PROPOSALON
CONVERSION AND IMPLEMENTATIONOF
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
FORARCHITECTS REGISTRATION COUNCIL OF NIGERIA
(ARCON) PREPARED
BY
HEED ADVISORY SERVICES LIMITED (HASL)(Financial and Management
Consultants)
TECHNICAL PROPOSAL
CONTENTS
PAGES
Table of Contents
1 - 21.Introduction
32.Brief Description of Heed Advisory Services Limited
43.Services
6 - 12 Management Consultancy Services
Training on IFRS
Quality Control
Firms Current Work Load
Focus on Technical IFRS Excellence
Similar IFRS Adoption and Implementation Engagements
4IFRS Adoption in Nigeria
135Challenges of IFRS to Medium-Sized Organizations in
Nigeria
146Current International Regulatory Development
147Preparing for Conversion
158Changes and Disclosures of Accounting Policies
159Project Management Expertise
1510Project Management Methodology and Plan
16 - 24 Accounting Changes
First Time Adoption of IFRS
Accounting Policies
Consolidation and Boundary issues
Subsidiaries
Associates
Joint Ventures
Non-Current Assets
CONTENTS OF TECHNICAL PROPOSAL (Contd)CONTENTS
PAGES Investment Property
Property, Plant and Equipment
Intangible Assets
Debtors
Leases
Finance Leases
Operating Leases
11Scope/Coverage
2512Deliverables
2513Project staffing
2614Resume
27 - 2815 Project Assistance 3016Tools
3017Independence and Statement of no Conflicts of Interest
3018Lessons Learned from the Private Sector
30-31
19Professional fee
3120Proposed work plan for Conversion & Implementation 32 -
39
INTRODUCTIONHeed Advisory Services Limited is honoured and
pleased to present this technical proposal for consideration by the
management of Architects Registration Council of Nigeria (ARCON) We
believe that our IFRS Technical Department, which consists of
experienced and highly qualified team of IFRS specialists (IFRS
Team) is perfectly suited to assist, provide guidance and manage
the implementation of IFRS in a medium-sized group, with
significant interest, such as Architects Registration Council of
Nigeria (ARCON) 2. BRIEF DESCRIPTION OF HEED ADVISORY SERVICES
LIMITED Heed Advisory Services Limited provides business and
financial advisory services to entrepreneurs, investors, buyers,
sellers, senior executives and business development teams. We offer
business and financial advisory services and our focused set of
high-impact financial services includes:
Merger and acquisition (M&A) & business valuation;
International Financial Reporting Standards (IFRS) Consulting &
Training Reconciliation & Financial recovery services (Excess
charges recovery from Bank)
CFO services;
Strategic planning & business strategy assessment;
Outsourced write-ups e.g. Chairmans statement;
Credit and Lease consultancy;
Investment and project management;
Financial model design;
Acting as Nominees, Agents and Managers for individuals and
organizations;
Financial planning and performance measurement;
Financial due diligence; and
Management due diligence.
At HASL, we are strategic and critical thinkers. We understand
our core competency lies in the integration of Strategy and
Finance. It is from this platform that we leverage the business
services provided by HASL.
We also understand the power of inter-disciplinary collaboration
and have established key strategic alliances with select firms that
provide Marketing, Sales, Research, Technology, Strategy and
Intellectual capital services to our clients.
We have the privilege of working with some of the best and
brightest people in business today. They all subscribe to our high
standards of service and are able to roll up their sleeves to get
the job done.
BUSINESS ADVISORY SERVICES TO MEET YOUR NEEDSHASL's business
advisory services play an integral role in the leadership of
business development teams, business development strategy, and in
the presentation of investment opportunities to prospective
investors and/or key stakeholders. Our job is to carefully analyze
and clearly communicate the value of each client's business
strategy, financial projections, and business plan.
THE BOTTOM-LINE ON FINANCIAL ADVISORY SERVICES
Our principal business strategy is to offer solid financial
advisory services.
We work on mandates to make a real difference to our clients.
The fees for our business advisory services are competitive and can
be structured to suite the specifics of your business
opportunity.
SERVICES
Heed Advisory Services Limited provides the client with
objective analysis and recommendations with respect to financial
and investment opportunities, both business and personal. The
recommendations are developed from a total perspective of the
client's resources, objectives and investment temperament.
For many, our services provide the first opportunity to clearly
think through their financial and business goals.
Our programs are designed to help the client make informed
decisions in terms of the client's unique situation.
Heed Advisory Services Limited develops financial, investment
and business programs tailored towards individual and corporate
entities goals:
FINANCIAL
1. Summarize the client's present resources - examining the
economic mix and positioning of capital in relation to the client's
personal and business goals.
2. Co-ordinate the client's tax planning program.
3. Analyze present business opportunities - understanding the
client's business and assisting in making good business
decisions.
4. Developing long term strategies to add value and accomplish
the client's goals, whether to an on-going business for sale at
some future time or to own it forever for transfer to the next
generation.
5. Analyze the executive's compensation, retirement, and other
benefit programs.
INVESTMENT
1. Examine the present investment program - assessing current
investment risks and returns to determine if any refinement or
restructuring is appropriate to bring them in line with the
client's objectives.
2. Develop specific recommendations for future capital
allocation as available for investment.
3. Assist in assessing new investment opportunities that may
arise to determine their viability into individual or corporate
plan.
The firm draws upon its broad financial backgrounds in the areas
of accounting, taxation, securities and investments to develop the
client's coordinated program. Every aspect of the service is
performed under the strictest professional rules of
confidentiality.
Heed Advisory Services Limited represents the client's interests
exclusively.TAX CONSULTING AND BUSINESS ADVISORY SERVICES
1Strategic Tax Planning
2Tax Due Diligence Reviews
3Contract Structuring
4Investment Structuring of Business Operations & Tax
Incentives
5Structuring of Contract Agreements to maximize Business
Opportunities & Tax Incentives
6Global Expatriate Cost Management (GECM)
7Compensation Restructuring & Payroll Management.
