The Financial Reporting Council of Nigeria on Thursday picked holes in the letter written to it by the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, faulting the regulatory decisions of the council in respect of Stanbic IBTC Holdings.
The FRC, in a letter dated November 10, 2015, and signed by its Chief Executive Officer, Mr. Jim Obazee, said that the CBN’s action on the Stanbic IBTC issue was in bad faith in order to embarrass the council and the Federal Government.
It said that rather than working with the FRC to address the issues regarding Stanbic IBTC as directed by the Chief of Staff to the President, Alhaji Abba Kyari, the CBN chose to act otherwise.
The council’s letter drew the attention of the CBN to a directive by Kyari that both the FRC and the CBN should come up with a harmonised position on Stanbic IBTC.
Apart from harmonising their positions, the FRC letter stated that the Chief of Staff to the President also directed that the CBN should be sanctioned if it was discovered that the errors in the financial statements of Stanbic IBTC were true since the centrsl bank approved the accounts.
Obazee wrote, “The Chief of Staff to Mr President met with you (Emefiele) and I in his office and advised that we reschedule a meeting to come up with a harmonised position as two regulators on the review of the financial statements of Stanbic IBTC for years ended 31st of December 2013 and 2014.
“He went further to state that the CBN should also be sanctioned if it is discovered that the errors observed in the said financial statements are true, because the CBN approved the said financial statements before they were issued.
“At that meeting, you claimed that what the CBN had done since you received the regulatory decisions of the FRC was to get an opinion from a consortium of lawyers on the provision of the FRC Act, 2011.
“You said your next step was to invite foreign lawyers to review the opinion you received. You even sought the permission of the Chief of Staff and read out selected paragraphs of the opinion you got from the consortium of lawyers.”
Obazee said at the end of that meeting, Kyari directed that the CBN should write the management of Stanbic IBTC to direct it to stop all negative publicity being sponsored against the FRC.
He noted that instead of writing the letter, the CBN chose to clear the bank without the involvement of the FRC.
He said, “The CBN issued a letter to our Council claiming that the CBN had cleared Stanbic IBTC and maligned the FRC. The said letter did not get to our office until 6.30pm on Tuesday, November 3, 2015.
“I have taken time to outline this sequence of events to you so as to let you know that the CBN has not acted in good faith and that the actions of the CBN were calculated to embarrass the FRC and indeed the Federal Government of Nigeria.”
In the letter, which was uploaded on the council’s website, Obazee explained that most of the issues raised by the council were mixed up, thereby making the CBN to end with wrong conclusions.
For instance in the areas of “financial issues” raised by the CBN, the FRC boss said, “The CBN mixed up the issues and ended up with very wrong and hasty conclusions.
“The regulatory decision of the FRC refers to a particular purchase and assignment of a banking application software request made to NOTAP by Stanbic IBTC on July 3, 2013, which is another transaction other than the one your letter addressed.
“In paragraph four of your letter, the CBN claimed that Stanbic IBTC actually obtained the necessary approval. This assertion is not correct because we have a letter from NOTAP stating clearly that this request was not approved.
“We request the CBN to meet with NOTAP and find out the true position of the sale, purchase and assignment agreement as addressed in the regulatory decision of our council and seek an independent opinion on the financial reporting matters from the Institute of Chartered Accountants of Nigeria and the Association of National Accountants of Nigeria to enable the CBN reach an informed decision.”
The FRC also disagreed with the position of the CBN on the allegation that several expenses were lumped under an expenditure item referred to as “others.”
The CBN had claimed that the items were not material enough to appear as line items in the income statement and that their non-disclosure did not materially affect the balance sheet.
However, the council slammed the CBN for “condoning and vehemently defending an unwholesome disclosure and reporting practice such as this.”
The letter drew the attention of the CBN to the conceptual framework of the International Financial Reporting Standards, which requires fair presentation of financial statements, and provides faithful representation.
The council said “wrong classification of items and asset liabilities” (two of the three major elements of financial statement) could affect the economic decision of users.
It added, “This implies that assets and liabilities figures do not reflect what they actually are and the financial statements misrepresent the true state of the company’s affairs.
“The qualitative characteristics of verifiability and comparability have been compromised and the financial statements do not actually comply with the IFRS.
“The council also disagreed with the conclusion reached by the CBN in paragraph nine of the letter from the governor regarding provision made towards the settlement of franchise and management fees.”
According to the FRC, it is incorrect for Stanbic IBTC, from an accounting point of view, to accrue for payment of management and franchise fees when approval had been given.
In the areas of legal issues, FRCN noted that CBN lacked the competence and authority to interpret the FRC Act of 2011.
Obazee said, “We observed that the CBN attempted to interpret the FRC Act, 2011. We would like to inform the CBN that it does not have the competence nor the authority to evaluate the FRC Act. That should be left for the office of the Attorney General of the Federation and Minister of Justice, or a court of competent jurisdiction.
“We make bold to say that we acted within the provisions of the FRC Act, 2011. Since the FRC is neither a department of the CBN nor a reporting agency of the CBN, we do not owe the CBN any explanation in this respect.”
On the implication of council’s action on Nigeria’s financial system stability, Obazee said, “Contrary to the concern expressed in the letter from the CBN, we make bold to say that high quality corporate reporting is key to improving transparency, facilitating the mobilisation of investments, creating a sound investment environment and promoting financial stability.”
This, the FRC concluded, was what the CBN was expected to inform relevant stakeholders rather than faulting its regulatory decisions.