The Financial Reporting Council of Nigeria (FRCN) Introduces "Rule 14 to Enhance Compliance and Strengthen Corporate Governance
In line with its duties to establish and maintain top of the line financial reporting and corporate governance standards across public and private sectors in Nigeria, as well as safeguarding public interest and sustaining investor confidence, the?Financial Reporting Council of Nigeria (FRCN) has introduced "Rule 14", to ensure compliance with laws and regulations on financial reporting and accounting, through the increased participation of External Auditors in complying with the regulations of the FRC. Pursuant to the Section 44 (1) (b) of the Financial Reporting Council of Nigeria (FRCN) Act, 2011 as amended ("the Act"), an external auditor has a duty to ensure that an entity’s financial statements comply with the provisions of the Act, or any other relevant enactments.
FRC Rule 14: Bridging the Gap Between Direct and Indirect Legal Compliance
The aim of Rule 14 is to task the External Auditor with ensuring compliance with all provisions of the FRC including sections or provisions which were previously being overlooked. It is also to strengthen the responsibilities of external auditors when responding to non-compliance or suspected non-compliance with laws and regulations. The additional implication of the FRC Rule 14 is to remove the distinction between laws and regulations having direct and indirect effects on a corporate entity’s financial statements such that the auditors and other assurance service providers will ensure compliance with these rules and regulations.
FRC Rule 14: Auditors and Firms Required to Maintain Public Registration
One of such rules that the FRC is very particular about with this introduction of RULE 14 is the signing of financial statements with invalid FRC registration number, or compliance with an outstanding issue, as a result of an ongoing inspection and monitoring program.
?As a result of this, directors and company secretaries signing financial statements must ensure that their FRC registration status is valid by payment of their annual dues on the FRC portal. Also, every Auditor or Audit Firm is required to register with the FRC and have their name and address included on the public register maintained by the FRC.
FRC Rule 14: Auditors and Firms Required to Maintain FRC Deadline for Annual Dues to Avoid Monthly 10% Penalty
The deadline to pay this annual due by each director and any assurance service provider as stated by the FRC is February 28th, 2025, failure upon which a penalty of 10% is charged on the total amount due for every month of default.
We therefore urge all our clients and all directors to immediately pay their FRC annual dues to avoid this penalty.
Compliance Alert: FRC Imposes Stricter Penalties for Lapsed Registration
The FRC has also stated that the registration shall be renewed annually and failure to do so before conducting any auditing services attracts a fine of N5,000,000.00 (Five Million Naira) or any amount as may be prescribed by the FRCN from time to time, or an imprisonment term not exceeding 6 months upon conviction.
FRC Rule 14: Valid Registration Mandatory for Auditors to Prevent Invalid Financial Statements
By virtue of the foregoing, an External Auditor is to have a valid FRC registration number at the point of auditing the accounts of any entity in Nigeria, otherwise in addition to the above-stated fine, any financial statements arising therefrom would be deemed invalid and will not be accepted by any regulatory agency in Nigeria.
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FRC Enforces Compliance: Mandatory Valid Membership or Practice License for Auditors
Also, in line with the regulations of the FRCN, every auditor who wishes to carry out an audit on an entity in Nigeria must have a valid membership certificate (where he is an Individual Auditor) issued by a Recognized Professional Body (RPB) or a valid practice license, in the case of an Audit Firm, equally issued by a Recognized Professional Body.
FRC Compliance: Assurance Services Providers Must Register Firm Details with CAC
Other Assurance Services Providers (like company secretaries, corporate governance providers) are also required to provide the FRCN with the?name and address of their firms, a certificate of registration with the Corporate Affairs Commission (CAC), and the addresses of their branch offices if any.
For more discussions and enquiries, please contact us below
Mrs. Laide Adeyemo
Managing Director
JCS Client Services
+234 (0) 805 440 1612
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Alausa CBD, Ikeja, Lagos.