OUR SERVICE SEGMENTATION
CFO SERVICES:-Outsourced Accountancy services-Banking &
Lending Relationships-Cost Reduction-Financial Statements-Cash flow
preparation and management-Profitability Improvement
RECONCILIATION/RECOVERY:-Audit of clients bank statements to
recover previously unnoticed cash leakages in the bank
statement.
-Bad debt recovery.
REVENUE ASSURANCE: Companies with significant volume of
transactions or invoices and complex billing systems and product
offerings often face the risk of revenue leakages.
LOAN MANAGEMENT:
Assisting clients in sourcing appropriate cash needed for
business operation/expansion with powerful and professional
negotiation with the bank on behalf of our clients.
We build business, banking and lending relationship to help our
clients with their banking and lending needs. We understand how
best to present our client's financial information to them. Any
business that hires us will improve its chances to maximize
business/banking relationship.
Strong business, banking and lending relationships are key to a
well financed business. A well financed business can operate much
more efficiently than cash strapped firms and can take better
advantage of business opportunities whenever they arise. Owners of
businesses that are well financed are better positioned than those
who struggle with cash. Banks are the single largest source of
financing (cash) for businesses. Having strong business banking
relationships is paramount to having a well-financed and successful
business.
Some companies, especially start-ups and those with little
equity may have difficulty borrowing from banks. There are times
when other non-bank lenders can provide better financing options
than banks. Therefore, having strong relationships with other
lenders such as asset-based lenders, lessors, private investors and
investment bankers can be very important to business success.
Strong banking and lending relationships are based on trust and
good communications between the banker (lender) and the borrower.
Providing lenders with accurate and timely financial statements,
good cash flow and income projections, and keeping them informed
about major business decisions and activities will go a long way in
developing trust and cementing a strong relationship.
Bankers/lenders will provide better financing for
relationship-based borrowers who keep them well informed about good
news as well as otherwise in the business. Businesses that have
strong financial management and institute good financial procedures
and controls (corporate governance) will also be looked on
favourably by bankers and other lenders.
HEED financing advisors on average, have worked and negotiated
with lenders thereby having strong relationship with many banks and
alternative financing sources. Our business financing advisors
understand which banks and other lenders will serve your company
the best, based on your industry and company profile.
HEED Advisors will help you put together accurate and timely
financial statements and financial projections that will enable you
secure a great financing package for your business. In addition,
HEED Advisors will determine the most appropriate mix and terms of
financing to best meet your companies needs, whether it be short
term lines of credit, long term debt and/or leases.
HEED Advisors will help you make better business decisions by
helping you analyze your business from a financial standpoint and
by implementing a management reporting system that gives you the
information you need to make better and informed decisions. This
will help you increase profitability and drive your firm's growth,
strengthening your company and its business banking and lending
relationships.
Working with banks and lenders can take substantial time and
effort. HEED Advisors offers CFO services that will take care of
much of the work for you, allowing you to strategise for improved
business and increasing sales. Your banker/lender will also feel a
sense of security knowing that you have a top financial
professional helping you with your financial management and will
reward your company with a stronger and more attractive financing
arrangement.
In summary, HEED Advisory Services can help you secure a better
banking/lending relationship which will ensure your firm is
well-financed, has the most competitive rates and terms; and will
free you up to concentrate your time on growing the business. As an
additional benefit, knowing we are taking care of all your CFO
services and needs; you will be fully focused on pure business
generation strategies.ADVISORY SERVICES
-Strategic Planning-Gross Profit Evaluation-Increased Sales
-Integrated Performance Management-Investment advisory
services
-Tax advisory services
OUR BOARD
Good governance and leadership greatly determine the success of
an organization. These are essential throughout the changing phases
of an organization's life.Heed Advisory Services Limited is
re-inforced with experienced team of leaderswho contribute to its
strong foundation.
SAHEED OLADIRAN is a chartered accountant by profession and an
associate of Investment Advisers and Portfolio Managers. He is the
Managing Director of Heed Advisory Services Limited.
Saheed has over eleven (11) years working experience in various
areas of accountancy and finance such as financial reporting, debt
management and collection, employees compensation restructuring and
strategic tax management in the financial services sector of the
economy before collaborating in the establishment of the HASL.
He has worked with Jeruti Industrial Services Limited as an
accountant, Capital Bancorp Limited as an accountant, Cornerstone
Leasing & Investments Limited as Head, Finance &
Investments as well as Greenwich Trust Limited as Chief Financial
Officer before his resignation to steer the affairs of Heed
Advisory Services Limited in June 2012.
Saheed, a year 2000 graduate of Accountancy & Finance with
Upper credit division from Yaba College of Technology, Yaba, Lagos
has attended various trainings including:
2011 West Africa Regional Anti-Money Laundering/CFT Conference
in Accra, Ghana organized by Financial Intelligence Training Centre
(FITC/GIABA);
Customers Service Excellence organized by Lagos Business
School;
Accounting, Taxation and Legal Issues in Equipment Leasing
organized by Equipment Leasing Association of Nigeria (ELAN) ;
RECONCILIATION: Risks, Associated problems and Solutions
organized by Precise Financial Systems Limited; and
Financial Accounting & Reporting organized by ICAN, THE
LAGOS AND DISTRICT SOCIETY.
AYOBAMI YINUSA is a chartered accountant by profession and Board
member of Heed Advisory Services Limited. Hebringsto theBoarda
wealth of experience. He has vast expertise in the
telecommunications sector. He was Taxation and Employee Benefits
Manager with IHS Nigeria PLC.
For the past over ten (10) years, he has garnered experiences
that cut across several areas of finance and accounting such as
taxation and strategic tax management, financial reporting process,
debt collection and account receivables management, account
payables, and employees compensation and remuneration
structuring.
