(PDF) ANAN NATIONAL FRQA

…Advancing the science of Accountancy 2024 NATIONAL FINANCIAL REPORTING QUALITY AWARD ...Advancing financial reporting quality in Nigeria SEPTEMBER, 2024 i National Financial Reporting Quality Award ©Association of National Accountants of Nigeria (ANAN), 2024 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, electrostatic, magnetic tape, photocopying, recording or otherwise without the written permission of the Association of national Accountants of Nigeria (ANAN). ii FOREWORD It is with great pleasure that I write this foreword to the Financial Reporting Quality Award publication. As the President of the Association of National Accountants of Nigeria (ANAN), I am delighted to see the progress made in promoting high-quality financial reporting in Nigeria. The Financial Reporting Quality Award is an initiative of ANAN, aimed at recognizing and rewarding organizations that demonstrate excellence in financial reporting. This award is a testament to our commitment to upholding the highest standards of transparency, accountability, and governance in financial reporting. I would like to commend the Financial Reporting Council of Nigeria (FRCN), AccountantGeneral of the Federation, Auditor-General of the Federation, and other regulatory bodies for their tireless efforts in promoting high-quality financial reporting in Nigeria. I also appreciate the Financial Reporting Quality Award Panel, the Pannel of judges, and assessors who have contributed to the success of this award. To the winners of this award, I congratulate you on your achievement. Your commitment to financial reporting excellence is a shining example to others, and we hope that it will inspire more organizations to strive for similar excellence. As we continue to promote high-quality financial reporting, we recognize that there is still much work to be done. We will continue to work with our stakeholders to address the challenges facing financial reporting in Nigeria and to promote a culture of transparency and accountability. As we celebrate the winners of this award, we also acknowledge the importance of financial reporting in promoting economic growth and development. High-quality financial reporting is essential for attracting investments, creating jobs, and stimulating economic activity. ANAN is committed to playing its part in promoting financial reporting excellence in Nigeria. We will continue to work with our members, stakeholders, and regulatory bodies to ensure that financial reporting in Nigeria is of the highest standard. Once again, I congratulate the winners and thank all stakeholders for their support. Dr. James Ekerare Neminebor, FCNA President and Chairman of Council, ANAN iii ACKNOWLEDGEMENTS The approval of the Governing Council of ANAN to pioneer the recognition and promotion of excellence in financial reporting quality among the public and private sector entities in Nigeria is profoundly commendable. I would like to thank the ANAN Council, Chief Executive Officer, and staff for their hard work and dedication to making this award a success. I also appreciate the support of our partners and sponsors who have contributed to the success of this initiative. This maiden edition of the Financial Reporting Quality Award was made conceivable by the contributions and support of the Financial Reporting Council of Nigeria (FRCN), for establishing and promoting high-quality financial reporting standards, overseeing the financial reporting process in Nigeria, and making the repository of the financial reports available for evaluation. Regulatory bodies and government agencies, for their role in shaping the financial reporting landscape. The Industry Regulators’ contribution to the enforcement and monitoring of accounting standards through regulatory rules and guidelines have helped in improving the standards of financial reporting, promoting transparency and disclosure through listing rules and regulations, and, in particular, the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Nigerian Exchange Group (NEG) for their oversight and regulation of financial institutions, listed entities and the Auditor-General for the Federation’s kind supportive role in this task. The independent panel of judges and assessors, for their expertise and time in evaluating award submissions. We thank the participating entities for their commitment to highquality financial reporting. We thank the Professional Accountancy Organisations (ANAN and ICAN), for promoting best practices and supporting professional development. We acknowledge the industry experts and thought leaders, for their insights and contributions to financial reporting excellence and input, during the evaluation and validation process. These acknowledgements recognize the collaborative efforts of various stakeholders in promoting high-quality financial reporting in Nigeria. Prof. Suleiman A.S. Aruwa, FCNA Chairman, National Financial Reporting Quality Award Panel iv GOVERNING COUNCIL Dr. James Ekerare Neminebor, FCNA Chairman/President Hajia Zuwaira T. Kishimi, FCNA 1st Vice President Dr. Awe Babajide Ibrahim Agboluga, FCNA 2nd Vice President Prof. Benjamin Chuka Osisioma, FCNA Immediate Past President Mallam Ibrahim Husaini Gidado, FCNA Treasurer Prof. Suleiman A. S. Aruwa, FCNA Membership Secretary Dr. Cletus O. Odoh, mni, FCNA Member Mrs. Alice Samuel Urom, FCNA Member Alhaji Kabir M. Dankaura, FCNA Member Chief Peter Anyanwu, FCNA Member Dr. Sunday Adewale Olaoye, FCNA Member Dr. Victor Usunobun Imagbe, FCNA Member Mr. Adamu Abubakar, FCNA Member Prof. Hassan Ibrahim, FCNA Member Hajia Maryam Marafa Ibrahim, CNA Member Dr. Kayode Olushola Fasua, FCNA Chief Executive Officer/Secretary NATIONAL FINANCIAL REPORTING QUALITY AWARD PANEL: Prof. Suleiman A.S. Aruwa, FCNA Chairman Dr. Dagwom Dang, FCA Member Dr. Abdullahi Yau, FCNA Member Dr. Stephine N. Sende, FCNA Member Mr. Adeyinka Sanyaolu Secretary v CONTENTS FOREWORD.............................................................................................................................................. iii ACKNOWLEDGEMENTS ...................................................................................................................... iv GOVERNING COUNCIL.......................................................................................................................... v NATIONAL FINANCIAL REPORTING QUALITY AWARD PANEL: ............................................ v EXECUTIVE SUMMARY ........................................................................................................................ 1 SECTION ONE ........................................................................................................................................... 2 INTRODUCTION....................................................................................................................................... 2 SECTION TWO .......................................................................................................................................... 5 OVERVIEW OF FINANCIAL REPORTING QUALITY IN NIGERIA ............................................. 5 SECTION THREE.................................................................................................................................... 11 METHODOLOGY ................................................................................................................................... 11 SECTION FOUR ...................................................................................................................................... 20 ASSESSMENT AND RANKING ............................................................................................................ 20 SECTION FIVE ........................................................................................................................................ 23 CONCLUSION AND RECOMMENDATIONS .................................................................................... 23 REFERENCES .......................................................................................................................................... 26 APPENDICES ........................................................................................................................................... 