Determined to protect the integrity of its listing rules, the Nigerian Stock Exchange (NSE), is breathing down the neck of listed companies over their non-compliance in filing audited financial statements as stipulated under Section 19.5 of the Listing Rules as amended. Our Senior Writer, CHINYERE OBIORA x-rays the implications of companies’ failure to file their audited accounts.
Recent disclosure by the Nigerian Stock Exchange (NSE), that some quoted companies on its platform defaulted in rendering their statutory audited accounts is certainly a disturbing development and many stakeholders are in agreement that this could adversely affect investors’ confidence in the market. The companies’ failure to file audited accounts show the extent at which some of them can go to subvert the rules guiding their operations in the market. Two years ago, the NSE had granted listed firms one month grace to submit their annual report after their respective regulatory filing dates in order to meet with the regulatory challenges of adopting the International Financial Reporting Standards (IFRS). But despite the extension, some quoted companies are yet to comply with the minimum listing standards in terms of timely disclosure of their audited annual financial report. The NSE said though 89 per cent of the active listed companies have filed their audited accounts for the 2014 financial year, the remaining 11 per cent have continued to defy these obligations under the Listings Rules. According to the available NSE’s data, the 22 firms yet to submit 2014 and 2015 financial account are classified as companies operating or that operated Below the Listing Standards (BLS). Listed among the firms that failed to comply with submitting the 2014 the listing rules as at August 3, 2015 are Aso Savings & Loans Plc; Capital Oil Plc; Omoluabi Savings and Loans Plc; Arbico Plc; African Alliance Insurance Plc; Guinea Insurance Plc; and Resort Savings & Loans. Others include Standard Alliance Plc; Oando Plc; Union Homes Savings & Loans Plc; Ekocorp Plc; NCR (Nigeria) Plc; Multiverse Resources Plc; Conoil Plc; Ikeja Hotel Plc; and R.T Briscoe Plc. For companies that defaulted in rendering of accounts for 2015, the list includes Rak Unity Petroleum Plc; Roads Nigeria Plc; Northern Nigeria Flour Mills Plc; Avon Crowncaps & Container Plc; Multi-Trex Intergrated Foods Plc; and Nigerian Enamelware Company Plc. Already, NSE has warned the affected quoted firms, threatening that failure to file timely audited reports now attracts sanctions ranging from penalties to regulatory delisting of the securities from the Daily Official List of The Exchange. These penalties accumulate on a weekly basis and further deplete the bottom-line of the companies’ earnings. Also, the penalties are expected to be disclosed in the annual reports of the defaulting companies to serve as a reminder and deterrent against future infractions. Against the backdrop of possible gains or repercussions arising from effective implementation of existing regulations and the sanctions thereof, some operators told Forefront that such practice is not only unhealthy but also discourages investors from investing in the affected companies. They argued that failure to file their annual report is an indication that the companies in question have lots of internal challenges and possibly hidden agenda. In their estimation, timely submission of financial statement is certain to boost shareholders’ confidence in the company. Highlighting possible backlashes occasioned by companies’ inability to file their annual accounts as appropriate and timely, head of Legal and Regulation Division, Nigerian Stock Exchange (NSE), Tinuade Awe, said, “late filing has the potential to adversely affect the market and shareholders. It creates grounds for avoidable doubts regarding companies’ performances.” Awe said the Exchange is monitoring the compliance status of these companies very closely and is engaging the affected companies accordingly. Insisting that the need for companies to release their financial results on time cannot be overemphasized, Awe encouraged investors to always check the X-Compliance Report and released Financials on NSE’s website for full details on the compliance status of listed companies before making investment decisions”. She said NSE had in the last two years granted all listed companies a month’s grace after their respective regulatory filing dates due to the regulatory challenges of adopting the International Financial Reporting Standards (IFRS) by the listed companies and socio-political uncertainties that prevailed in the country in recent times. She said the extension period was adequate enough and issuers should have no excuse for failing to file their audited financials as at when due. In the same vein, President of the Association of Stock-broking Houses of Nigeria (ASHON), Mr Emeka Madubuike described the nation’s capital market as information driven; stressing that available information would guide investors in taking investment decision. Giving further explanation on the advantages of prompt filling of audited account, Madubuike said early submission is good for the market and for pricing of the companies’ shares. He said early release of audited account to regulatory authority and investors will enhance transparency and accountability as well as demonstrating market discipline, adding that apart from giving credibility and confidence to investors, the development also helps traders and experts to properly analyze the market. Also speaking on the development, a market analyst, Mr Ifeanyi Okolo said infractions of NSE post listing rules erodes investors’ confidence, which is the cutting-edge in the capital market. For him, companies are expected to submit their audited accounts for shareholders to access their performances appropriately, noting that companies’ failure to file annual account and abide by the rules are early signs that the firms are having internal problem ranging from financial to management challenges. Okolo said once any company fails to release both its financial account and quarterly report to the Exchange, it is indirectly courting trouble and telling investors to plan towards divesting their investments to companies with potential to bring in higher returns. According to him, “before one could put his hard earned money into any organization, you must look at the calibre of people that make up the management team, stressing that if such group of people do not have the integrity or ability to run the company and bring returns to investors, you are not expected to invest in such firms.” He said NSE and the Securities and Exchange Commission (SEC) should strive to strengthen corporate governance and transparency in all companies listed on the Exchange and ensure they comply with all rules and regulations guiding the market. “There should be no laxity if we must ensure safety of public funds. There must be zero tolerance for non-compliance with the rules guiding the operations of companies in the market,” he added. On the way forward, Okolo urged regulators of the capital market to evolve and implement policies that will restore confidence in the capital market and encourage local investors to return back to the market. Without doubt, well-functioning capital markets are essential to Nigeria’s economic development. To realize its full potential, the country must therefore have a world class capital market that is strong, sustainable, well-functioning, playing a central role in the economic development of the nation; the well-being of the people and serving as the benchmark for Africa and the world. Indeed, like the immediate past Director General of SEC, Aruma Oteh said, “The Nigerian capital market must become an enabler for the transformation of the Nigerian economy, by becoming the first port of call for domestic savings and for international investors. It must be able to finance our nation’s huge development needs and enable us realize our aspiration to be amongst the 20 most important economies in the world.” Importantly too, development of the capital market is also essential because it would facilitate the diversification of the economy from its dependence on oil.