Ayobami is a year 2000 graduate of Accountancy & Finance
from Yaba College of Technology, Yaba, Lagos and an MBA Management
from Lagos State University, Ojo, Lagos.He has attended various
trainings including:
Intensive Training Programme on International Financial
Reporting Standards organized by David Raggay IFRS Consultants;
Tax Training for human resources function organized by Stransact
Partners;
PriceWaterhouseCoopers Tax Academy January- December, 2011;
Seminar on International Financial Reporting Standards organized
by Rossad Business and Educational Services under the aegis of the
Institute of Chartered Accountants of India; and
Seminar on Strategies for Managing and Collecting Debts at the
Lagos Business School of the Pan African University, Ajah- Lekki,
Lagos.DR. GAFAR AMOO- Dr. Amoo is a medical doctor and Board member
of Heed Advisory Services Limited. He is a Medical Officer with the
General Hospital Igbo-Ora, Oyo State, Nigeria. He was the winner of
2012 most active NCD Clinic in Oyo State by Strategy For Improving
Diabetics Care in Nigeria (SIDCAIN).4.BRIEF DESCRIPTION OF HEED
ADVISORY SERVICES LIMITED (HASL) (Contd) .1Reputable and
International Resources COMPANYHASL is a well-known management
consultancy firm in Nigeria.
International Financial Reporting Standards (IFRS) services:
Consulting, researching and providing formal opinions on IFRS
related issues
Planning, developing and delivering training on IFRS for
SMEs
Quality control and evaluate financial statements in terms of
IFRS and IFRS for SMEs
Performing GAAP analysis and assisting entities in transitioning
from local GAAP to IFRS and IFRS for SMEs
Accounting services
Specialised financial services, including management advisory,
wealth management and taxation
Internal risk management, including internal audit and due
diligence
.2Companys Current Workload
The extensive experience of our staff and low turnover in
personnel provides stability that will provide continuity and
enable us to execute our services throughout the planned project
with little disruption to your day to day operations.
We understand the need to provide continuity in the client
service team that works with our clients Therefore barring
unforeseen circumstances we will retain the proposed engagement
team on all future engagements We realize the investment our
clients make over time to help us better understand their
organization, people and goals. Like your investment in us we
invest our people in you..3 Focus on Technical IFRS ExcellenceThe
IFRS Technical and Learning Department at HASL is dedicated to
providing technical financial reporting (incl. IFRS, IFRS for SMEs
and GRAP/IPSAs) training and consulting services. Our team consists
of technical experts in their respective fields. These include
International Financial Reporting Standards (IFRS), IFRS for SMEs,
Nigerian-GAAP and International Public Sector Accounting Standards
(IPSAS) - used in the public sector. Our IFRS team are well vast in
the adoption and implementation of IFRS in the private and public
sectors of the Nigerian economy in view of the training received
locally and internationally.
Our vast experience in offering public courses gives our
attendees the opportunity to have first-hand information and to be
well-informed on the array of topics they are being trained
on.These experts can deliver tailor-made training programs, provide
formal accounting opinions, provide accounting guidance and assist
you in addressing your financial reporting and accounting
issues..4Similar IFRS Adoption and Implementation EngagementsHASL
has extensive experience in performing consulting on IFRS issues
and first-time adoption projects. We have dedicated substantial
resources to our IFRS Technical and Learning Department. We have
rendered IFRS TRAINING, FIRST TIME ADOPTION AND IMPLEMENTATION to
the following Institutions and Companies: Ekili Investments
Limited
Imo State Board of Internal Revenue
Zircon Advisory Partners Limited
GTI Microfinance Bank Limited
IBT Engineering Services Limited
5. IFRS ADOPTION IN NIGERIAOn 28 July 2010, the Nigeria Federal
Executive Council approved 1 January 2012 as the effective date for
convergence of accounting standards in Nigeria with IFRS. The
Council directed the Nigerian Accounting Standards Board (NASB),
under the supervision of the Nigerian Federal Ministry of Commerce
and Industry, to take further necessary actions to give effect to
Councils approval. On 3 September 2010, the NASB announced a staged
implementation of IFRS:
Implementation of IFRS is required for all publicly listed
entities and significant public interest entities for financial
year-ends on or after 31 December 2012.
Other public interest entities are expected to implement IFRS by
1 January 2013
Small and medium-sized entities are expected to implement by 1
January 2014. 6. CHALLENGES OF IFRS TO MEDIUM-SIZED ORGANIZATIONS
IN NIGERIA SUCH AS ARCHITECTS REGISTRATION COUNCIL OF NIGERIA
(ARCON) Consolidation and boundary issues (for non-departments
only).
The use of fair value for land and buildings fixed assets and
the entitys approach to valuation of the assets.
The use of fair value or depreciated historic cost for
non-property assets.
The approach used to valuing financial instruments.
The approach to valuing and depreciating intangible non-current
assets.
The application of the revised inventories guidance (where
applicable).
The calculation of employee benefits accruals.
The application of the revised related parties guidance.
The explanation of significant areas of judgement and
uncertainties in accounting estimates.
The approach to recognising and accounting for PPP / PFI
arrangements.
Are there any adjustments to existing policies which, whilst not
strictly required for IFRS purposes, are proposed to aid the
clarity and understanding of the financial statements?
Consolidation and Boundary Issues.
7.CURRENT INTERNATIONAL REGULATORY DEVELOPMENT
As at today, the IFRS has released the 13th Standard which is on
the determination of fair value.
Fair value is the hallmark of IFRS.
8.PREPARING FOR CONVERSIONIFRS 1 sets out detailed rules that
entities must follow when adopting IFRS for the first time. The
standard also sets out a number of exemptions that may be applied
when adopting IFRS. If an entity wishes to apply either of these
exemptions a full audit trail must be produced to outline the
assessment and sufficient evidence must be provided to evidence
that the application of the exemption is appropriate.
