Navigating the New Standards: Implementing Internal Controls Over Financial Reporting in Nigeria

In an era where transparency and accurate financial reporting are paramount, Nigerian companies are under increasing pressure to establish and maintain robust internal controls over financial reporting (ICFR). The Investment and Securities Act (ISA) of 2007, specifically Sections 60-63, mandates public companies to implement and report on the effectiveness of their internal control systems. However, despite the importance of these regulations, many companies in Nigeria are struggling to comply.

?

A recent guide published by SIAO, titled "A Guide to Implementing Internal Controls over Financial Reporting in Nigeria," provides a clear and structured approach for companies to navigate these requirements. The guide highlights the significant gap in awareness and implementation, with a survey revealing that only 12% of companies who are aware of the SEC guidelines have begun implementing them.

?

The SIAO guide recommends the adoption of the COSO Framework, a globally recognized standard for internal controls, as the baseline for implementing ICFR. The framework is structured around three key stages:

?

Gap Analysis, Scoping, and Risk Assessment: This initial stage involves identifying high-risk areas in financial statements and determining the scope of controls needed. It is crucial to focus on material risks to ensure that the ICFR efforts are both effective and efficient.

?

Documentation and Testing: Once the scope is defined, companies must document their control processes and test their design and operational effectiveness. This stage is vital for ensuring that the controls are not only in place but are also functioning as intended.

?

Remediation and Certification: After testing, any identified gaps must be addressed. Companies then perform a final test of the controls' effectiveness before certifying the results. This certification is crucial as it will be reviewed by external auditors and regulators.

?

Despite the clear guidelines, many companies face challenges in implementation. Common obstacles include defining materiality thresholds, collaborating with auditors, and differentiating between business and financial controls. The SIAO guide offers practical solutions to these challenges, such as standardizing controls across business locations and utilizing automation tools to streamline the process.

?Download the SIAO ICFR detailed guide here

In conclusion, as Nigerian companies continue to navigate the complexities of ICFR, the SIAO guide serves as an essential resource. By following the recommended framework and addressing common challenges proactively, companies can not only comply with regulatory requirements but also enhance the overall reliability of their financial reporting. This, in turn, will bolster investor confidence and contribute to a more transparent and trustworthy financial environment in Nigeria.