27 vi EXECUTIVE SUMMARY The Financial Reporting Quality Award aims to recognize and promote excellence in financial reporting by private and public sector entities. The award is given to the entities that demonstrate the highest standards of financial reporting quality and corporate governance in line with Conceptual Framework for Financial Reporting of the IASB (2018). A construct of compound measurement tool was adapted in the development of the National Financial Reporting Quality Assessment (NFRQA) Framework, which comprehensively assesses the quality of financial reporting in terms of the underlying fundamental qualitative characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in the Conceptual Framework for Financial Reporting of the the IASB (2018). The operationalization of these qualitative characteristics results in a 24-item index, using the annual reports from public and private sector entities listed in the repository of the Financial Reporting Council (FRC) of Nigeria with annual reports for 2021-2023. The selection of entities was based on computations of accrual quality for private sector entities, in addition to timeliness in submissions of annual reports and accounts to the Financial Reporting Council of Nigeria for 2021-2023 for both private and public sector entities. Thereafter, the NFRQA scores was used to determine the ranking of public interest entities only. Whereas, there are significant improvement in the quality of the private sector entities’ financial reports, the public sector entities have not significantly implemented the conceptual framework and IPSAS, resulting in weak fundamental and enhancing qualitative characteristics. Only about 3 percent of the public sector entities submitted timely annual reports and accounts to the FRC of Nigeria. The submissions of the private sector entities were also not impressive, given the number of entities expected to make submissions to the Financial Reporting Council of Nigeria. A robust monitoring and enforcement regime is needed under the FRC of Nigeria to ensure full submissions of annual reports and accounts to its repository in addition to release of public sector code that would enhance the financial reporting standards’ compliance of the public sector agencies. The FRC must lead by publishing its annual reports and accounts timely. Public Sector Award: In the public sector, the Federal Inland Revenue Service (FIRS), Bank of Industry (BOI), and the Energy Commission of Nigeria (ECN) were ranked first, second, and third best National Financial Reporting Quality Award-wining public sector entities, respectively. Private Sector Award: In the private sector, MTN Nigeria Plc, Fidelity Bank Plc, and Seplat Energy Plc were ranked, first, second, and third best National Financial Reporting Quality Award-wining private sector entities, respectively. 1 SECTION ONE INTRODUCTION 1.1 Background The National Financial Reporting Quality Award (NFRQA) is an annual award presented by the Association of National Accountants of Nigeria (ANAN) to recognize and celebrate organizations that demonstrate exceptional financial reporting quality. The award was established to promote transparency, accountability, and excellence in financial reporting among public interest entities (PIEs) in Nigeria. ANAN as professional accounting organization aims to encourage public and private sector entities to adopt best practices in financial reporting, governance, and risk management. The award assesses organizations' financial reports based on the accrual quality, underlying fundamental qualitative characteristics (i.e. relevance and faithful representation) and the enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) as defined in the Conceptual Framework for Financial Reporting of the IASB (2018). An independent panel of experts review and evaluate the annual reports and accounts, and winners are selected based on their ranked overall score. The award categories include private and public sector entities who have statutory duty to submit financial reports to the Financial Reporting Council (FRC) of Nigeria. The National Financial Reporting Quality Award (NFRQA) is a prestigious recognition of excellence in financial reporting, promoting trust and confidence among stakeholders, including investors, regulators, and the general public. By recognizing and rewarding high-quality financial reporting, the NFRQA would contribute to the development of a transparent and accountable business environment in Nigeria. 2 1.2 Aim and Objectives The aim of the NFRQA aligns with ANAN's mission to promote excellence in accounting and financial reporting, and to contribute to the development of a strong and transparent business environment in Nigeria. The specific objectives of the NFRQA are to: 1. Promote transparency and accountability in financial reporting among public and private entities. 2. Encourage adoption of best practices in financial reporting, governance, and risk management. 3. Recognize and reward organizations that demonstrate exceptional financial reporting quality. 4. Enhance trust and confidence among stakeholders, including investors, regulators, and the general public. 5. Foster a culture of excellence in financial reporting and governance among Nigerian organizations. 6. Support the development of a transparent and accountable business environment in Nigeria. 7. Encourage compliance with global financial reporting standards, regulations, and best practices. 8. Provide a benchmark for evaluating financial reporting quality among Nigerian organizations. 1.3 Terms Of Reference The terms of reference for the Financial Reporting Quality Award Panel are to: 1. Oversee the selection process for the Financial Reporting Quality Award and ensure the integrity and transparency of the award process. 3 2. Evaluate financial reports of participating organizations with a view to assess compliance with global financial reporting standards and regulations. 3. Review and evaluate financial reports of participating organizations and identify best practices in financial reporting. 4. Assess the quality of financial reporting based on established criteria. 5. Identify winners in each award category and recommend award recipients to the ANAN Governing Council. 1.4 Panel Membership Prof. Suleiman A.S. Aruwa, FCNA -Chairman Dr. Dagwom Dang, FCA -Member Dr. Abdullahi Yau, FCNA -member Dr. Stephine N. Sende, FCNA -Member Mr. Adeyinka Sanyaolu -Member The Panel was supported by an independent panel of judges and experts in the evaluation of submissions and validation process. 4 SECTION TWO OVERVIEW OF FINANCIAL REPORTING QUALITY IN NIGERIA 2.1 Financial Reporting Standards and International Best Practices Financial Reporting Standards (FRS) and International Best Practices (IBP) are essential components of modern financial reporting, ensuring transparency, consistency, and comparability of financial information across borders. The Financial Reporting Standards were developed by the International Accounting Standards Board (IASB) and the International Public Sector Accounting Standards Board (IPSASB) with the aim to provide a common language for financial reporting in the public and private sectors, respectively. The International Financial Reporting Standards (IFRS) and the International Public Sector Accounting Standards (IPSAS) have been issued to date for the private and public sector entities, respectively. These standards focus on fair presentation, transparency, and consistency and are applied in over 100 countries, including Nigeria. The FRS focus on substance over form, emphasis on fair value measurement, comprehensive disclosure requirements, consolidation and group accounting, and standards for specific industries (e.g., insurance, banking, etc). The primary objective of financial reporting is to provide high-quality financial reporting information concerning economic entities, primarily financial in nature, useful for economic decision making (IASB, 2018). Providing high quality financial reporting information is important because it will positively influence capital providers and other stakeholders in making investment, credit, and similar resource allocation decisions, enhancing overall market efficiency. The IASB issued the revised version of the Conceptual Framework for financial reporting in 2018, which stipulates the qualitative characteristics of financial reports, among others. 