The Financial Reporting Council of Nigeria, in collaboration with The Convention on Business Integrity and UN Global Compact Network Nigeria, officially launched the Small and Medium Enterprises Corporate Governance Guidelines on Thursday, May 30, 2024. This was a momentous event that took place in Abuja during the Issuance and Unveiling Ceremony, where the guidelines were introduced to the esteemed guests, Small and Medium-Sized Enterprise (SME) community members, and the general public.
This was necessary in order to position our SMEs for the global scene.
Small and medium-scale enterprises are the strength and backbone of the nation, accounting for about 96 per cent of all businesses in Nigeria and 84 per cent of employment in the nation.
Empowering small and medium enterprises as well as entrepreneurs is critical to the sustainable and inclusive growth of any nation. They are the major drivers of innovation and competition and sustain competitiveness in global markets and value chains. They also provide a main source of employment, champion inclusiveness and represent the strength of local economies and communities. They are also very critical in the transition of economies to a digital and sustainable future. The Organization for Economic Cooperation and Development works with countries and nations to develop and implement policies that strengthen the tenacity of small and medium enterprises, as well as entrepreneurs with the view to harnessing their potential in an ever-changing global landscape.
This article talks about the strides the federal government is implementing and putting in place to strengthen the SMEs in this country.
Role of the Financial Reporting Council of NigeriaÂ
To effectively regulate and oversee financial reporting, corporate governance, and the audit profession in Nigeria, the government established the Financial Reporting Council of Nigeria. When the Financial Reporting Council of Nigeria Act was passed into law in 2011, it became official. Let’s look at the roles and functions of the FRC in Nigeria.
- Corporate governance: To encourage sound corporate governance standards among Nigerian enterprises, the Financial Reporting Council of Nigeria, via the Directorate of Corporate Governance, pulmonate rules that guide the conduct of enterprises in Nigeria. Companies are expected to abide by the rules and standards of corporate governance that it issues. These rules address several topics related to corporate governance, such as the makeup of the board, disclosure policies, and the defence of shareholder rights.
- Enforcement: The Directorate of Inspection and Monitoring, an arm of the Financial Reporting Council of Nigeria, is tasked with enforcing adherence to corporate governance and financial reporting regulations. It has the authority to look into cases of non-compliance and take necessary measures, such as notifying people or businesses who are in violation, fining them, or suggesting that they file lawsuits.
- Auditing and assurance: The Nigerian Financial Reporting Council is in charge of overseeing the audit industry in the country. It guarantees that audits are carried out honestly and following global best practices by establishing and enforcing standards for assurance and auditing. The quality of financial statements and audits is preserved in part by this control.
- Investor protection and economic development: The Financial Reporting Council of Nigeria indirectly defends the interests of stakeholders and investors in Nigerian companies by guaranteeing accurate and transparent financial reporting. In addition to promoting confidence in the capital markets and assisting investors in making well-informed decisions, trustworthy financial information also helps the Nigerian economy grow and remain stable overall. It draws in international investment, boosts the legitimacy of Nigerian businesses, and strengthens the business climate in the nation.
- Standards Financial Reporting:Â Establishing accounting and financial reporting guidelines for both public and private organizations in Nigeria is also the responsibility of the Financial Reporting Council of Nigeria. These guidelines are meant to guarantee the accuracy and dependability of financial data, which in turn boosts investor confidence and encourages wise financial choices.
2024 Guidelines for Strengthening SMEsÂ
This new initiative in this year’s gathering focused on corporate governance, and why it’s needed in strengthening small and medium-scale enterprises.
Dr Rabiu Olowo, a former commissioner of finance, Lagos state, gave the keynote address, stressing that the adoption of these extensive rules not only establishes a new benchmark for corporate governance in the SME sector but also reaffirms the Council’s dedication to quality, responsibility, and openness. Dr. Olowo further emphasized the need to provide them with the frameworks and instruments required to successfully traverse the dynamic and unstable business environment. The Financial Reporting Council’s answer to the demands of the business sector is the SME Corporate Governance Guidelines, which is a condensed version of the Nigeria Code of Corporate Governance 2018. These regulations will help the SME sector and ensure that it continues to grow.
Objectives and details of the guidelines for corporate governance of SMEs
The Guidelines’ main goals are to strengthen the business climate in Nigeria, extend the life and viability of SMEs, and expand capital availability and business confidence. Strong corporate governance procedures can help SMEs achieve several important goals, including:
1. Preparation for Growth:Â Good governance must be ingrained in them, as this will promote accountability and openness and eventually open the door for further growth.
2. Improved Stakeholder Relationships:To establish stronger relationships with stakeholders, they need to be honest and accountable
3. Enhanced Attractiveness:To become more “bankable” and appealing to investors, SMEs must abide by all rules.
4. Long-Term Sustainability:Â To establish ethical and sustainable business operations, SMEs need to embrace good governance.
5. Clear Business Processes:Â To achieve more effective operations, SMEs must set up explicit structures and procedures.
Fundamental provisions of the Guidelines
Corporate Governance Policies and Procedures
1. A formal succession plan including a skills matrix and training opportunities is to be established.
2. They are required to create a written document that details managerial responsibilities and authority delegation.
2. A comprehensive corporate governance framework outlining stakeholder roles must be adopted by SMEs.
Transparency and shareholder relations
1. SMEs are required to include a corporate governance report in their annual report and to fully disclose all relevant topics.
2. They are responsible for establishing an open, transparent, and timely information flow with shareholders and investors.
Board of directors
1. They will conduct frequent performance reviews in addition to a customised introduction program for each director.
2 The adoption of specific protocols for board meetings and the evaluation of Independent Non-Executive Directors is required by SMEs
3. Setting up an official board of directors with five to ten members is advised for small and medium-sized businesses.
Stakeholder engagement
1. They have to set and keep track of goals for managing stakeholder relationships
2.SMEs are required to create policies that define the goals and values of stakeholder involvement.
Family-run entities
1. A documented process for efficient coordination and communication between family members and other stakeholders has to be established.
2. A structure for the family’s interaction with the company and distinct power levels must be established for family-run enterprises.
Control environment
1. They must implement a suitable internal control system and give internal auditing a thought.
2. The efficacy of the external auditor and the creation of an IT governance framework are to be assessed by small and medium-sized businesses.
3. They must adhere to the Federal Reporting Council of Nigeria’s financial reporting framework and maintain accurate and trustworthy accounting records and financial statements
Environmental, social, and governance considerations
1. they must pledge to adhere to pertinent best practice guidelines and conduct an organized evaluation of governance procedures.
2.SMEs must take social and environmental responsibilities into account when conducting business.
ConclusionÂ
The release of the corporate governance rules for small and medium-sized businesses in Nigeria is a significant development for the country. This offers a chance to establish a new benchmark for the management of SMEs, bolstering them and making sure they are prepared to compete globally. Stakeholders can drive economic growth and generate jobs for millions of Nigerians by cooperating to establish an environment that supports small and medium-sized businesses.
