4 Months after CBN’s Deadline, Banks March Lazily to IFRS

Nigeria banking industry has reported a sluggish progress in the adoption of International Financial Reporting Standards (IFRS), two years after the Central Bank of Nigeria (CBN), began moves to integrate the banking system into the global best practices in financial reporting and disclosure, Nigeria CommunicationsWeek can now report.

The CBN deadline for the adoption of IFRS was January this year and four months after, only a handful of Nigerian banks have completed or are in the process of converting to IFRS touted to have the capabilities of enhancing market discipline and reducing uncertainties which limit the risk of unwarranted contagion.

Nigerian banks and other significant public interest entities (that is, entities that are required by law to file returns to regulators) in the financial services industry are required to adopt IFRS by January 1, 2012.

Other non-listed entities and public interest entities in the financial services industry will adopt IFRS in 2013.

By that time, they are all expected to move from Statement of Accounting Standard (SAS), the accounting standard issued by the Nigerian Accounting Standards Board to IFRS

Nigeria CommunicationsWeek investigations however revealed that Access Bank, Ecobank, FirstBank, Guaranty Trust Bank, Stanbic IBTC, Standard Chartered and UBA are among the first banks to complete the transition and have as well adopted the standard for their reporting.

Others are still grappling with the challenges of complying with the new standards.

Among the major challenges banks face in adopting IFRS include understanding the value of IFRS against the current GAAP.

Banks are also finding it difficult to understand the value it will bring to their business, especially around true position of balance sheet and P&L, as well as trust from their foreign banking partners.

Prior to the adoption of IFRS, the local financial industry seemed oblivious of it and hence the huge knowledge gap around IFRS.

An IFRS expert involved in the implementation and training on IFRS who spoke to Nigeria CommunicationsWeek identified other challenges as fear of failure of the project and not getting it right, which delays its adoption.

According to the expert, this led to some banks looking for alternatives like manual conversion using excel sheet.

The expert noted some challenges around the speed at which regulations are churned out, which affects the speed at which the bank plans the projects to be compliant and make budgets.

“We have seen that while IFRS is still on going, we are hearing about Basel II about to start, seminars are being held, while this is happening, NUBAN numbering came out, suddenly, Cashless economy starts etc. The banks are constantly on the edge. So priority of projects comes into play, internal decision process delays everything,” the expert added.

Nigeria CommunicationsWeek gathered that numerous exposure drafts demonstrate that IFRS will continue to change in the near term as well as in 2012 and beyond.

Nigerian financial services entities need to think carefully about the implications of upcoming changes as well as changes likely to occur after their 2012 and 2013 changeover to IFRS.

Charley Best, vice president at IFRS Partners, said the biggest challenge for banks is the huge amount of change as regards customer master profile.

“As a background, the most important thing about IFRS is that it exposes more information and that is the challenge itself. They need to have all the details around payment history and all the records have to be up to date,” he said.

Professor Francis Ojaide, president of the Institute of Chartered Accountants of Nigeria (ICAN) said only organizations willing to embrace change, invest in capacity building both technical and human will benefit from the new financial reporting framework, which has the capacity to broaden and enhance their accessibility to global capital markets.

Benefits of adopting IFRS cannot be over emphasized as it attracts Foreign Direct Investment (FDI), reduces cost of doing business across borders by eliminating the need for supplementary information from Nigerian companies.

It gives assurance of useful and meaningful decisions on investment portfolio in Nigeria, and assures easier access to external capital for local and domestic companies.

Adoption of IFRS facilitates easy consolidation of financial information of the same company with offices in different countries, gives easier regulation of financial information of entities in Nigeria and Enhances knowledge of global financial reporting standards by tertiary institutions in Nigeria.