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Internal Control - Overview

The ability of management to achieve the financial reporting objectives of fairness and faithful representation is greatly dependent on the design and effectiveness of the processes and safeguards that have been established within the control environment. The absence of such controls would pose difficulties for companies when preparing timely and reliable financial report for parties that make economic decisions with the financial statement. This implies that an effective system of internal control over financial reporting would significantly reduce the risk of such misstatement and inaccuracies in a company’s financial statements.

The Financial Reporting Council of Nigeria is in the process of issuing a unified corporate governance code for Nigeria. It is expected that the code will specify a uniform globally accepted internal control framework for entities reporting in Nigeria.

Management of public companies are responsible for the preparation and fair presentation of financial statements in accordance with Companies and Allied Matters Act CAP C20 LFN 2004, Financial Reporting Council Act No 6 2011 and International Financial Reporting Standards.   In pursuit of this stewardship obligation, management must ensure the operating effectiveness of internal controls as the Directors of the entity determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.   

The ability of management to achieve the financial reporting objectives of fairness and faithful representation is greatly dependent on the design and effectiveness of the processes and safeguards that have been established within the control environment. The absence of such controls would pose difficulties for companies when preparing timely and reliable financial report for parties that make economic decisions with the financial statement. This implies that an effective system of internal control over financial reporting would significantly reduce the risk of such misstatement and inaccuracies in a company’s financial statements.

Internal control over financial reporting in the Nigerian business environment

Over time as a result of corporate failures , the effectiveness of internal control over financial reporting has become necessary in the business community and several attempts have been made by regulators to achieve this either by enacting necessary acts or from the establishment of relevant corporate governance codes. The Financial Reporting Council of Nigeria is in the process of issuing a unified corporate governance code for Nigeria. It is expected that the code will specify a uniform globally accepted internal control framework for entities reporting in Nigeria.      

There have been several initiatives in the past aimed at promoting good corporate practices in the past by regulatory agencies in Nigeria.  The Nigerian Securities and Exchange Commission and Corporate Affairs Commission set up a 17- member committee led by Mr. Atedo Peterside in 2003 to report on the weaknesses of Corporate Governance and how it can be improved. The position of this committee was further enhanced by another team led by Mr. M. B. Mahmoud in 2011.  

The Investment and Securities Act 2007 expressly gives guidance on issues relating to internal control. Specifically, section 60 (d-f) of this act give the following provision as it relates the responsibilities of the signing officers in connection with internal control of the entity

Section 60 (d); the signing officers;

(i) Are responsible for establishing and maintaining internal controls.

(ii) Have designed such internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities particularly during the period in which the periodic reports are being prepared;

(iii) Have evaluated the effectiveness of the company's internal controls as of date within 90 days prior to the report;

(iv) Have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

Internal Control - Overview
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