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Americas+1 212 318 2000
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Asia Pacific+65 6212 1000
FIRST E&P’s Adegbola Thomas says Nigerian companies must focus on proactive governance, as the country’s new financial reporting system relies more on real-time data and automation.
As Nigerian tax laws and regulations intensify, a robust Internal Control over Financial Reporting system is no longer optional—it’s essential for corporate integrity, audit readiness, and regulatory compliance.
In recent years, Nigeria has taken deliberate steps to align its financial reporting and tax governance systems with global standards. Central to this evolution is the implementation of the ICFR, a framework designed to ensure the accuracy of financial data and tax disclosures.
While originally shaped by the US Sarbanes-Oxley Act, the ICFR system is now embedded in Nigeria’s regulatory structure, especially following the 2023 amendment to the Financial Reporting Council of Nigeria Act. The amendment and guidance on ICFR marked a turning point, as entities now must file an attestation report from external auditors on both financial statements and the internal control system as part of their annual filings.
For public interest entities, this includes a formal statement from the statutory auditor on the design, implementation, and effectiveness of internal controls. This elevated expectation repositions ICFR from a best practice to a legal obligation.
As companies face increasing scrutiny from the Federal Inland Revenue Service, or FIRS, a strong ICFR framework provides not just risk mitigation but regulatory resilience. It supports timely and accurate reporting across income tax, transaction taxes (such as value-added tax and withholding tax), and sector-specific levies.
Three foundational components define ICFR’s effectiveness. These core elements—originally framed for financial reporting—can be effectively leveraged to enhance tax governance and reporting.
Mapping financial statement line items to tax risks ensures focused internal control design and testing. Several line items require close monitoring to prevent tax misstatements.
Errors in adjustments or timing differences can misstate obligations for income tax payable and deferred tax liabilities. Incorrect recognition of revenue will affect value-added tax computation.
Inaccurate operating expenses will affect corporate income tax deductibility and withholding tax obligations. Fixed assets drive capital allowances and investment tax reliefs; and trade payables and receivables contain embedded withholding tax, value-added tax, and stamp duty exposures.
ICFR addresses various tax risks across domains:
Effective tax compliance begins with a clearly defined tax governance policy that outlines responsibilities at the management and board levels.
This should be supported by a clear delegation of authority for tax filings; periodic escalation of uncertain tax positions; integrated standard operating procedures and validation checks tied to financial statement line items; and control calendars specifying daily, monthly, and quarterly responsibilities.
Advanced enterprise resource planning platforms now offer tax automation modules that reduce manual intervention. Coupled with structured audit trails and proper documentation practices—including archiving for a minimum of six years—these tools strengthen audit readiness and reinforce control discipline.
With Nigeria’s Federal Inland Revenue Service deepening its reliance on real-time data and automation, Nigerian companies must evolve from reactive compliance to proactive governance. ICFR provides the foundation to achieve that shift—bridging the gap between financial reporting and tax accountability.
Embedding ICFR principles across the tax lifecycle is no longer a technical preference for tax leaders; it is a strategic necessity.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Adegbola Thomas is head of tax at FIRST Exploration & Petroleum Development Co. in Nigeria and previously was a senior manager at KPMG in Nigeria.
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