5 The International Best Practices (IBP) emphasize high-quality financial reporting, governance, and risk management, encourage transparency, accountability, and investor confidence, foster a culture of excellence in financial reporting and governance, align with the FRS, enhancing consistency and comparability. Key practices include sustainability reporting (combining financial and non-financial information), emphasis on governance, risk management, and internal controls, transparency in financial transactions and disclosures, regular audit and assurance, and encouragement of high-quality financial reporting. The Financial Reporting Standards and International Best Practices play a vital role in promoting transparency, consistency, and comparability in financial reporting worldwide. While challenges exist, the benefits of adopting FRS and IBP far outweigh the costs, ultimately contributing to a more stable and efficient global financial system. Financial reporting in Nigeria has made progress since the adoption and implementation of IFRS and IPSAS, but challenges remain. Ongoing efforts by the Financial Reporting Council (FRC) of Nigeria to improve enforcement, capacity, and transparency are essential for promoting high-quality financial reporting and supporting Nigeria's economic development. The FRC of Nigeria as empowered under the Financial Reporting Council of Nigeria Act of 2011 (as amended) to undertake theses responsibilities. The facilitating role of industry regulators is noteworthy in enhancing the financial reporting quality. The Association of National Accountants of Nigeria (ANAN) and the Institute of Chartered Accountants of Nigeria (ICAN) are the two recognized professional accountancy organisations who play major roles in the financial reporting process 6 in Nigeria. They are key players in the production, training and professional development of professional accountants and auditors. 2.2 Conceptual Framework of Financial Reporting Financial reports provide information about the reporting entity’s economic resources, claims against the reporting entity and the effects of transactions and other events and conditions that change those resources and claims (IASB, 2018). Some financial reports also include explanatory material about management’s expectations and strategies for the reporting entity, and other types of forward-looking information. The revised Conceptual Framework for Financial Reporting (Conceptual Framework) issued in March 2018 by the International Accounting Standards Board (IASB) became effective for annual reporting period beginning 1 January 2020, with earlier application permitted. The Conceptual Framework sets out the fundamental concepts for financial reporting that guide the IASB and IPSASB in developing Standards. It helps to ensure that the Standards are conceptually consistent and that similar transactions are treated the same way, so as to provide useful information for investors, lenders and other creditors. The Conceptual Framework for Financial Reporting was first issued by the International Accounting Standards Board in September 2010. It was revised in March 2018. The Conceptual Framework assists companies in developing accounting policies when no IFRS Standard applies to a particular transaction, and more broadly, helps stakeholders to understand and interpret the Standards. The 2018 revised Conceptual Framework sets out the: objective of general purpose financial reporting, the qualitative characteristics of useful financial information, a description of the reporting entity and its boundary, definitions of an asset, a liability, equity, income and expenses and guidance supporting these definitions, criteria for including assets and liabilities in financial statements (recognition) and guidance on when to remove them 7 (derecognition), measurement bases and guidance on when to use them, concepts and guidance on presentation and disclosure, and concepts relating to capital and capital maintenance (IASB, 2018). The fundamental qualitative characteristics (i.e. relevance and faithful representation) are most important and determine the content of financial reporting information. The enhancing qualitative characteristics (i.e. understandability, comparability, verifiability and timeliness) can improve decision usefulness when the fundamental qualitative characteristics are established. However, they cannot determine financial reporting quality on their own (IASB, 2018). Relevance: Relevant financial information is capable of making a difference in the decisions made by users. Information may be capable of making a difference in a decision even if some users choose not to take advantage of it or are already aware of it from other sources. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value or both (IASB, 2018). Drawing on prior literature, relevance is operationalized using six items referring to predictive and confirmatory value. In order to improve the comprehensiveness of the quality assessing measurement tool, this study will consider a broader perspective on predictive value including both financial and non-financial information. Faithful representation: Faithful representation is the second fundamental qualitative characteristic. To faithfully represent economic phenomena that information purports to represent, annual reports must be complete, neutral, and free from material error (IASB, 2008). Financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent (IASB, 2018). Consistent with prior literature, faithful representation is 8 measured using six items referring to neutrality, completeness, freedom from material error, and verifiability (Dechow et al., 1996; Willekens, 2008). Enhancing qualitative characteristics Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information that both is relevant and provides a faithful representation of what it purports to represent. The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of that phenomenon. Understandability: The first enhancing qualitative characteristic, understandability, will increase when information is classified, characterized, and presented clearly and concisely. Understandability is referred to, when the quality of information enables users to comprehend their meaning (IASB, 2018). Understandability is measured using six items that emphasize the transparency and clearness of the information presented in annual reports (IASB, 2018). Comparability: A second enhancing qualitative characteristic is comparability, which is the quality of information that enables users to identify similarities in and differences between two sets of economic phenomena (IASB, 2018). In other words, similar situations should be presented the same, while different situations should be presented differently. Comparability is measured using six items that focus on consistency. Comparability not only refers to the consistency of the use of accounting procedures by a single company, it also refers to comparability between different companies (IASB, 2018). 9 Verifiability: Independent and knowledgeable observers are able to verify the information. F1 and F2 question items (Appendix A) address verifiability (Jonas & Blanchet, 2000). Timeliness: Information is available in time to influence the decisions of users. Timeliness means having information available to decision makers before it loses its capacity to influence decisions (IASB, 2018). Timeliness refers to the time it takes to reveal the information and is related to decision usefulness in general (IASB, 2018). This is viewed from timely annual submissions to the Financial Reporting Council of Nigeria. The database of submissions to the FRC of Nigeria is used to qualify the entities for ranking. 10 SECTION THREE METHODOLOGY 3.1. Introduction This National Financial Reporting Quality Award (FRQA) report evaluates and ranks the financial reporting quality of public interest entities (PIEs) in both the public and private sectors for the 2021-2023 financial reporting years. The Panel employed a comprehensive methodology that integrates established models to ensure a robust and reliable assessment process. The primary model adapted for this evaluation is the Beest, Braam, and Boelens (2009) model, which is based on the Conceptual Framework of Financial Reporting. This model was modified from 21-items to 24items based on revised Conceptual Framework 2018. The following sections detail the methodology used to identify, filter, and rank PIEs based on their financial reporting quality. 