The main issues that bodies need to be aware of when adopting
IFRS 1 are:
A full audit trail for all adjustments from SAS - Nigerian GAAP
to IFRS will be required;
Additional reconciliations and disclosures will need to be
produced, see detailed sections below;
A significant amount of analysis and documented evidence will be
required even when proving nil adjustments;
Key issues need to be flagged early and discussed with auditors
to ensure there is timely agreement on accounting treatment;
The length of disclosures within the accounts as a result of
IFRS will be increased;
Early engagement with Audit Committees is essential to ensure
they are aware of the process and the impact of the change to IFRS;
and
Significant investments in terms of time and resources are
likely to be required
to ensure that all issues with IFRS are resolved, especially for
more complex accounts.
9.CHANGES AND DISCLOSURES OF ACCOUNTING POLICIES
Accounting policies are defined in IAS 8 as the specific
principles, bases, conventions, rules and practices applied by an
entity in preparing and presenting financial statements. Some
revisions to accounting policies will be required as a result of
the adoption of IFRS and the private sector saw a significant
increase in the length of accounting policy disclosures in the
financial statements as a result of the transition to IFRS. This
increase in length was largely due to the need to provide more
explanation on application of the standards, but also due to the
requirement to explain areas of judgement and an indication of
uncertainties in accounting estimates.
The adoption of IFRS is an opportunity for clients to revisit
their accounting policies and ensure that they comply with the
guidance in all areas. 10.CHANGES AND DISCLOSURES OF ACCOUNTING
POLICIES (Contd)
Question that should be asked is:
Is the entity reviewing its accounting policies to confirm that
they are compliant with the requirements of IFRS?
Areas that entities will commonly need to revise include:
Consolidation and boundary issues (for non-departments
only).
The use of fair value for land and buildings fixed assets and
the entitys approach to valuation of the assets.
The use of fair value or depreciated historic cost for
non-property assets.
The approach used to valuing financial instruments.
The approach to valuing and depreciating intangible non-current
assets.
The application of the revised inventories guidance (where
applicable).
The calculation of employee benefits accruals.
The application of the revised related parties guidance.
The explanation of significant areas of judgement and
uncertainties in accounting estimates.
The approach to recognising and accounting for PPP / PFI
arrangements.
Are there any adjustments to existing policies which, whilst not
strictly required for IFRS purposes, are proposed to aid the
clarity and understanding of the financial statements?
Consolidation and Boundary Issues
11.Project Management ExperTISE Our project managementWe manage
our projects with clients of International activities by deploying
staff locally noting project time delivery. We also take into
consideration Project Net Work Management and the identification of
Critical Part Management.
Our International Affiliate takes charge of the International
branch whilst the consolidation shall be done locally.
In the same vein, if we have an assignment that requires an
expertise that we cannot source locally, our International
Affiliates are always available to give such expertise.
Specific Conversion benefit to our firm and our clients is
principally, the globalisation of financial statements.
It eases the consolidation of financial statements where a
company has an off shore branch.
It also facilitates the trading of local stocks in the
International markets as the indices and mode of determining the
value of a company relying on the audited financial statements are
basically the same, globally.
It facilitates the current value of the company, since fair
values of assets are used in preparing the financial statements and
making provision for impairment.
12.Project Management Methodology and Plan.1Specific Topics
Accounting ChangesIn April 2008 the Treasury announced the Trigger
Points for the implementation of IFRS that lead to the first set of
IFRS compliant accounts for the year ending 31 December 2012. IFRS
shadow accounts for 2010-11 will also be produced.
Management will need to ensure that it is able to produce
financial reporting information on an IFRS basis to feed into
restated comparatives. Until 31 December 2010 Management will also
need to produce information on the current local, entity-specific
GAAP basis for their 2010-11 published financial statements.In
overview there is a need for organisations to:
Assess the areas of impact on its financial statements;
Capture the required data for the restatement figures required
by the trigger points;
Assess the impact of the revised standards on the format of the
financial statements; and
Review the accounting policies to identify any required
revisions. The Corporation need to consider the following standards
in their first time adoption review process: IFRS 1 - First Time
Adoption of IFRS;
IAS 1 Format of the Accounts;
IAS 8 Accounting Policies.2First Time Adoption of IFRSIFRS 1
sets out detailed rules that entities must follow when adopting
IFRS for the first time. The standard also sets out a number of
exemptions that may be applied when adopting IFRS. If an entity
wishes to apply either of these exemptions a full audit trail must
be produced to outline the assessment and sufficient evidence must
be provided to evidence that the application of the exemption is
appropriate.
The main issues that bodies need to be aware of when adopting
IFRS 1 are:
A full audit trail for all adjustments from SAS - Nigerian GAAP
to IFRS will be required;
Additional reconciliations and disclosures will need to be
produced, see detailed sections below;
A significant amount of analysis and documented evidence will be
required even when proving nil adjustments;
Key issues need to be flagged early and discussed with
Management to ensure that there is timely agreement on accounting
treatment;
The length of disclosures within the accounts as a result of
IFRS will be increased;
Early engagement with Management is essential to ensure that
they are aware of the process and the impact of the change to IFRS;
Significant investments in terms of time and resources are likely
to be required to ensure that all issues with IFRS are resolved,
especially for more complex accounts.
.3Accounting PoliciesAccounting policies are defined in IAS 8 as
the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial
statements. Some revisions to accounting policies will be required
as a result of the adoption of IFRS and the private sector saw a
significant increase in the length of accounting policy disclosures
in the financial statements as a result of the transition to IFRS.
This increase in length was largely due to the need to provide more
explanation on application of the standards, but also due to the
requirement to explain areas of judgement and an indication of
uncertainties in accounting estimates.
The adoption of IFRS is an opportunity for your company to
revisit its accounting policies and ensure that it complies with
the guidelines in all areas.
Question that shall be asked and answered is:
Is your company reviewing its accounting policies to conform
with the requirements of IFRS?
The areas we shall revise include:
Consolidation and boundary issues (for non-departments
only).
The use of fair value for land and buildings, fixed assets and
the companys approach to valuation of the assets.
The use of fair value or depreciated historic cost for
non-property assets.
The approach used in valuing financial instruments.
The approach in valuing and depreciating intangible and
non-current assets.
