NAFDAC Fines Guinness N1bn, as FRC Replies CBN

For the third time in less than a month another multinational operating in the country has been fined by a regulator over alleged infractions, signposting an era of a no-nonsense posture by regulatory agencies under the Muhammadu Buhari administration.

This is just as the Executive Secretary, Financial Reporting Council of Nigeria (FRC), Mr. Jim Obazee, yesterday carpeted the Central Bank of Nigeria (CBN) for rushing to a conclusion and absolving Stanbic IBTC Holdings Plc of alleged financial misstatement of its 2013 and 2014 accounts brought against it by the council.

The Nigerian Commu-nications Commission (NCC) last month also imposed a N1.04 trillion on the South African telecoms subsidiary of MTN in Nigeria for failing to disconnect 5.2 unregistered SIMs on its network.

Yesterday, Guinness Nigeria Plc confirmed that it had been fined N1 billion ($5 million) by the National Agency for Food and Drug Administration and Control (NAFDAC) over alleged infractions relating to the destruction and re-validation of expired raw materials without prior approval.

Diageo, owners of Guinness, said it did not fully understand the basis for the fine, nor the particular regulations infringed, but was in talks with NAFDAC to resolve the matter, reported Reuters.

Guinness Nigeria was incorporated in 1962 with the building of a brewery in Ikeja, Lagos.
Last month, the company announced a three per cent increase in revenue for its first quarter ended September 30th.
Meanwhile, the executive secretary of FRC has flayed the CBN for absolving Stanbic IBTC of alleged financial misstatement of its 2013 and 2014 accounts brought against it by the council.

Obazee also accused the CBN of “condoning and vehemently defending an unwholesome disclosure and reporting practice” by Stanbic IBTC.

He insisted that qualitative characteristics of verifiability and comparability had been compromised, adding that Stanbic IBTC’s 2013 and 2014 financial statements did not actually comply with International Financial Reporting Standards (IFRS).

The FRC had suspend the Financial Reporing Numbers of the Chairman, Stanbic IBTC, Mr. Atedo Peterside, and its Chief Executive, Mrs. Sola David-Borha, and barred them forthwith from vouching for the integrity of any financial statements in Nigeria for allegedly attesting to the “misleading” 2013 and 2014 financial accounts of the bank.

The council had also requested among other things, that the CBN should take punitive measures against Stanbic IBTC.
But in response to FRC’s request, CBN Governor, Mr. Godwin Emefiele, had written to Obazee to question the alleged regulatory lapses on the part of the council in suspending the directors and imposing a N1 billion fine on the bank.

But Obazee, in a letter dated November 10, 2015 to the CBN, a copy of which was posted on the council’s website, accused the central bank of mixing up the issues and ending up “with very wrong and hasty conclusions”.

Obazee said: “One wonders why the CBN is condoning and vehemently defending an unwholesome disclosure and reporting practice such as this. The only plausible reason will be that the CBN actually approved these financial statements.

“Please note that IFRS conceptual framework requires fair presentation of financial statements and provide faithful representation. Wrong classification of items of assets and liabilities (two of the three major elements of financial statements) could affect the economic decision of users.

“This implies that: asset and liabilities figures do not reflect what they actually are and the financial statements misrepresents the true state of the company’s affairs.”

The FRC further faulted CBN’s insistence that Stanbic IBTC got necessary approval from the National Office for Technology Acquisition and Promotion (NOTAP) regarding a franchise arrangement with the Standard Bank of South Africa.
Obazee said: “In paragraph 4 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 the National Office for Technology Acquisition and Promotion (NOTAP) stating clearly that this request was not approved.

“The regulatory decision is not about the intangible asset that the CBN letter addressed in paragraph 5 relating to the disposal of software which was disclosed in the financial statements of Stanbic IBTC for year ended 31st December 2012, although this transaction itself is well laden with its own poor accounting and disclosure issues.

