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
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 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 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 actions with regard to significant including any issues or in 1995 and it is worth noting that this
the weaknesses of Corporate deficiencies and material weaknesses. recommendations for model builds on the existing US COSO
Governance and how it can be improvement, raised by the most framework.
improved. The position of this Section 61 of the act further stresses recent internal control review of the
committee was further enhanced by the importance of internal control by company; CoCo describes internal control as
another team led by Mr. M. B. giving direction as regards the actions that foster the best result for
Mahmoud in 2011. responsibility of the public entities as it With all these provisions clearly spelt an organization. These actions, which
relates to internal control. The details out, it is evident that the the utmost contribute to the achievement of the
The Investment and Securities Act 2007 of this section of the Act is stated goal of the Securities and Exchange organization's objectives, focus on:
expressly gives guidance on issues below: Commission is to ensure that listed ??effectiveness and efficiency of
relating to internal control. Specifically, entities maintain a sound and effective operations;
I. A public company shall establish a
section 60 (d-f) of this act give the system of internal controls over its internal control environment. What is ??reliability of internal and external
following provisions as it relates to the missing in the SEC code is the adoption reporting;
financial reporting and security of
responsibilities of the signing officers in its assets and it shall be the of a globally recognized internal ??compliance with applicable laws
connection with internal control of the control framework for entities that are
responsibility of the board of and regulations and internal policies.
entity directors to ensure the integrity of subject to Investment and Securities
the company's financial controls Act 2007. The FRC Act 2011 was
definite on the adoption of the CoCo indicates that control comprises:
Section 60(d); the signing officers; and reporting. “Those elements of an organization
(I) are responsible for establishing and International Financial Reporting
ii. The board of directors of a public (including its resources, systems,
maintaining internal controls. Standards (IFRS) for financial reporting
company shall report on the processes, culture, structure, and
(ii) have designed such internal controls in Nigeria.
effectiveness of the company's tasks) that, taken together, support
to ensure that material information In the absence of a uniform internal
internal control system in its annual people in the achievement of the
relating to the company and its control framework, entities have the
report. organization's objectives.
consolidated subsidiaries is made option of selecting from a number of
iii. In this section, "internal control"
known to such officers by others different internal control framework
means policies, procedures and
within those entities particularly from different jurisdiction. This present
p ra c t i c e s p u t i n p l a c e b y
during the period in which the situation could impede fairness,
management to ensure safety of
periodic reports are being prepared; comparability and compliance.
assets, accuracy of financial records
(iii)have evaluated the effectiveness of and reports, achievement of
the company's internal controls as corporate objectives and The 'Internal Control Integrated
framework' published by the
of date within 90 days prior to the compliance with laws and
report; regulations. Committee of Sponsoring
Organization COSO is a framework
(iv)have presented in the report their
conclusions about the effectiveness T h e S E C C o d e o f C o r p o ra t e that is widely applied in the United Oduware is the partner-in-charge of
of their internal controls based on Governance stresses the importance states of America. This framework was Accounting and Financial Advisory
first published in 1992 and updated in in Akintola Williams Deloitte
their evaluation as of that date; of effective and adequate internal
2013. According to the COSO
control systems; Section 30.4 This publication contains general
framework, Internal control is defined
Section 60(e); the signing officers have (paragraph b, c and d)of this code as a process, effected by an entity's information only and Akintola Williams
disclosed to the Auditors of the provides that; Board of Directors, management and Deloitte is not, by means of this
company and audit committee: other personnel, designed to provide publication, rendering accounting,
(I) all significant deficiencies in the In addition to its statutory functions, business, financial, investment, legal, tax,
reasonable assurance regarding the or other professional advice or services.
design or operation of internal the audit committee, should have the achievement of objectives relating to
controls which would adversely following additional responsibilities: Operations, Financial Reporting and Deloitte refers to one or more of Deloitte
affect the company's ability to ? establish an internal audit function Compliance. Touche Tohmatsu Limited, a UK private
record, process, summarize and and ensure there are other means company limited by guarantee (“DTTL”),
report financial data and have of obtaining sufficient assurance of COSO describes internal control as its network of member firms, and their
identified for the company's regular review or appraisal of the related entities. DTTL and each of its
consisting of five essential member firms are legally separate and
Auditors any material weakness in system of internal controls in the components. These components,
internal controls, and company; independent entities. DTTL (also referred
which are subdivided into 17 factors, to as “Deloitte Global”) does not provide
(ii) any fraud, whether or not material, ? ensure the development of a include: services to clients. Please see
that involves management or other comprehensive internal control ? the control environment; www.deloitte.com/about for a more
employees who have significant role framework for the company; obtain detailed description of DTTL and its
in the company's internal controls; ? ?risk assessment;
assurance and report annually in member firms.
the financial report, on the ? ?control activities;
Section 60(f); the signing officers have operating effectiveness of the ? ?information and communication; Akintola Williams Deloitte a member firm
? monitoring of Deloitte Touche Tohmatsu Limited,
identified in the report whether or not company's internal control provides audit, tax, consulting,
there were significant changes in framework; accounting and financial advisory,
internal controls or other factors that ? at least on an annual basis, obtain A similar framework called the “Criteria corporate finance and risk advisory
could significantly affect internal and review a report by the internal of Control” CoCo was issued by the services to public and private clients
controls subsequent to the date of their auditor describing the strength and Canadian Institute of Chartered spanning multiple industries. Please visit
evaluation, including any corrective quality of internal controls Accountants. This was first published us at www.deloitte.com/ng

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