3.2. Adaptation of the Beest, Braam, and Boelens (2009) Model The Panel adapted the Beest et al. (2009) model as the core framework for evaluating FRQ. This model was chosen due to its comprehensive approach to assessing financial reporting quality based on the fundamental and enhancing qualitative characteristics as defined by IASB Conceptual Framework for Financial Reporting 2018. These characteristics include relevance, faithful representation, comparability, verifiability, timeliness, and understandability. The model’s emphasis on these characteristics makes it particularly suitable for assessing the quality of financial reporting in a way that aligns with global standards. The justification for using the Beest et al. (2009) model lies in its empirical validation and widespread recognition in the academic and professional accounting communities. Unlike other models, such as accrual models and value relevance models which focus 11 is on information disclosed in financial statements to assess the FRQ, Beest et al. (2009) developed their model to provide a structured and objective basis for assessing FRQ utilizing both financial and non-financial information, which is essential for ensuring that evaluations are consistent and comparable across different entities. Additionally, the model is modified, making it more relevant and applicable to the PIEs being assessed. The NFRQA framework is a construct of measurement tool, comprising the fundamental and enhancing qualitative characteristics underlying decision usefulness as defined in the conceptual Framework (IASB, 2018). The fundamental qualitative characteristics were used and developed into 24-item index. Except for timeliness, each of the qualitative characteristics is measured using the multiple items that refer to the sub notions of the qualitative characteristics. To assure the internal validity of these items, the quality measures are based on prior empirical literature. We use a five-point rating scales to assess the scores on the items. Appendix A provides the 24 measured items used to operationalize the fundamental and enhancing qualitative characteristic. This appendix also includes the measurement scales used to assess the value of the distinct items. Subsequently, we compute a standardized outcome for the qualitative characteristics’ relevance, faithful representation, understandability and comparability by adding the scores on the related items and dividing by the total number of items. 3.3. Filtering and Selection of PIEs in the Public Sector To identify the PIEs in the public sector that would be subject to the FRQ evaluation, the Panel first filtered for compliance with Section 8(d)(n) of the Financial Reporting Council (FRC) of Nigeria Act 2011 (as amended). This section mandates the submission of annual financial reports by PIEs. Only those entities that had 12 consistently submitted their financial reports for the years 2021, 2022, and 2023 were considered eligible for further evaluation. This approach ensured that only eight (8) PIEs with a track record of compliance and transparency were included in the analysis, thereby enhancing the reliability of the FRQ assessment (Table 3.1a). 3.4. Filtering and Selection of PIEs in the Private Sector For the private sector, the Panel employed a two-stage filtering process to identify the PIEs for FRQ evaluation. The first stage involved applying the Modified Jones model for Discretionary Accruals Earnings Management (DAEM) to the financial reports for the years 2020, 2021, and 2022. The Modified Jones model, widely recognized for its effectiveness in detecting earnings management practices, was selected due to its ability to reveal the quality of financial reporting through the manipulation of accruals (Dechow, et al., 1995). The Discretionary Accruals Earnings Management (DAEM) formula is used to measure the extent to which a company's earnings are managed through discretionary accruals. This specific formula calculates DAEM by comparing several financial elements relative to the company’s total assets. Here’s a breakdown of each component of the formula based on STATA syntax: DAEM=((profit_after_tax-net_cash_flow_operations)/L1.total_asset)(1/L1.total_asset)-((D1.revenue-D1.trade_receivable)/L1.total_asset)(ppe_fixed_asset/L1.total_asset) Where: • (profit_after_tax - net_cash_flow_operations)/L1.total_asset: This part of the formula measures the difference between profit after tax and net cash flow from operations, scaled by the total assets at the beginning of the period (L1.total_asset). The difference between profit and cash flow from operations often indicates the extent of accruals in earnings. A significant disparity may suggest that 13 non-cash items (accruals) heavily influence reported earnings, which could imply earnings management. • (1/L1.total_asset): This term serves as a control for the impact of the size of the firm on discretionary accruals. It adjusts the formula for differences in firm size by scaling based on total assets at the beginning of the period. This normalization ensures that the results are comparable across companies of different sizes. • ((D1.revenue - D1.trade_receivable)/L1.total_asset): This component reflects changes in working capital that might influence earnings. Specifically, it looks at the change in revenue minus the change in trade receivables, scaled by total assets. A significant increase in revenue that is not matched by a corresponding increase in cash (due to higher receivables) might suggest revenue recognition practices that accelerate earnings, indicative of earnings management. • (ppe_fixed_asset/L1.total_asset): The final part of the formula considers the proportion of fixed assets (property, plant, and equipment) to total assets. Fixed assets are often subject to discretionary accounting policies, such as depreciation methods and revaluation, which can impact reported earnings. This term helps to adjust the DAEM measure for the influence of fixed assets on earnings management. In the context of assessing Financial Reporting Quality (FRQ) among Public Interest Entities (PIEs) in Nigeria, as described in the methodology, this DAEM formula is crucial. It helps identify entities that may be engaging in earnings management -either conservatively or aggressively. Lower and negative DAEM values suggest more conservative earnings management, potentially indicating a more cautious approach to financial reporting that deflates earnings quality. Conversely, higher and positive 14 DAEM values indicate aggressive earnings management, which could inflate earnings quality by manipulating discretionary accruals. By applying this DAEM formula, the Panel can filter and select PIEs that exhibit lower levels of earnings management (indicating potentially higher-quality financial reporting) for further evaluation. This approach aligns with the objective of ensuring that the PIEs selected for the FRQ Award demonstrate transparency, accuracy, and adherence to high financial reporting standards. From this analysis, the 35 PIEs with the lowest DAEM in each year were selected for further scrutiny. The rationale for focusing on entities with the lowest DAEM is to target those with potentially higher-quality financial reporting, as these PIEs exhibit more conservative earnings management practices. In the second stage, the selected PIEs were further filtered based on their compliance with Section 8(d)(n) of the FRC of Nigeria Act 2011 (as amended). Specifically, the Panel required that these PIEs must have submitted their financial reports to the FRC in the following year, demonstrating a commitment to transparency and regulatory compliance. Finally, PIEs that met this criterion for at least two of the three years were selected, resulting in a final list of 19 PIEs for the FRQ evaluation (See Table 3.1 (a&b). 15 Table 3.1a: Sample Selection for NFRQA Private Sector Entities Public Sector Entities 1. Access Bank Plc 1. Bank of Industry 2. Dangote Sugar Refinery Plc 2. Energy Commission of Nigeria 3. Eterna Plc 3. Federal Inland Revenue Service 4. Fidelity Bank Plc 4. Federal College of Education, Okene 5. Fidson Healthcare Plc 5. National Agency for the Control of Aids 6. Flour Mills of Nigeria Plc 6. Nigeria Football Federation 7. Guiness Nigeria Plc 7. Nigerian Pipelines and Storage Company 8. International Breweries Plc 8. Sheda Science and Technology Complex 9. Larfage Cement 10. Morison Industries Plc 11. MTN Nigeria Plc 12. Nigeria Breweries Plc 13. Northern Nigeria Flour Mills plc 14. Notore 15. Omatek Ventures Plc 16. R.T Briscoe (Nig) Plc 17. Seplat Energy Plc 18. The Initiates Plc 19. Transcorp hotels Plc 19 Private entities 8 Public entities 16 Table 3.1b: Final Selected Companies for NFRQA Rating S/N 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 FIRST LEVEL FILTERED COMPANIES 11 PLC ABBEY MORTGAGE BANK PLC ACCESS BANK PLC ARDOVA PLC BUA CEMENT PLC BUA FOODS PLC CAPITAL HOTELS PLC DANGOTE CEMENT DANGOTE SUGAR REFINERY PLC EKOCORP PLC ELLAH LAKES PLC ETERNA PLC FIDELITY FIDSON HEALTHCARE PLC FLOUR MILLS OF NIGERIA PLC GLAXOSMITHKLINE GUINESS NIGERIA PLC HONEYWELL FLOUR MILLS PLC INTERNATIONAL BREWERIES PLC LARFAGE CEMENT SUBMITTED SUBMITTED SUBMITTED FINANCIAL FINANCIAL FINANCIAL REPORT TO REPORT TO REPORT TO FRC IN 2021 FRC IN 2022 FRC IN 2023 (Appendix (Appendix (Appendix A1) A2) A3) NO YES NO YES YES NO NO NO NO NO NO NO YES NO NO NO YES NO YES NO YES YES YES NO NO. OF YEARS FINANCIAL REPORTS WERE FILED AT FRC (MIN. OF 2 YEARS) FINAL FILTERED COMPANIES FOR FRQ RATING 2 YEARS ACCESS BANK PLC DANGOTE SUGAR REFINERY PLC NO YES NO NO NO YES NO YES YES YES YES NO NO YES YES 2 YEARS YES YES YES 3 YEARS YES YES YES YES NO YES YES NO YES 3 YEARS ETERNA PLC FIDELITY FIDSON HEALTHCARE PLC FLOUR MILLS OF