Shareholders have praised a judgement of the Federal High Court that overturned a rule by the Financial Reporting Council of Nigeria (FRCN) that required any person attesting as audit committee’s chairman to be a professional member of a Nigerian accounting body.
In 2015, the FRCN had issued and published its Rule 2(c) which required “any person attesting as chairman of audit committee to annual report statement, accounts, financial report, return, and other documents of a financial nature, shall be a professional member of an accounting body established by act of National Assembly”.
However, public companies that could not provide a professionally qualified accountant as their audit committee chairman were required to apply for a waiver before their annual accounts can be approved. FRCN collects a fee for the issuance of the waiver.
Shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN) had challenged the FRCN’s Rule 2(c) at the Federal High Court presided over by Justice A O Faji in Suit No FHC/L/ CS/1026/16.
Delivering judgement, the court granted three declarations that the FRCN has no power under the Financial Reporting Council of Nigeria Act to make any rule stipulating a qualification for membership or headship of audit committees of companies incorporated under the Companies and Allied Matters Act.
The court also held that FRCN has no power under the Financial Reporting Council of Nigeria Act to prescribe any standard of financial reporting or any other standard that requires of any company incorporated under the Companies and Allied Matters Act anything that is inconsistent with or that modifies in any respect any provision of the Companies and Allied Matters Act.
The court declared that the FRCN is bound to exercise its functions in accordance with any law in force in the country and therefore may not prescribe any standard or make any other prescription which is inconsistent with any other law made by the National Assembly.
With these declarations, the court ordered the setting aside of the publication purporting to be rules made by or in the name of the FRCN (copy of which is attached to the affidavit in support of this summons) or in particular rule 2(c) thereof wherein is stated that “any person attesting, as chairman of Audit committee, to annual report, financial statements, accounts, financial report, returns and other documents of a financial nature, shall be a professional member of an accounting body established by Act of National Assembly.
The court also set aside any other directive of the FRCN to companies incorporated under the CAMA published on the website of the FRCN or by any other means on the qualification for membership, headship or composition of an audit committee.
Justice Faji pointed out that CAMA makes no provision for qualification of chairman of the audit committee, noting that apart from section 359(4) which prescribes those who can be members of the committee, there is no other qualification.
“In so far as the rule (Rule 2c) therefore seeks to introduce a qualification that is outside the powers of the defendant. The defendant is not a law making body and cannot by its own rules (or subsidiary legislation at best) seek or attempt to amend a law of the National Assembly. Declarations ‘1’- ‘3’therefore succeed” Justice Faji ruled.
National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Mr. Adeniyi Adebisi, said the ruling has vindicated the position of the shareholders and further emboldened them to play active roles in the regulation of the capital market.
According to him, ISAN had considered the Rule 2(c) of the FRCN as an anomaly because it was against the letters and spirit of the Companies and Allied Matters Act (CAMA) section 359. The association engaged the Executive Secretary of the FRCN on a number of occasions to reverse itself regarding the said rule, but it refused to do so.
“It is worthy of note that regulators generally have succeeded in intimidating the regulated to the extent that they are prepared to accept anything offered to them in the guise of regulation without as much as a protest. This is because they are afraid of being victimised in one way or the other for challenging the regulators.