“NOTAP’s decision is not work-in-progress; it is a final decision when a registration is not obtained. This is what NOTAP conveyed to our council. Accordingly, from an accounting point of view it is incorrect for Stanbic IBTC to accrue for such payments since an outflow of economic benefits from Stanbic IBTC is not probable thereby failing the provisions definition test.

“We request the CBN to also seek an independent opinion on these financial reporting matters from the Institute of Chartered Accountants of Nigeria (ICAN) and the Association of National Accountants of Nigeria (ANAN) to enable the CBN reach an informed decision.

“The transfer/reclassification of computer software in 2012 of N1,367,000,000 was not properly accounted for in the financial statements. Where the amount was reclassified to was not disclosed. Note that an exact amount appears under the ‘total’ column of the property and equipment schedule, under transfers/reclassification, which itself is incorrect since transfers/reclassification should end up with a ‘NIL’ balance.

“The correlation between these two disclosures – computer software and property and equipment (N1,367,000,000) – could not be established. The loss on the disposal of this intangible asset was also not disclosed.”
Continuing, Obazee stated that these inconsistencies and poor disclosures rendered the financial statements “esoteric and incomprehensible” even to financially literate users.

“Please note that the software/intangible asset that is of interest to the FRCN is a completely different transaction that took place in 2012 and referred to NOTAP in the 2013 financial year,” he stated in the letter.

Obazee urged the central bank to get Stanbic IBTC Holdings to furnish it with the facts and details.
He added: “The Director General of NOTAP has also stated publicly that NOTAP never granted approval to Stanbic IBTC on the software issue identified in the regulatory decision of our council.

“We request the CBN to: a) meet with NOTAP and find out the true position of the sale, purchase and assignment agreement addressed in the regulatory decision of our council; and b) seek an independent opinion on the financial reporting matters from the Institute of Chartered Accountants of Nigeria (ICAN) and the Association of National Accountants of Nigeria (ANAN) to enable the CBN reach an informed decision.

“You also opined that with respect to the allegation of lumping several expense items under ‘others’ it is the view of the CBN that the items were not material enough to appear as line items in the income statement and the non-disclosure of the items did not materially affect the balance sheet.

“We disagree with the position of the CBN: IFRS Conceptual Framework defines expenses as: decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to equity participants.

“In presenting items of expenses, factors to be considered include: materiality and nature and function of such expenses. IAS 1:29 states that materiality and aggregation requires each material class of similar items to be presented separately in the financial statements while items of dissimilar nature are to be presented separately unless immaterial.

“Expense line items are material for separate disclosures if they could individually or collectively influence the economic decisions that users make on the basis of the financial statements. Materiality also depends on size and/ or nature of such items (IAS 1:7).
“It is however pertinent to note that information should not be obscured by aggregating expense items that are material not in terms of amount but in terms of the nature as in the case of the N275 million donation. The inclusion of donation expense of N275 million, which is not a charitable donation under the tax laws, and therefore does not qualify as a deductible expense would have led to an understatement of the tax expense and current tax liability for the accounting period.”

Also reacting to the CBN’s concern that FRCN’s recent pronouncement on Stanbic IBTC was capable of unsettling the banking system, Obazee said: “Contrary to the concern expressed in the letter from the CBN on the regulatory actions of our council, we make bold to say that high quality corporate reporting is key to improving transparency, facilitating the mobilisation of domestic and international investment, creating a sound investment environment and promoting financial stability.
“This is what we expect the CBN to inform relevant stakeholders that the efforts of the FRC have achieved in the situation under reference.”

Obazee’s letter also dwelt extensively on the joint meeting held between himself, Emefiele and the president’s chief of staff, Alhaji Abba Kyari, on the matter and the directive that Stanbic IBTC stops sponsoring negative articles against the council.
He also accused Emefiele of not complying with the directive given to FRC and the central bank to follow up on the actions agreed to at the meeting with Kyari, stating instead that the central bank cleared Stanbic IBTC of any wrongdoing.

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