The application of the revised inventories guidance (where
applicable).
The calculation of employee benefits accruals.
The application of the revised related parties guidance.
The explanation of significant areas of judgement and
uncertainties in the accounting estimates.
The approach to recognising and accounting for PPP/PFI
arrangements.
Are there any adjustments to existing policies which, whilst not
strictly required for IFRS purposes, are proposed to aid the
clarity and understanding of the financial statements?.4
Consolidation and Boundary Issues
IAS 27, 28, 31 Areas of impact
We shall determine the effects of IFRS on the accounting
boundary.5SUBSIDIARIES IAS 27
Are there relevant relationships which demonstrate the following
factors that indicate control and may, as a result, impact on the
financial statements?
(Note one or more of these factors will be judged to indicate
control and it is the theoretical ability to control, not the
exercise of it which is relevant)
Ownership of more than 50% of the voting power.
Power over more than 50% of the voting rights.
Power to govern financial and operating policies.
Power to appoint or remove the majority of the members of the
board of directors.
Power to cast the majority of votes at meetings of the board of
directors.
Are there changes to the entitys consolidation process as a
result of IFRS?.6ASSOCIATES IAS 28
Under IAS 28, investors must use the equity accounting method to
account for all Associates. Associates are classified as such if
the investor has significant influence over the investee, being the
power to participate in the financial and operating policy
decisions of the investee but not control or joint control over
those policies.
Are there relevant relationships which demonstrate the following
that indicate significant influence?
(Note As for control, one or more or these factors will indicate
significant influence)
Representation on the board (greater than 20% of the voting
power results in significant influence).
Participation in the policy making process.
Material transactions with the investee.
Interchange of managerial personnel.
Provision of essential technical information.Are there changes
to the bodies which will be equity accounted as a result of the
transition to IFRS?.7 JOINT VENTURES IAS 31
Joint ventures are defined in terms of a contractual
arrangement, whereby two or more parties undertake an economic
activity that is subject to joint control.
Note IAS 31 only applies when decisions require unanimous
consent. Three types of joint ventures are identified, jointly
controlled operations, jointly controlled assets and jointly
controlled entities.What contractual arrangements whereby two or
more parties undertake an activity that is subject to joint
control, and unanimous consent is required to take decisions,
exist?
If such arrangements exist then is the body accounting for them
as follows, dependent on the nature of the arrangement?
Jointly controlled operations:
The assets it controls and the liabilities it incurs.
The expenses it incurs.
Its share of the joint venture income.Jointly controlled
assets:
Its share of the jointly controlled assets.
Any liabilities it has incurred directly.
Its share of any liabilities incurred jointly.
Its share of the joint venture income and expense.
Any expenses it has incurred.Jointly controlled entities the
venturer will need to apply one of the following treatments:
Proportional consolidation.
The equity method of accounting for the entity.\.8 NON-CURRENT
ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS IFRS 5
Are non-current assets held for sale classified appropriately
and shown separately on the SFP?
Are all such assets valued at the lower of carrying amount and
fair value less costs to sell and not being depreciated?
Has any impairment as a result of the change in valuation to
lower of carrying amount less costs to sell been recognised?
Note The recognition of subsequent gains is allowed, but only to
the extent that they reverse any impairment loss..9INVESTMENT
PROPERTY IAS 40
Is your company holding investment properties at fair value and
not depreciating them?
Is your company passing all revaluation gains/losses related to
investment property through the OCS?
Is your company classifying investment properties that they have
developed for sale as stock?
Is investment property that is to be occupied by your company
being, correctly, classified as property, plant and
equipment?.10Non-Current AssetsBackground
The transition to IFRS with regard to non-current (fixed) assets
will affect your company. The International standards require some
significant changes in accounting treatment that will result in
adjustments: The standards that impact on the accounting for
non-current assets are:
IAS 16 Property, Plant and Equipment;
IAS 38 Intangible Assets;
IAS 23 Borrowing Costs;
IAS 36 Impairment.
Note These standards do not apply to assets held for sale,
biological agricultural assets, exploration and evaluation assets,
mineral rights and reserves, or investment properties..11PROPERTY,
PLANT AND EQUIPMENTBackground
IAS 16 is similar to the equivalent Nigerian SAS, in many
respects though there are some changes in emphasis and new rules.
These are highlighted below.
We shall revisit your companys accounting for non-current assets
as a result of the adoption IFRS and introduce a more component
based approach. This will require material components of
non-current assets to be capitalised and depreciated separately,
which will allow a more accurate reflection of the consumption of
economic benefits and the recapitalisation of components when they
are replaced. However, we shall take a pragmatic approach to the
recognition of components under IAS 16 and only recognise
components if there is a clear case for doing so..12Questions that
shall be addressed are:
We shall determine if your company is valuing property fixed
assets:
At valuation and not historic cost?
Using the most appropriate method?
As assets under construction as appropriate?
Using the most appropriate reserve to record the revaluation
(revaluation reserve, donated asset reserve or government grant
reserve)?
If your company is recognising and valuing non-property fixed
assets at fair value, or depreciated historic cost for assets with
a short life or low value;If your company is capitalising donated
assets at fair value with the credit entry made to the donated
asset reserve;If your company is capitalising subsequent
expenditure when it is probable economic benefits will flow and the
costs can be measured reliably;If the company is taking revaluation
losses, first to reserves, then to the OCS for any loss in excess
of previous revaluation gains;
(Note We shall post donated assets to the donated asset reserve,
grant financed to government grant reserve).If the companys
non-current assets have a residual value;Note - If so then this
residual value, where material, must be revisited by us at every
reporting date with depreciation adjusted accordingly.