NIGERIA PLC 3 YEARS GUINESS NIGERIA PLC YES NO NO YES YES YES NO NO YES 2 YEARS 2 YEARS INTERNATIONAL BREWERIES PLC LARFAGE CEMENT 17 2 YEARS 2 YEARS 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 JULIUS BERGER NIGERIA PLC LIVESTOCK FEEDS NO NO YES NO NO YES MORISON INDUSTRIES PLC MRS OIL NIGERIA PLC MTN NIGERIA PLC NIGERIA BREWERIES NORTHERN NIGERIA FLOUR MILLS PLC NOTORE YES NO YES NO YES NO YES YES NO YES NO YES 2 YEARS YES YES NO NO YES YES 2 YEARS 2 YEARS OMATEK VENTURES PLC PRESCO PLC R.T. BRISCOE (NIG) PLC SEPLAT ENERGY PLC THE INITIATES PLC TOTALENERGIES MARKETING NIGERIA PLC TOURIST COMPANY OF NIGERIA PLC YES YES NO YES YES NO NO YES YES NO YES NO YES YES YES 2 YEARS MTN NIGERIA PLC NIEGRIA BREWERIES NORTHERN NIGERIA FLOUR MILLS PLC NOTORE OMATEK VENTURES PLC 2 YEARS 2 YEARS 2 YEARS R.T. BRISCOE (NIG) PLC SEPLAT ENERGY PLC THE INITIATES PLC NO YES NO NO YES NO TRANSCORP HOTELS PLC TRANSNATIONAL CORPORATION PLC TRIPPLE GEE & CO. PLC UNION DICON SALT PLC YES YES YES 3 YEARS TRANSCORP HOTELS PLC NO YES NO NO NO NO YES NO YES 2 YEARS 2 YEARS MORISON INDUSTRIES PLC 19 COMPANIES TOTAL SELECTED COMPANIES FOR FRQ RATING 18 3.5. Application of the Adapted and Modified Model The selected PIEs from both the public and private sectors were then evaluated using the adapted Beest, Braam, and Boelens (2009) mode. The panel rated each entity based on the qualitative characteristics of financial reporting as outlined in the model. The ratings were used to rank the entities, with higher scores indicating better adherence to high-quality financial reporting standards. 3.6. Summary The methodology employed for the 2024 Financial Reporting Quality Award reflects a rigorous and comprehensive approach to assessing the financial reporting practices of PIEs in Nigeria. By integrating established models, the Panel ensured that the evaluation was both globally informed and locally relevant. The filtering process for PIE selection, based on compliance and earnings management analysis, further strengthened the robustness of the assessment, ensuring that only the most relevant and compliant entities were considered for the award. 19 SECTION FOUR ASSESSMENT AND RANKING 3.1 ASSESSMENTS Table 4.1a Financial Reporting Qualitative Characteristics Assessments Private Sector Entities R F U C AQS 4.2 3.1 4.2 4.3 4.0 1. Access Bank Plc 3.8 3.1 3.7 3.1 3.4 2. Dangote Sugar Refinery Plc 2.7 3.8 3.3 2.9 3.2 3. Eterna Plc 4.4 3.9 4.3 4.1 4.2 4. Fidelity Bank Plc 4.1 2.8 3.4 4.2 3.6 5. Fidson Healthcare Plc 3.2 3.4 3.1 2.9 3.2 6. Flour Mills of Nigeria Plc 3.4 3.2 3.1 3.4 3.3 7. Guiness Nigeria Plc 2.9 3.3 3.8 3.2 3.3 8. International Breweries Plc 3.9 3.2 3.3 3.7 3.5 9. Larfage Cement 4.2 3.2 3.7 3.8 3.7 10. Morison Industries Plc 4.3 4.8 3.9 4.4 4.4 11. MTN Nigeria Plc 3.4 3.3 3.9 3.1 3.4 12. Nigeria Breweries Plc 3.7 3.8 3.7 3.2 3.6 13. Northern Nigeria Flour Mills plc 3.3 3.4 3.1 3.7 3.4 14. Notore 3.2 3.9 3.3 3.8 3.6 15. Omatek Ventures Plc 3.1 3.7 3.1 3.7 3.4 16. R.T Briscoe (Nig) Plc 3.9 4.2 3.8 4.3 4.1 17. Seplat Energy Plc 3.1 3.4 3.7 3.8 3.5 18. The Initiates Plc 3.4 3.2 3.7 3.7 3.5 19. Transcorp hotels Plc Total FRQ Score/Cumulative Average [3.5] 66.0 Table 4.1 9 (a&b) indicate the respective scores for sampled entities in both the private and public sectors. The total score financial reporting quality scores base on the fundamental and enhancing qualitative characteristics were 66 and 25 points with cumulative average points of 3.5 and 3.2 for private and public sector entities, respectively. Private sector entities have performed better than the public sector for the period. 20 Table 4.1b Financial Reporting Qualitative Characteristics Assessments 1. 2. 3. 4. 5. 6. 7. 8. 3.2 Public Sector Entities R F U 3.7 3.4 3.3 Bank of Industry 3.4 3.3 3.2 Energy Commission of Nigeria 3.7 3.7 3.8 Federal Inland Revenue Service 3.2 2.7 2.7 Federal College of Education, Okene 3.1 3.3 3.2 National Agency for the Control of Aids 3.3 2.7 3.2 Nigeria Football Federation 3.1 2.8 Nigerian Pipelines and Storage Company 3.2 3.1 3.3 3.1 Sheda Science and Technology Complex Total FRQ Score Cumulative Average [3.2] C AQS 3.4 3.5 3.4 3.3 3.4 3.7 3.2 3.0 3.3 3.2 3.1 3.1 3.4 3.1 2.9 3.1 25.9 RANKING The financial reporting quality ranking in Tables 4.2 (a&b) present the best 10 entities in both the private and public sectors, respectively. In the private sector, Mtn Nigeria Plc, Fidelity Bank Plc, and Seplat Plc stand out as the best three with Mtn Nigeria Plc leading with 4.4 points, followed by fidelity bank Plc 4.2 points and Seplat Energy Plc 4.1 points. Tables 4.2a and 4.2 present the ranked order for both the private and public sector entities, respectively. 21 Table 4.2a Private Sector Entities Financial Reporting Quality Ranking Private Sector Entities R F U C AQS Rank 4.3 4.8 3.9 4.4 4.4 1st 1. MTN Nigeria Plc 4.4 3.9 4.3 4.1 4.2 2nd 2. Fidelity Bank Plc 3.9 4.2 3.8 4.3 4.1 3rd 3. Seplat Energy Plc 4.2 3.1 4.2 4.3 4.0 4th 4. Access Bank Plc 4.2 3.2 3.7 3.8 3.7 5th 5. Morison Industries Plc 4.1 2.8 3.4 4.2 3.6 6th 6. Fidson Healthcare Plc 3.8 3.7 3.2 3.6 7th 7. Northern Nigeria Flour Mills plc 3.7 3.2 3.9 3.3 3.8 3.6 8th 8. Omatek Ventures Plc 3.9 3.2 3.3 3.7 3.5 9th 9. Larfage Cement 3.1 3.4 3.7 3.8 3.5 10th 10. The Initiates Plc In the Public Sector, the Federal inland Revenue Service, bank of Industry, and Energy commission of Nigeria were assessed the best financial reporting quality entities. The Federal Inland Revenue Service earned 3.7 points, Bank of Industry 3.5 Points, and the Energy commission of Nigeria 3.3 points, respectively. The Federal Inland Revenue Service is adjudged the best entity in the public sector. Table 4.2b Public Sector Entities Financial Reporting Quality Ranking 1. 2. 3. 4. 5. 6. 7. 8. Public Sector Entities Federal Inland Revenue Service Bank of Industry Energy Commission of Nigeria National Agency for the Control of Aids Nigeria Football Federation Nigerian Pipelines and Storage Company Sheda Science and Technology Complex Federal College of Education, Okene 22 R F U C AQS Rank 3.7 3.7 3.8 3.4 3.7 1st 3.7 3.4 3.3 3.4 3.5 2nd 3.4 3.3 3.2 3.4 3.3 3rd 3.1 3.3 3.2 3.3 3.2 4th 3.3 2.7 3.2 3.1 3.1 5th 3.2 3.1 2.8 3.4 3.1 6th 3.1 3.3 3.1 2.9 3.1 7th 3.2 2.7 2.7 3.2 3.0 8th SECTION FIVE CONCLUSION AND RECOMMENDATIONS 5.1 Conclusion The financial reporting quality of private and public sector entities have improved significantly with the adoption of the IASB conceptual framework and the financial reporting standards, IFRS and IPSAS, in Nigeria. However, the level of compliance with financial reporting standards by public sector entities require improvement. The Pubic Interest Entities have not shown timely response to their statutory duty of submitting annual reports and accounts to the Financial reporting Council of Nigeria as required by the FRC of Nigeria Act. This account for the sample selected for this FRQ assessment. The Financial Reporting Council has a duty to ensure that all the entities comply with standards and regulations through enhanced monitoring and enforcement regimes for full compliance. The FRC should also publish on their websites, information about entities that have fully complied with all financial reporting requirements. 5.2 Recommendations Improving financial reporting quality is crucial for ensuring transparency, accountability, and decision-making within organizations. High-quality financial reports enhance stakeholder confidence and contribute to better financial management. The following are recommendations to enhance the quality of financial reporting: Private and Public Sector Entities: 1. Adherence to International Standards: The entities must ensure that financial statements prepared in accordance with International Financial Reporting (IFRS) or 23 International Public Sector Accounting Standards (IPSAS) frameworks complies the fundamental and enhancing qualitative characteristics for financial reporting. Entities must regularly update their financial reporting practices to reflect changes in accounting standards and regulations. 2. Improve Data Integrity and Accuracy: Entities should invest in Technology, utilize accounting software and financial management systems that automate data collection and reporting, reducing the likelihood of human error. Entities should empower Staff, encourage ownership among finance team members over the integrity of the financial data they produce. 3. Enhanced Transparency and Disclosure: Entities should full Disclosure, provide clear and comprehensive disclosures that explain accounting policies, estimates, and assumptions. This includes information on risks and uncertainties. Adopt integrated reporting practices that combine financial and non-financial information to provide a complete view of organizational performance, strategy, governance, and prospects. 