Dusting NNPC’s financial books

NNPC will, in the coming weeks, be responding to calls on it to clear the air on irregularities detected in its financial records, writes EHIME ALEX

The Financial Reporting Council of Nigeria, last week, disclosed that it spotted some infractions in the financial statements of the Nigerian National Petroleum Corporation, as well as banks, Pension Fund Administrators and custodians, which are not in compliance with the law.

According to the Executive Secretary of FRC, Shuaibu Ahmed, on the probe, there have been a lot of controversies on the financial statement of NNPC. “The review has been completed and we’ve written both the NNPC and the three auditors screening them to provide us with the management letters for NNPC.” He added that the council was expecting to get the management letters for NNPC within one week, after which it would invite the party to appear before it to clear some of the infractions noticed in their financial statement.


Key metrics in NNPC’s financial report

According to its 2020 Audited Financial Statements for the year ended December 31, 2020, the NNPC posted a Profit After Tax of N287.23bn in the reviewed year while revenue fell by 19.75 per cent or N915.31bn to N3.72tn. In 2019, the corporation recorded a trading loss of N1.7bn.

A breakdown of the report showed that revenue from crude oil sales declined by 23.24 per cent or N250.69bn to N828.13bn, even as revenue from petroleum product sales fell by 22.06 per cent or N644.38bn to N2.28tn. Revenue from services declined by 37.82 per cent or N54.72bn to N89.96bn, but revenue from sales of natural gas appreciated by 7.04 per cent or N34.49bn to N524.4bn.

According to the NNPC report, the revenue from crude oil sales at the corporation relates to evacuated crude from the refineries sold directly to marketers during the year, petroleum products sales including the sale of Premium Motor Spirit, Dual Purpose Kerosene, Automotive Gasoline Oil, lubricants and other related products.

It also indicated that sale of natural gas represented the invoice value (fair value of the consideration) of natural gas sold to third parties, even as revenue from services consists of revenue from seismic contracts, time-based contracts and gas transmission tariffs.


FRC and the books

The FRC, a federal government agency established by the Financial Reporting Council of Nigeria Act 2011, is vested with the powers to enforce compliance with accounting, auditing, corporate governance, and financial reporting standards.

As provided under Section 8 of the Act, the responsibilities of the council include reviewing, promoting, and enforcing compliance with the accounting and financial reporting standards; monitoring compliance with the reporting requirements specified in the adopted code of corporate governance; and reviewing financial statements and reports of public interest entities.

The ultimate motive is to protect investors and stakeholders’ interest with financial institutions and to ensure acceptable corporate governance practices in the public and private sectors of the Nigerian economy.

FRC also guides professionals, institutional and regulatory bodies in Nigeria on issues relating to financial reporting and corporate governance, as well as develop and publish accounting and financial reporting standards to be observed in the preparation of the financial statement of public interest entities.

“It should be understood that the FRC came about after the repealing of the Nigerian Accounting Standard Board, which used to be the body saddled with the responsibility of coming up with accounting standards generally,” a Nigerian public affairs analyst, Bala Zakka, told Financial Street.

According to Zakka, as far as financial integrity, financial reporting and auditing are concerned, FRC is saddled with the responsibility, stressing that the council is expected to have variance in the way analyses are supposed to be carried out.

“They have already promised to do everything with fairness and integrity, and to make sure there is equity in their treatment. So, we will wait and see how things go. But for now, I would like to douse the anxiety and reservation of institutions that are probably concerned that FRC may not be fair to them,” Zakka said.


FRC and reporting standards

In ensuring financial accounting, auditing and associated reports are presented in line with global standards, Zakka said it was the duty of FRC to consider the International Public Sector Accounting Standard, which has to do with public sector, and International Financial Reporting Standard for the private sector.

“When you look at IPSAS and the IFRS, they have a way they want financial reporting to be done. In Nigeria, we have adopted IPSAS for the public sector, IFRS for private sector and FRC, a localised one, to ensure full compliance with reporting financial statements,” Zakka noted.

The FRC is to ensure integrity, accountability and, especially, sanity in reporting and presentation of standards, he stressed.


The FRC probe

All eyes are on the FRC, even as ears are tuned to how it will handle the infractions detected on the financial records of NNPC and other bodies.

In doing a thorough job, FRC is expected to display integrity and transparency at the end of the day, Zakka said. “We expect that at the end of their review, we are going to see credibility, transparency and sanity in financial reporting because all the council is after is to make sure the way, manner and presentation format of those in the public and private sectors are presented in line with global standards.”

He added, “Private and public entities that have to report information about their activities should not be discouraged. So, there will be sanity, transparency and integrity in the way and manner audit and financial reports are presented.”


Book cooking and sanctions

Cooking of books is a financial crime. In Nigeria, some years ago, many banks cooked their books and lured millions of investors into the mire of financial losses.

In a couple of weeks, it should be expected that the entities whose financial records the FRC had spotted to have some forms of irregularities could be made to face the music, supposedly dependent on the gravity of the offence committed.

However, some defaults may just require calling the attention of the preparer of the financial statements, Zakka said, adding that the gravity of the default would determine the sanction.

“We will still expect mutual understanding and rewarding relationship. If the presentation format is the only thing that needs to be corrected, why not? It can be corrected by calling the attention of the defaulter or the person who defaulted during the preparation of the financial report.

“When you talk about window-dressing, we are talking about falsification of the book of accounts. Falsification of the books of account are not good for the long term benefits of the entity, either public or private, and they will not also put the FRC on a good pedestal, especially if such accounts are exposed to the global community or the global financial reporting for assessment.”

Ehime Alex
Ehime Alex
Ehime Alex reports the Capital Market, Energy, and ICT. He is a skilled webmaster and digital media enthusiast.

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