If the company values assets that have been purchased for
non-monetary assets at fair value;.13INTANGIBLE ASSETSQuestion that
we shall address is:
Is the company recognising intangible assets, when they are
separately identifiable from the business and meeting the criteria
of IAS 38?If your company is holding intangible assets at the
appropriate values;On first time adoption, IAS 38 allows entities
to elect to used deemed cost for initial recognition of the
intangible asset where that asset meets the recognition criteria in
IAS 38 and the revaluation criteria. That deemed cost may be fair
value, or cost or depreciated replacement cost (DRC). Under IFRS 1
an entity can only elect to use these routes if the intangible
asset meets both recognition criteria in IAS 38, including reliable
measurement of original cost. Thus, an entity can only use
retrospective capitalisation where it holds reliable original cost
information in relation to the internally generated asset.
For subsequent measurement IAS 38 allows the use of either the
cost or revaluation model for each class of intangible asset.
Note Intangibles will have to be retrospectively valued at the
date of adoption of IFRS.
If your company is capitalising development costs (they shall be
capitalised under IAS 38). To do so, the management shall
demonstrate the following:
the technical feasibility of completing the intangible asset so
that it will be available for use or sale;
the intention to complete the intangible asset and use or sell
it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic
benefits. Among other things, the entity can demonstrate the
existence of a market for the output of the intangible asset or the
intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
the ability to measure reliably the expenditure attributable to
the intangible asset during its development.
If your company is capitalising internally generated software as
an intangible asset;If your company expensing website costs rather
than capitalising them, unless the entity can prove that the site
is used to deliver future service potential;
Note If the website is simply for the purpose of informing
stakeholders of the services or objectives of the reporting your
company, we shall capitalise the cost.
.14DEBTORS
IAS 39 has one specific rule relating to bad debt provisions
that may impact on the government sector.
Is your company providing for specific bad debts (specifically
stated in IAS 39)?.15LEASESBackground
IAS 17 is similar in many respects to Nigerian SAS, but the
focus on the assessment of the finance/operating lease split is
based solely on the whether substantially all of the risks and
rewards of ownership of the asset have been transferred to the
lessee.
In addition IAS 27 states that any land and building leases
should be subject to separate assessments for the land and building
elements. This is likely to lead to more buildings being included
on public sector balance sheets.
IFRIC 4 extends the scope of the lease based accounting
treatment beyond the legal form or leases to lease type
arrangements, which will increase the disclosure and recognition
requirements for some entities.
The following issues shall be addressed:
Following a review of material contracts, extensive changes are
required to ensure that the classification of operating/finance
leases are correct;The lease classification test is based on the
balance of risk and rewards of ownership. Indicators that a lease
should be classified as a finance lease include:
The lease transfers ownership to the lessee at the end of the
term.
The lease contains a bargain purchase option.
The present value of the minimum lease payments covers at least
substantially all of the fair value of the asset.
The asset is specialised.
The lessee has an obligation to compensate for the lessors
losses.
The lessee is exposed to the residual value of the asset.
The lease can be extended at a rent substantially lower than the
market rent.
IFRIC 4 requires the recognition of a lease (finance or
operating) together with the appropriate disclosure. (Two criteria
must be met: the arrangement must be based on the right to use a
specific asset; and the arrangement must contain a right to control
the use of an asset, for example an outsourcing arrangement or a
telecoms contract that provides the right to capacity/bandwidth).
If the arrangement falls under the scope of IFRIC 4 then the
standard risk and rewards tests will need to be applied to assess
the operating/finance lease split as detailed above.
If your company is reviewing all finance leases for land and
buildings;
Such leases will need to be revisited and reassessed using the
above classifications as, under IAS 17, land elements must be
separated from buildings elements in combined leases and classified
as operating leases unless the land transfers to the lessee at the
end of the lease term.
If any of the companys leases include incentives such as rent
free periods or minimum incremental increases; If so, they shall be
included in the classification assessment and accounted for
appropriately within the finance/operating lease;
If the company is disclosing operating lease payments on the
basis of the year they are paid rather than the year in which the
commitment expires;.16Finance lease:
Initially recognise the asset as a receivable at an amount equal
to the net investment in the lease (gross investment discounted
using the implicit interest rate).
Subsequently recognises income on a pattern reflecting a
constant periodic rate of return on the lessors net investment in
the finance lease.
.17Operating leases:
Present the asset as appropriate to its nature.
Recognise lease income in a straight line basis over the lease
term.
Include the transaction expenses with the asset and depreciate
in line with the entities policy.
Other Areas of Impact Borrowing costs
Is the entity capitalising any finance costs related to fixed
assets while being prepared for intended use or sale (except cost
of capital)?12.SCOPE/COVERAGEPrior to the start of the engagement
we will schedule a meeting with management to discuss possible
issues, establish an overall liaison for the project and make
arrangements for workspace and other needs. Additionally,
Management will be kept up to date on the status of the project and
required reports during the course of the engagement.
In order to accomplish our IFRS objectives and meet your
deadlines for delivery the sequence and timing of our procedures
are critical. We will provide ARCHITECTS REGISTRATION COUNCIL OF
NIGERIA (ARCON) with a detailed plan for the project soon after
being notified that we have been selected as your consultant.
As the project is on-going, the ARCHITECTS REGISTRATION COUNCIL
OF NIGERIA (ARCON) Finance and Accounts staff shall be carried
along to understand and implement independently the IFRS.
With the on-the-job training, they shall be able to catch up
quickly during the training at the end of the exercise.
13.Deliverables
Deliverables include:
Business Impact Analysis Report
Organisational Readiness
Financial Statement Disclosures Accounting Manual and Guidelines
System change plan
Preparation of the Comparative Amounts in Accordance with
IFRS
Training
Development of Training Plan Preparation of Training Material
Delivery of Training Implementations
Follow-up on implementation14.Project Staffing
OUR TEAM Organisational Structure of Project TeamENGAGEMENT
ORGANOGRAM
15.RESUME OF OUR PROPOSED PROJECT TEAMSAHEED OLADIRAN is a
chartered accountant by profession and an associate of Investment
Advisers and Portfolio Managers. He is the Managing Director of
Heed Advisory Services Limited.