4. Promote Ethical Standards: Entities should cultivate a corporate culture that emphasizes ethics, integrity, and accountability in financial reporting. 5. Implement Continuous Training and Development: Entities should invest in staff professional development, training programs for accounting and finance staff to keep them updated on best practices, industry changes, and technological advancements, and encourage staff to pursue relevant professional certifications to enhance their expertise. Financial reporting Council of Nigeria 6. Strengthening Regulatory Framework: the Financial reporting Council of Nigeria should engage in regularly review and update of the financial reporting standards to align with International Financial Reporting Standards (IFRS and global best practices through timely adoption of new standards and updates. 24 7. Compliance Monitoring: the FRC should enhance the mechanisms for monitoring compliance with financial reporting standards among organizations, ensuring timely and transparent reporting. FRC should maintain a database on both complying and non-compliant entities on the website. 8. Capacity Building and Training: FRC should organize regular training programs and workshops for accountants, auditors, and finance professionals to stay updated on the latest accounting practices and standards. 9. Collaborations with Educational Institutions: FRC should foster partnerships with universities and training institutions to include contemporary financial reporting standards and corporate governance in their curricula. 10. Stakeholder Engagement: FRC should engage in regular consultations, engage stakeholders, including businesses, investors, and public sector representatives, to gather feedback on financial reporting challenges and improvements in standards. 11. Public Awareness Campaigns: FRC should increase awareness of the importance of robust financial reporting and governance in enhancing investor confidence and economic development. 12. Enhancing Transparency and Accountability: Provide for Whistleblower Protection by establishing and promoting mechanisms for whistleblowers to safely report financial misconduct and financial report manipulations within organizations. 13. Public Disclosures: FRC should mandate organizations to disclose more information about their financial and governance practices to foster transparency through FRC rules and regulations. 14. Review and Feedback Mechanisms: FRC should publish comprehensive annual reports detailing the council’s activities, achievements, and areas for improvement, promoting transparency in its operations, lead by example on financial reporting and governance issues, and create channels for stakeholders to provide feedback on financial reporting practices and the FRC’s operations. 25 REFERENCES Association of National Accountants of Nigeria (ANAN). (n.d.). Professional certification programs. Retrieved from https://anan.org.ng/professional-certification Beest, F. V., Braam, G., & Boelens, S. (2009). Quality of Financial Reporting: Measuring Qualitative Characteristics. Nijmegen Center for Economics (NiCE) Working Paper, 09108. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225. Financial Reporting Council of Nigeria Act 2011 (as amended). Institute of Chartered Accountants of Nigeria (ICAN). (n.d.). Continuing Professional Development (CPD) requirements. Retrieved from https://www.icanig.org/professionaldevelopment International Accounting Education Standards Board (IAESB). (2015). Handbook of International Education Standards. International Federation of Accountants. Retrieved from https://www.ifac.org/iaesb International Federation of Accountants (IFAC). (n.d.). International Education Standard (IES) 6: Initial Professional Development – Assessment of Professional Competence. Retrieved from https://www.ifac.org/publications-resources/international-educationstandard-6-initial-professional-development-assessment-professional-competencerevised-2015 International Federation of Accountants (IFAC). (n.d.). International Education Standard (IES) 7: Continuing Professional Development. Retrieved from https://www.ifac.org/publications-resources/international-education-standard-7continuing-professional-development-revised-2018 International Financial Reporting Standards (IFRS) Foundation. (n.d.). IFRS standards. Retrieved from https://www.ifrs.org/ifrs-standards/ Jonas, G. & Blanchet, J. (2000). Assessing Quality of Financial reporting Quality. Accounting Horizons, 14(3), 353-363. National Universities Commission (NUC). (n.d.). Accreditation of academic programs in Nigerian universities. Retrieved from https://www.nuc.edu.ng/accreditation/ Nigerian Code of Corporate Governance (NCCG) 2018. Financial Reporting Council of Nigeria. Nigerian College of Accountancy (NCA). (n.d.). Training and certification for ANAN members. Retrieved from https://nca.org.ng/training-and-certification West African Examinations Council (WAEC). (n.d.). Requirements for entry into tertiary education in Nigeria. Retrieved from https://www.waecnigeria.org/ 26 APPENDICES APPENDIX A NFRQA FRAMEWORK: OPERATIONAL MEASURES UTILIZED FOR THE QUALITATIVE CHARACTERISTICS Qualitative characteristics Relevance R1 Items The annual reports disclose forward-looking information R2 The annual reports disclose information in terms of business opportunities and risks R3 The company uses fair value as measurement basis. R4 The annual report provides feedback information on how various market events and significant transactions affected the company? R5 Financial information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations. R6 The predictive value and confirmatory value of financial information are interrelated. Information that has predictive value often also has confirmatory value. Relevance total score Faithful representation F1 The annual report explains the assumptions and estimates made clearly F2 The annual report explains the choice of accounting principles clearly F3 The annual report highlights the positive and negative events in a balanced way when discussing the annual results F4 The annual report includes an unqualified auditor’s report F5 The annual report extensively discloses information on corporate governance issues F6 All information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations Faithful representation total score 27 5 4 3 2 1 Understandability U1 The annual report is a well organized U2 The notes to the balance sheet and the income statement are clear U3 Graphs and tables clarify the information presented U4 The use of language and technical jargon is easy to follow U5 The annual report included a comprehensive glossary. U6 Users can have a reasonable knowledge of the business and economic activities, review and analyse the information diligently. Understandability total score Comparability C1 The notes to changes in accounting policies explain the implications of the change C2 The notes to revisions in accounting estimates and judgments explain the implications of the revision C3 The company’s previous accounting period’s figures are adjusted for the effect of the implementation of a change in accounting policy or revisions in accounting estimates C4 The results of current accounting period are compared with results in previous accounting periods C5 Information in the annual report is comparable to information provided by other organizations C6 Users can identify and understand similarities in, and differences among, items. Comparability total score 28 APPENDIX B APPENDIX B1: Ranking of Private Sector Companies Based on Discretionary Accruals (Da) Earnings Management Using Modified Jones Model for Financial Year End 2020 S/N COMPANY INDUSTRY DA POSITION 1 Nigerian Northen Flour Mill Consumer Goods -2.169 1 2 Associated Bus Company Industrials -1.338 2 3 Capital Hotel Consumer Services -1.232 3 4 Thomas Wyatt Materials -1.093 4 5 Abbey Mortgage Bank Banking -1.089 5 6 Tourist Company Of Nigeria Consumer Services -1.086 6 7 Ekocorp HealthCare -1.018 7 8 Dangote Cement Materials -1.013 8 9 Pharma-Deko HealthCare -0.986 9 10 Transcorp Hotels Consumer Services -0.975 10 11 Fidson Healthcare HealthCare -0.973 11 12 Computer Warehouse Group Technology -0.936 12 13 International Breweries Consumer Goods -0.917 13 14 Tripple Gee & Company Industrials -0.896 14 15 Presco Consumer Goods -0.887 15 16 Morison Industries HealthCare -0.879 16 17 Honywell Flour Mill Consumer Goods -0.853 17 18 Premier Paints Materials -0.833 18 19 Nigeria Breweries Consumer Goods -0.818 19 20 Studio Press Nig Industrials -0.809 20 21 Lafarge Cement Wapco Nig Materials -0.809 21 22 Dangote Sugar Consumer Goods -0.807 22 23 The Initiates Plc Utilities -0.778 23 24 Flour Mills Of Nigeria Consumer Goods -0.765 24 25 Omatek Venture Technology -0.755 25 26 MTN Nigeria Communications Plc Communication -0.753 26 27 Mcnichols Consolidated Consumer Goods -0.745 27 28 Glaxosmithkline Nig HealthCare -0.735 28 29 Notore Chemical Industries Materials -0.727 29 30 Guinness Nig Consumer Goods -0.717 30 31 Aluminium Extrusion Indus Materials -0.688 31 32 Berger Paints Nig Materials -0.658 32 33 Seplat Petroleum Develop Company Oil & Gas -0.653 33 34 Access Holdings Plc Banking -0.652 34 29 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 Fidelity Bank Skyway Aviation Handling Company Caverton Offshore Okomu Oil Palm Multiverse Vitafoam Nig Secure Electronic Technology Ftn Cocoa Processors Tantalizer Chellarams Pz Cussons Transcorp Nig Neimeth Int Pharm May & Baker Nig Scoa Nig Japaul Gold & Ventures Plc Daar Commuunictions Nascon Allied R.T Briscoe Nig Courtville Investment United Capital International Energy Insurance Ikeja Hotel Industrial & Medical Gases Nigeria Cadbury Nig Unilever Nig Custodian Investment Academy Arbico National Aviation Handling Juli Plc Chams Redstar Express Smart Product Beta Glass Company 11 Plc Universal Insurance Nestle Nig Aiico University Press Banking Industrials Oil & Gas Consumer Goods Materials Consumer Services Consumer Services Consumer Goods Consumer Goods Industrials Consumer Services Industrials HealthCare HealthCare Industrials Oil & Gas Communication Consumer Goods Consumer Services Technology Investment Insurance Consumer Services Materials Consumer Services Consumer Services Investment Industrials Industrials Industrials HealthCare Technology Industrials Real Estate Materials Oil & Gas Insurance Consumer Services Insurance Industrials 30 -0.651 -0.651 -0.645 -0.643 -0.638 -0.595 -0.589 -0.581 -0.578 -0.571 -0.567 -0.561 -0.558 -0.545 -0.534 -0.529 -0.519 -0.510 -0.508 -0.503 -0.490 -0.478 -0.455 -0.451 -0.446 -0.445 -0.439 -0.428 -0.420 -0.398 -0.397 -0.378 -0.372 -0.370 -0.369 -0.329 -0.329 -0.319 -0.302 -0.277 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 Afromedia Lasasco Assurance Seplat Petroleum Develop Company Trans-Nationwide Express Ardova Plc (Forte Oil) Global Spectrum Ci Leasing Nigerian Enamelware Guinea Insurance United Bank For Africa Uac Of Nig Stanbic Ibtc Holding Nem Insurance Coronation Insurance Prestige Assurance Cornerstone Insurance Livestock Feeds Consolidated Hallmark Chemical & Allied Product Julius Berger Etranzact Interntional Sovereign Trust Regency Aliance Ins MRS John Holt Union Homes REIT Guaranty Trust Holding First City Monumental Bank Updc Property Sim Capital Alliance Sterling Bank SFS Real Estate Investment Linkage Assurance Union Homes Savings & Loans FBN Holding Infinity Trust Mortgage Bank Wema Bank Npf Microfinance Conoil Royal Exchange Communication Insurance Oil & Gas Industrials Oil & Gas Oil & Gas Industrials Materials Insurance Banking Industrials Banking Insurance Insurance Insurance Insurance Industrials Insurance Materials Industrials Technology Insurance Insurance Oil & Gas Industrials Real Estate Banking Banking Real Estate Investment Banking Real Estate Insurance Banking Banking Banking Banking Banking Oil & Gas Insurance 31 -0.264 -0.264 -0.253 -0.245 -0.230 -0.208 -0.208 -0.207 -0.197 -0.195 -0.182 -0.180 -0.172 -0.168 -0.158 -0.158 -0.154 -0.126 -0.123 -0.102 -0.095 -0.093 -0.091 -0.085 -0.077 -0.058 -0.050 -0.042 -0.030 -0.026 -0.013 -0.006 -0.003 0.001 0.002 0.008 0.016 0.024 0.025 0.026 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 AxaMansard 115 Insurance 0.030 116 TotalEnergies Marketing Nigeria 116 Oil & Gas 0.035 117 Access Holdings Plc 117 Banking 0.046 118 Zenith Bank 118 Banking 0.063 119 Union Bank Of Nig 119 Banking 0.078 120 UPDC Real Estate Investment Trust 120 Real Estate 0.103 121 Cutix 121 Industrials 0.138 122 Learn Africa (Longman) 122 Industrials 0.140 123 Fidelity Bank 123 Banking 0.154 124 African Alliance Insurance 124 Insurance 0.158 125 Africa Prudential Plc 125 Investment 0.167 126 Mutual Benefit Assurance 126 Insurance 0.171 127 Jaiz Bank Plc 127 Banking 0.172 128 Unity Bank 128 Banking 0.203 129 Ncr Nigeria 129 Technology 0.211 130 Eunisell Interlinked Plc 130 Industrials 0.301 131 Portland Paint Nig 131 Industrials 0.314 132 Veritas Kapital Assurance 132 Insurance 0.429 133 LivingTrust Mortgage Bank Plc 133 Banking 0.554 134 Niger Insurance 134 Insurance 0.705 135 Meyer Plc 135 Materials 0.879 136 Rak Unity Petroleum 136 Oil & Gas 1.118 137 Greif Nig 137 Materials 4.237 138 Champion Breweries 138 Consumer Goods 4.624 139 Eternaoil 139 Oil & Gas 5.678 140 Austin Laz & Co N/A Industrials 141 BUA Cement plc N/A Materials 142 Briclinks Africa plc N/A Communication 143 Ellah Lakes N/A Consumer Goods 144 Golden Guinea Breweries N/A Consumer Goods 145 Sunu Assurance N/A Insurance 146 Union Dicon Salt N/A Consumer Goods Sources: Panel's Computation of Financial Statement Data using STATA 14 based on Modified Jones Model for Discretionary Accruals (DA) 32 Appendix B2: Ranking of Private Sector Companies Based on Discretionary Accruals (Da) Earnings Management Using Modified Jones Model For Financial Year End 2021 S/N COMPANY INDUSTRY DA POSITION 1 Morison Industries HealthCare -4.130 1 2 Scoa Nig Industrials -1.850 2 3 TotalEnergies Marketing Nigeria Oil & Gas -1.621 3 4 Presco Consumer Goods -1.562 4 5 Ellah Lakes Consumer Goods -1.503 5 6 MRS Oil & Gas -1.484 6 7 Guinness Nig Consumer Goods -1.404 7 8 R.T Briscoe Nig Consumer Services -1.399 8 9 Champion Breweries Consumer Goods -1.370 9 10 Juli Plc HealthCare -1.361 10 11 11 Plc Oil & Gas -1.335 11 12 Dangote Sugar Consumer Goods -1.305 12 13 Eternaoil Oil & Gas -1.283 13 14 Ardova Plc (Forte Oil) Oil & Gas -1.171 14 15 Fidson Healthcare HealthCare -1.152 15 16 Ftn Cocoa Processors Consumer Goods -1.107 16 17 Tourist Company Of Nigeria Consumer Services -1.080 17 18 Transcorp Hotels Consumer Services -1.063 18 19 Pharma-Deko HealthCare -1.058 19 20 Golden Guinea Breweries Consumer Goods -1.039 20 21 Okomu Oil Palm Consumer Goods -1.039 21 22 Honywell Flour Mill Consumer Goods -1.033 22 23 Veritas Kapital Assurance Insurance -1.032 23 24 Dangote Cement Materials -1.027 24 25 Glaxosmithkline Nig HealthCare -1.012 25 26 Nigeria Breweries Consumer Goods -0.998 26 27 Chellarams Industrials -0.988 27 28 Niger Insurance Insurance -0.986 28 29 International Breweries Consumer Goods -0.984 29 30 Flour Mills Of Nigeria Consumer Goods -0.975 30 31 Capital Hotel Consumer Services -0.966 31 32 MTN Nigeria Communications Plc Communication -0.960 32 33 Seplat Petroleum Develop Company Oil & Gas -0.950 33 34 Access Holdings Plc Banking -0.949 34 35 Fidelity Bank Banking -0.940 35 36 United Capital Investment -0.937 36 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 BUA Cement plc Thomas Wyatt Nestle Nig Aluminium Extrusion Indus National Aviation Handling Cutix Notore Chemical Industries Nigerian Enamelware Lafarge Cement Wapco Nig Tantalizer Tripple Gee & Company Berger Paints Nig Trans-Nationwide Express Beta Glass Company Chams Afromedia Skyway Aviation Handling Company Transcorp Nig Vitafoam Nig Omatek Venture Daar Commuunictions Japaul Gold & Ventures Plc MTN Nigeria Communications Plc Pz Cussons The Initiates Plc Cadbury Nig Unilever Nig Mcnichols Consolidated Multiverse Secure Electronic Technology Industrial & Medical Gases Nigeria Nascon Allied Ikeja Hotel Caverton Offshore Academy Chemical & Allied Product Julius Berger Courtville Investment Abbey Mortgage Bank Redstar Express Materials Materials Consumer Services Materials Industrials Industrials Materials Materials Materials Consumer Goods Industrials Materials Industrials Materials Technology Communication Industrials Industrials Consumer Services Technology Communication Oil & Gas Communication Consumer Services Utilities Consumer Services Consumer Services Consumer Goods Materials Consumer Services Materials Consumer Goods Consumer Services Oil & Gas Industrials Materials Industrials Technology Banking Industrials 37 -0.902 -0.895 -0.895 -0.863 -0.863 -0.858 -0.852 -0.840 -0.820 -0.819 -0.799 -0.780 -0.776 -0.754 -0.752 -0.748 -0.740 -0.733 -0.725 -0.707 -0.694 -0.683 -0.680 -0.662 -0.657 -0.657 -0.654 -0.641 -0.624 -0.616 -0.588 -0.577 -0.568 -0.550 -0.529 -0.519 -0.514 -0.482 -0.450 -0.431 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 Nigerian Northen Flour Mill Mutual Benefit Assurance International Energy Insurance John Holt Guinea Insurance Uac Of Nig Associated Bus Company Conoil Arbico Sovereign Trust Global Spectrum May & Baker Nig University Press Universal Insurance Custodian Investment Nem Insurance Linkage Assurance AxaMansard Lasasco Assurance UPDC Real Estate Investment Trust Greif Nig Seplat Petroleum Develop Company Prestige Assurance United