of the Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. During the current turmoil in the credit markets, the SEC has worked closely with the Department of the Treasury, the Federal Reserve, and other regulators in the U.S. and around the world to protect investors and the markets. The SEC administers the federal securities laws, requires
disclosure by public companies, and brings enforcement actions against securities law violators.
The Commission in trying to enhance transparency in financial disclosure, asked financial institutions to provide additional disclosure regarding off-balance sheet arrangements and the application of fair value to financial instruments. The Division also sent letters to public companies in December 2007 and March 2008 identifying disclosure issues relating to fair value measurements and off-balance sheet arrangements. The Commission Continues to look at lessons from the credit crisis and determine ways to give investors more transparent, useful, and timely information.
A sure way to boost confidence in companies in this period of financial crisis is by full and helpful disclosures that can give investors, customers, shareholders and regulators simple and clear understanding of all financial data relating to these companies. The developed economies have already toed this path of full disclosure because transparency and good corporate governance are crucial to economic recovery. Any breakdown in the IT infrastructure of banks for instance should be clearly disclosed to customers instead of leaving the customers to engage in wild imaginations. Companies hiding their falling profit but announcing growth in other areas like total assets is misleading and unethical. Financial reports should be in compliance with set regulatory standards and yet simple to understand. Financial statements should be published with the genuine intent to inform and not to mislead stakeholders.