Saheed has over eleven (11) years working experience in various
areas of accountancy and finance such as financial reporting, debt
management and collection, employees compensation restructuring and
strategic tax management in the financial services sector of the
economy before collaborating in the establishment of the HASL.
He has worked with Jeruti Industrial Services Limited as an
accountant, Capital Bancorp Limited as an accountant, Cornerstone
Leasing & Investments Limited as Head, Finance &
Investments as well as Greenwich Trust Limited as Chief Financial
Officer before his resignation to steer the affairs of Heed
Advisory Services Limited in June 2012.
Saheed, a year 2000 graduate of Accountancy & Finance with
Upper credit division from Yaba College of Technology, Yaba, Lagos
has attended various trainings including:
2011 West Africa Regional Anti-Money Laundering/CFT Conference
in Accra, Ghana organized by Financial Intelligence Training Centre
(FITC/GIABA);
Customers Service Excellence organized by Lagos Business
School;
Accounting, Taxation and Legal Issues in Equipment Leasing
organized by Equipment Leasing Association of Nigeria (ELAN) ;
RECONCILIATION: Risks, Associated problems and Solutions
organized by Precise Financial Systems Limited; and
Financial Accounting & Reporting organized by ICAN, THE
LAGOS AND DISTRICT SOCIETY.
AYOBAMI YINUSA is a chartered accountant by profession and Board
member of Heed Advisory Services Limited. Hebringsto theBoarda
wealth of experience. He has vast expertise in the
telecommunications sector. He was Taxation and Employee Benefits
Manager with IHS Nigeria PLC.
For the past over ten (10) years, he has garnered experiences
that cut across several areas of finance and accounting such as
taxation and strategic tax management, financial reporting process,
debt collection and account receivables management, account
payables, and employees compensation and remuneration
structuring.
Ayobami is a year 2000 graduate of Accountancy & Finance
from Yaba College of Technology, Yaba, Lagos and an MBA Management
from Lagos State University, Ojo, Lagos.He has attended various
trainings including:
Intensive Training Programme on International Financial
Reporting Standards organized by David Raggay IFRS Consultants;
Tax Training for human resources function organized by Stransact
Partners;
PriceWaterhouseCoopers Tax Academy January- December, 2011;
Seminar on International Financial Reporting Standards organized
by Rossad Business and Educational Services under the aegis of the
Institute of Chartered Accountants of India; and
Seminar on Strategies for Managing and Collecting Debts at the
Lagos Business School of the Pan African University, Ajah- Lekki,
Lagos.
DR. GAFAR AMOO- Dr. Amoo is a medical doctor and Board member of
Heed Advisory Services Limited. He is a Medical Officer with the
General Hospital Igbo-Ora, Oyo State, Nigeria. He was the winner of
2012 most active NCD Clinic in Oyo State by Strategy For Improving
Diabetics Care in Nigeria (SIDCAIN).
16.PROJECT ASSISSTANCEThe Project may, inter alia, require the
following from Architects Registration Council of Nigeria (ARCON)
(vis--vis Financial, Operational, Information Technology and other
relevant Systems):Prompt provision of information and answers to
our enquiriesThe availability of documents and records as and when
needed.
RESOURCES AND KNOWLEDGE AS UNDERSTOOD BY MANAGEMENT: Key impacts
on the organisation and its financial reporting arising from the
implementation of IFRS.
Key changes to accounting policies.
Level of resource required to successfully manage the
transition. IFRS staff training required. Note Consideration should
be given to training finance and non-finance staff (such as
procurement staff and business managers) in the impacts of
IFRS.
Actions required to ensure that subsidiaries that are
consolidated into the financial statements will successfully
implement IFRS. Role of internal audit have in aiding the
transition. The potential impact on the accounts preparation
timetable as a result of the transition to IFRS. Plan to keep the
Management informed of the timetable and progress being made
towards adoption of the revised standards. Potential budgetary
impact of the move to IFRS. How and when the engagement with the
external auditor will take place. Will the 2011 Accounts include a
statement on preparedness and the potential impact of the
transition to IFRS?PREPARATIONS SYSTEMS AND DATA
Implications on the configuration of financial systems arising
as a result of the transition to IFRS. Balances and disclosures for
which there is a need to capture new and revised data with regard
to IFRS.
Note Areas such as leases, financial instruments and fixed
assets may require additional data capture.
Anticipated management accounting processes which need to be
re-engineered to ensure they are compatible with IFRS. Reformatting
of the accounts format, i.e. account structure and numbering
conventions, to ensure it is line with the new requirements.
Possible parallel systems needed for 2011, for IFRS and SAS based
information, to ensure that comparative information can be
accurately produced.17.ToolsTo facilitate our work, ARCHITECTS
REGISTRATION COUNCIL OF NIGERIA (ARCON) should provide us with
access to the computer system, avail us with passwords to be able
to assess the data/information in the computer system.
Avail us with both office and hotel accommodation
facilities.Provide means of transportation as we shall be required
to move from one place to the other.
Sensitise the staff to co-operate with us as we shall be asking
question and also be liaising with them.18.Independence and
Statement of No Conflicts of Interest
Heed Advisory Services Limited (HASL) is independent of
ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) as defined by
International Standards of Auditing (IAS) and there is no conflict
of Interest. 19.Lessons Learned from the Private Sector
The introduction of IFRS in the private sector caused a number
of difficulties. The standards that created the most problems were
IAS 32, 39 and IFRS 7 on Financial Instruments; IAS 27, 28 and 31
on Subsidiaries, Associates and Joint Ventures; IFRS 2 on Share
Based Payment; and IAS 12 on Income Taxes. IFRS 2 and IAS 12 will
not apply to the public sector in general, but the other standards
will be applied, which will result in significant impacts for some
organisations.