Bank For Africa Updc Property Smart Product Npf Microfinance Neimeth Int Pharm Jaiz Bank Plc Meyer Plc Union Bank Of Nig Consolidated Hallmark Cornerstone Insurance Guaranty Trust Holding Ci Leasing Union Dicon Salt Sim Capital Alliance Computer Warehouse Group Aiico Etranzact Interntional Consumer Goods Insurance Insurance Industrials Insurance Industrials Industrials Oil & Gas Industrials Insurance Oil & Gas HealthCare Industrials Insurance Investment Insurance Insurance Insurance Insurance Real Estate Materials Oil & Gas Insurance Banking Real Estate Real Estate Banking HealthCare Banking Materials Banking Insurance Insurance Banking Industrials Consumer Goods Investment Technology Insurance Technology 38 -0.395 -0.390 -0.368 -0.334 -0.326 -0.320 -0.320 -0.312 -0.294 -0.245 -0.245 -0.232 -0.232 -0.225 -0.216 -0.199 -0.197 -0.190 -0.173 -0.162 -0.160 -0.160 -0.143 -0.141 -0.131 -0.130 -0.123 -0.116 -0.096 -0.082 -0.069 -0.067 -0.066 -0.064 -0.064 -0.062 -0.058 -0.041 -0.038 -0.036 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 Union Homes REIT Real Estate -0.028 117 118 Union Homes Savings & Loans Banking -0.028 118 119 Sterling Bank Banking -0.027 119 120 First City Monumental Bank Banking -0.013 120 121 Access Holdings Plc Banking 0.019 121 122 Fidelity Bank Banking 0.020 122 123 Wema Bank Banking 0.024 123 124 SFS Real Estate Investment Real Estate 0.026 124 125 Zenith Bank Banking 0.027 125 126 African Alliance Insurance Insurance 0.033 126 127 Regency Aliance Ins Insurance 0.075 127 128 Stanbic Ibtc Holding Banking 0.098 128 129 Africa Prudential Plc Investment 0.133 129 130 Learn Africa (Longman) Industrials 0.145 130 131 Eunisell Interlinked Plc Industrials 0.149 131 132 Infinity Trust Mortgage Bank Banking 0.178 132 133 FBN Holding Banking 0.180 133 134 Ncr Nigeria Technology 0.205 134 135 Livestock Feeds Industrials 0.242 135 136 Unity Bank Banking 0.272 136 137 LivingTrust Mortgage Bank Plc Banking 0.532 137 138 Royal Exchange Insurance 0.850 138 139 Austin Laz & Co N/A Industrials 140 BUA Foods Plc N/A Consumer Goods 141 Briclinks Africa plc N/A Communication 142 Ekocorp N/A HealthCare 143 Nigerian Exchange Group N/A Investment 144 Portland Paint Nig N/A Industrials 145 Premier Paints N/A Materials 146 Rak Unity Petroleum N/A Oil & Gas 147 Ronchess Global Resources plc N/A Industrials 148 Studio Press Nig N/A Industrials 149 Sunu Assurance N/A Insurance Sources: Panel's Computation of Financial Statements Data using STATA 14 based on Modified Jones Model for Discretionary Accruals (DA) 39 Appendix B3: Ranking of Private Sector Companies Based on Discretionary Accruals (Da) Earnings Management Using Modified Jones Model for Financial Year End 2022 S/N COMPANY INDUSTRY DA POSITION 1 1 Nigerian Northen Flour Mill Consumer Goods -4.540 2 2 Ellah Lakes Consumer Goods -2.269 3 3 BUA Foods Plc Consumer Goods -2.175 4 4 Omatek Venture Technology -2.007 5 5 Chellarams Industrials -1.747 6 6 Tourist Company Of Nigeria Consumer Services -1.628 7 7 Academy Industrials -1.614 8 8 11 Plc Oil & Gas -1.455 9 9 R.T Briscoe Nig Consumer Services -1.246 10 MRS 10 Oil & Gas -1.212 11 Union Dicon Salt 11 Consumer Goods -1.179 12 Flour Mills Of Nigeria 12 Consumer Goods -1.140 13 BUA Cement plc 13 Materials -1.127 14 Transcorp Hotels 14 Consumer Services -1.089 15 Golden Guinea Breweries 15 Consumer Goods -1.087 16 Capital Hotel 16 Consumer Services -1.078 17 Eternaoil 17 Oil & Gas -1.034 18 Okomu Oil Palm 18 Consumer Goods -1.020 19 The Initiates Plc 19 Utilities -1.015 20 Transcorp Nig 20 Industrials -1.010 21 Dangote Sugar 21 Consumer Goods -0.959 22 Nigeria Breweries 22 Consumer Goods -0.956 23 Champion Breweries 23 Consumer Goods -0.946 24 Guinness Nig 24 Consumer Goods -0.922 25 Associated Bus Company 25 Industrials -0.919 26 Notore Chemical Industries 26 Materials -0.895 27 Lafarge Cement Wapco Nig 27 Materials -0.888 28 Livestock Feeds 28 Industrials -0.881 29 Fidson Healthcare 29 HealthCare -0.878 30 Redstar Express 30 Industrials -0.852 31 MTN Nigeria Communications Plc 31 Communication -0.850 32 Seplat Petroleum Develop Company 32 Oil & Gas -0.848 33 Access Holdings Plc 33 Banking -0.846 34 Fidelity Bank 34 Banking -0.845 35 Honywell Flour Mill 35 Consumer Goods -0.843 36 Nascon Allied 36 Consumer Goods -0.840 40 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 Tantalizer Berger Paints Nig Updc Property Tripple Gee & Company International Breweries TotalEnergies Marketing Nigeria Dangote Cement Multiverse Skyway Aviation Handling Company National Aviation Handling Aluminium Extrusion Indus Ftn Cocoa Processors Secure Electronic Technology MTN Nigeria Communications Plc Daar Commuunictions University Press Beta Glass Company Mcnichols Consolidated Uac Of Nig Juli Plc Vitafoam Nig Pz Cussons Cadbury Nig Julius Berger Nestle Nig Cutix May & Baker Nig Chemical & Allied Product Unilever Nig Trans-Nationwide Express Japaul Gold & Ventures Plc Neimeth Int Pharm Ikeja Hotel John Holt Africa Prudential Plc Briclinks Africa plc Industrial & Medical Gases Nigeria Nem Insurance Abbey Mortgage Bank Sovereign Trust Consumer Goods Materials Real Estate Industrials Consumer Goods Oil & Gas Materials Materials Industrials Industrials Materials Consumer Goods Consumer Services Communication Communication Industrials Materials Consumer Goods Industrials HealthCare Consumer Services Consumer Services Consumer Services Industrials Consumer Services Industrials HealthCare Materials Consumer Services Industrials Oil & Gas HealthCare Consumer Services Industrials Investment Communication Materials Insurance Banking Insurance 41 -0.831 -0.822 -0.822 -0.810 -0.746 -0.744 -0.738 -0.731 -0.715 -0.696 -0.692 -0.679 -0.670 -0.650 -0.639 -0.618 -0.561 -0.547 -0.539 -0.536 -0.529 -0.527 -0.526 -0.516 -0.505 -0.494 -0.463 -0.461 -0.437 -0.419 -0.360 -0.339 -0.337 -0.331 -0.328 -0.270 -0.265 -0.248 -0.247 -0.245 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 United Capital Caverton Offshore Custodian Investment Guaranty Trust Holding Consolidated Hallmark Seplat Petroleum Develop Company Nigerian Exchange Group Afromedia Smart Product Guinea Insurance Regency Aliance Ins AxaMansard Prestige Assurance United Bank For Africa Lasasco Assurance Ci Leasing Learn Africa (Longman) Wema Bank Universal Insurance Computer Warehouse Group Mutual Benefit Assurance FBN Holding Eunisell Interlinked Plc SFS Real Estate Investment Zenith Bank Aiico Access Holdings Plc Cornerstone Insurance Sterling Bank Meyer Plc Jaiz Bank Plc Union Bank Of Nig Conoil Veritas Kapital Assurance Union Homes Savings & Loans Ncr Nigeria UPDC Real Estate Investment Trust Union Homes REIT Glaxosmithkline Nig First City Monumental Bank Investment Oil & Gas Industrials Banking Insurance Oil & Gas Investment Communication Real Estate Insurance Insurance Insurance Insurance Banking Insurance Industrials Industrials Banking Insurance Technology Insurance Banking Industrials Real Estate Banking Insurance Banking Insurance Banking Materials Banking Banking Oil & Gas Insurance Banking Technology Real Estate Real Estate HealthCare Banking 42 -0.240 -0.209 -0.196 -0.190 -0.188 -0.185 -0.151 -0.151 -0.148 -0.148 -0.144 -0.136 -0.133 -0.124 -0.122 -0.108 -0.107 -0.107 -0.105 -0.097 -0.096 -0.084 -0.081 -0.069 -0.068 -0.063 -0.056 -0.053 -0.041 -0.041 -0.037 -0.030 -0.020 -0.016 -0.014 -0.014 -0.013 -0.010 -0.008 0.001 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 Linkage Assurance 117 Insurance 0.006 118 Fidelity Bank 118 Banking 0.022 119 Unity Bank 119 Banking 0.035 120 Stanbic Ibtc Holding 120 Banking 0.118 121 Infinity Trust Mortgage Bank 121 Banking 0.188 122 Etranzact Interntional 122 Technology 0.227 123 Npf Microfinance 123 Banking 0.231 124 Ronchess Global Resources plc 124 Industrials 0.235 125 Presco 125 Consumer Goods 0.250 126 LivingTrust Mortgage Bank Plc 126 Banking 0.385 127 Scoa Nig 127 Industrials 0.430 128 Sunu Assurance 128 Insurance 0.441 129 Nigerian Enamelware 129 Materials 1.186 130 Chams 130 Technology 2.690 131 African Alliance Insurance N/A Insurance 132 Arbico N/A Industrials 133 Ardova Plc (Forte Oil) N/A Oil & Gas 134 Austin Laz & Co N/A Industrials 135 Coronation Insurance N/A Insurance 136 Ekocorp N/A HealthCare 137 Global Spectrum N/A Oil & Gas 138 Greif Nig N/A Materials 139 International Energy Insurance N/A Insurance 140 Morison Industries N/A HealthCare 141 Niger Insurance N/A Insurance 142 Pharma-Deko N/A HealthCare 143 Portland Paint Nig N/A Industrials 144 Premier Paints N/A Materials 145 Rak Unity Petroleum N/A Oil & Gas 146 Sim Capital Alliance N/A Investment 147 Studio Press Nig N/A Industrials 148 Thomas Wyatt N/A Materials Source: Panel's Computation of Financial Statement Data using STATA 14 based on Modified Jones Model for Discretionary Accruals (DA) 43