Published on February 23, 2014
Accounting for Business Operations in Nigeria: Opportunities & Challenges Olugbenga Coker PhD FCCA FCA
Introduction - The Nigeria Business Environment High Rate of Unemployment Dependence on Oil Revenue Dependence on Imports Huge Infrastructure deficit Security Concerns Corruption Strong Local Financial Institutions
The aim of Business Profitability; wealth maximisation Profit = Revenue - Cost (Operating, other) Other cost◦ Cost of Compliance ◦ Taxation ◦ Internal Control
Compliance- Relevant legislations • • • Companies and Allied Matters Act The Foreign Exchange Act 1995 – Allows repatriation of profit, dividends, capital, etc The Nigerian Investment Promotion Commission Act 1995 – Established the NIPC to co-ordinate, promote and facilitate domestic and foreign investments into Nigeria except – guarantees that ‘no enterprise shall be nationalized ‘ – Allows 100% ownership – investment listed under the ‘Negative ‘ lists – covered by the Nigerian Cabotage Acts 4 4
Investment Opportunities Infrastructure Power – Generation, Transmission & Distribution Transportation – Rail, Air, Road Agriculture & Agro Allied Services Telecommunication Health Care Services Banking & Financial services Tourism/Hospitality Education Waste Management & Treatment Mineral Mining Manufacturing Pharmaceuticals, Textiles & Garments, Automobiles, Oil & Gas (up-and down-stream operations) 5
The regulatory environment Incorporate local subsidiary or branchRegister with the Corporate Affairs Commission Obtain business permit from NIPC ◦ -14 days/24Hrs Obtain Certificate of Capital Importation for repatriation purposes If manufacturing or exporting - obtain SONCAP certification for products (Standards Organization of Nigeria Conformity Assessment Programme )
The regulatory environment File Annual Accounts with the CAC Nigeria has adopted the IFRS◦ Comparability, consolidation, monitoring Exemption for SMEs: ◦ Turnover < £2m or assets < £0.8m ◦ Foreign companies don’t qualify Availability of professional support ◦ >40,000 chartered accountants (ICAN) ◦ Reasonable cost of compliance
Taxation Enforced by the 3 tiers of GovernmentFederal, State, and Local governments. Collectible ◦ ◦ ◦ ◦ ◦ by the Federal Government Companies income tax; Withholding tax on companies; Petroleum Profit Tax; VAT ; Education tax Personal Income Tax- Non residents Collectible by State Governments: ◦ Pay-As-You-Earn (PAYE) – Residents ◦ Road taxes; Business premises registration 8
Taxation ◦ Companies Tax - 30% ◦ Low VAT regime – 5% ◦ Investment in Infrastructure – may qualify for investment allowance ◦ Capital Allowance for Specific activities ◦ Enforcement- Tax Clearance Certificates ◦ Access to good professional advice 9
Internal Controls Protecting your Assets ◦ Security of Capital ◦ Profitability
Internal Controls What is IC? Policies & Procedures Designed by Management to: Safeguard the assets Ensure reliability of financial information Ensure compliance Promote efficient and effective operations.
Internal Controls Why Internal Control is particularly important? ◦ The nature of the business ◦ the social, cultural and legal environment. ◦ Challenges & limitations
Designing Internal Control Systems Do a Risk Assessment Identify areas of greatest risk Susceptibility to fraud & error Information system failure, staff practices Changes in regulations Design: Cost proportional to risk Establish the Control Environment ◦ Set the tone-Values; attitude; ethics ◦ Communication, leading by example Specify Control Activities Monitor and Review
Internal Control Activities Preventive & detective Delegation of authority and responsibility Separation of duties-transaction lifespan Record keeping- Cashbook, sales, inventory, fixed assets, payroll Purchase authorisation-Account payable Revenue, accounts receivable, banking Personnel policies and procedures Security- Physical & Technical Reconciliation- bank; cash-count; stock
Internal Control Issues for Smaller Entities Owner sets the control environment Values, diligence, presence Controls may be informal and carried out by a few persons The benefit of a control activity should be more than the cost A code of conduct communicated informally or (preferably) written Use of company assets; record-keeping; complying with laws; giving and receiving gifts
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