The key lessons from the private sector transition to IFRS are
as follows:
Early preparation is essential to ensure that there is no
knock-on impact on the timetables for the first year of IFRS
compliant Accounts;
The level of disclosure required under IFRS and therefore the
length of accounts, increased significantly as a result of the
transition and the new standards;
For most organisations the impact assessment and understanding
of the new standards took considerably longer than was
expected;
A significant investment in staff training was
required;19.Lessons Learned from the Private Sector (Contd)
Flagging up and discussing key issues and potential areas of
difficulty with key stakeholders early aided smooth transition;
Board and Audit Committee engagement is crucial, to ensure that
they are involved in the project and aware of the areas of impact
and the potential risks involved in the transition.19. PROFESSIONAL
FEEOur fee for this service shall be one million four hundred and
sixty thousand Naira Only (N1,460,000) broken down as follows:
=N=
Professional fee
1,200,000VAT (5%)
60,000Disbursements
200,000Total
1,460,000PROPOSED WORK PLAN FOR CONVERSION &
IMPLEMENTATION
WORK PLANDETAIL WORK REQUIREDAVERAGE NUMBER OF HOURS
Conversion of opening balances as at 1 January 2012 to IFRS
Recognize all assets and liabilities whose recognition is required
by IFRSs; Not recognizing items as assets or liabilities if IFRSs
do not permit such recognition Reclassify items in accordance with
IFRSs and Apply IFRSs in measuring all recognised assets and
Liabilities
Prepare reconciliation Statement of Nigeria GAAP and IFRS.
However, to carry out this exercise, some key accounting staff
will be involved to give some vital information during
conversion
16 hrs
Creating new charts of accounts in line with IFRS
Review the already existing charts of accounts
Not those items no longer required
Note the additional account heads to be added due to conversion
to IFRS
Creating the charts of accounts
8 hrs
Incorporation of opening balances as at 1 January, 2013 Open an
accounting period for 2011 to run concurrently with the local
GAAP
Incorporate the already converted opening financial positions
into the period20 hrs
Review the accountingManual and Guidelines for the
institution
Monitor and review the progress of the project against the
agreed roadmap
Manage and supervise those individuals charged with specific
responsibilities
Overall quality control of the project.
Posting proper
32 hrs
Implementation
Review all the postings done by staff Preparation of financial
statements in accordance with International Financial Reporting
Standards (IFRS) Analytical review of financial statements Retraing
staff where they are not clear46 hrs
Post implementation Review all the postings done by staff
Preparation of financial statements in accordance with
International Financial Reporting Standards (IFRS)
Analytical review of financial statements
Retrain staff where they are not clear
24 hrs
PROGRAMME ON SOME MAJOR IASs /IFRSs
IAS/IFRSPROGRAMME
Property, plant and equipment - IAS 16
Ensure that PPE are recognised with its initial costs and
included in the financial statements at carrying amount. The costs
to include purchase price, handling cost, installation cost, import
duties, etc and less trade discounts or rebate Ensure that the
depreciation rates are determined by the economic useful life of
the assets.
Investment property-IAS 40
Identify assets to be regarded as investment property i.e. held
in order to earn rentals and/or for capital appreciation Identify
the accounting for investment property
Ensure appropriate recognition and measurement of the Investment
property Ensure adequate treatment for gain or loss on disposal.
Ensure that owner occupied property or property held on sale are
not included.
Ensure that derecognition is carried out when the investment
properly is permanently withdrawn from use and no future economic
benefits are expected from its disposal
Intangible assets/goodwill- IAS 38
Identify assets that qualify as good will and intangible
assets
Separate intangible assets from goodwill
Ensure reliable measurement as specified by the standards
Ensure that the appropriate disclosure requirements are
applied
Leases-IAS 17
Ensure that the primary and secondary indicators are used to
classify leases into financial and operating.
Ensure that the disclosure requirement applicable to each are
met.
Ensure that the correct measurements are applied. Ensure
adequate computations on the leases.
Inventories- IAS 2
Ensure that inventories are recognised at lower of cost and
net
realisable value
Ensure that the costs are measured either at weighted average
method or first in first out (FiFo) depending on the policy of the
company. Ensure that cost incurred in bringing the inventories to
their present location and condition are recognised as the
cost.
PROGRAMME ON SOME MAJOR IASs /IFRSs
IAS/IFRSPROGRAMME
Insurance Contract- 1FRS 4
Ensure that claims recognized are in existence at the end of the
reporting period e.g. provision for unexpired risk etc.
Ensure that insurance liabilities are removed from financial
position when discharged or cancelled
Ensure that insurance liabilities are not offset against
insurance assets.
Carry out liability adequacy test
Carry out impairment test on reinsurance assets
Borrowing cost IAS 23
Identify various borrowing costs
Ensure that borrowing cost associated with acquisition,
constitution or production of a qualify assets is capitalized.
Identity period of capitalization of the borrowing costs.
Non Current assets for sale & discontinued operation- IFRS
5
Recognise & separate non current assets held for sale and
discontinued operation from other assets.
Ensure that these non current assets are not depreciated
Ensure appropriate disclosures and measurement
Events after the Reporting date - IAS 10
Identify events that occurred after the reporting date
Classify them into adjustable and non adjustable items.
OUR IFRS CONVERSION APPROACH
Our approach is tailored towards achieving great success in any
sector of the Nigerian economy.
For companies searching for a solution to guide them through the
intricacies of GAAP conversion, our approach allows a firm to move
quickly from establishing a conversion plan through the use of
pre-defined templates to assigning responsibilities and monitoring
the conversion process through real-time workflow and reporting
tools.
This approach provides a phased work plan for conversion that is
specific to the issues faced by finance officers in different
industries. It allows for the creation of the project plan, the
identification of significant accounting policy changes and the
management of concurrent dual reporting requirements for existing
GAAP and IFRS.
Benefits of our approach Industry specific conversion plans and
templates
Assignment of required tasks to task leaders and sub-task
owners
Progress charting and monitoring
Audit committee and monthly management reporting
Complete audit trails are maintained
Complete document management
Managing Partner
IFRS Training Partner
IFRS Technical Partner
Managers
Managers
Supervisors
Supervisors
35Technical Proposal on IFRS Conversion and Implementation to
ARCON