Some publicly traded companies, listed on the Nigerian Stock Exchange (NSE), continue to underreport the claims and litigation section of their annual reports, FIJ has gathered. This is despite the Financial Reporting Council of Nigeria (FRC)’s pledge to curb this in 2023.

The companies, United Bank for Africa (UBA), MRS Oil Nigeria PLC and Guinness Nigeria PLC, published their 2023 audited financial reports at various times in 2024. However, each report contained figures lower than what FIJ earlier revealed in a 2023 report.

According to UBA’s 2023 financial report, the company claimed cases against them in court amounted to an estimated claim of N986.247 billion.

MRS Oil wrote in their report, “There are certain lawsuits pending against the company in various courts of law. The total contingent liabilities in respect of pending litigations as at 31 December 2023 is ₦7.42 billion.”

Guinness had the highest reported figure for claims and litigation of the three companies in 2023. The company stated that the cases against them amounted to N1.008 trillion claims. However, by June 30, 2024, the figure had become zero.

This is at variance to an FIJ investigative report published on August 11, 2023. In that report, FIJ detailed how the companies and two others; Access Holdings and Total Energies, were underreporting their claims.

At the time, FIJ found that all five companies were sued jointly and severally to the tune of N1.2 trillion as far back as 2014, and the case had been in court for almost 10 years.

READ MORE: Corporate ‘Delulu’: Companies Hide Lawsuits From Investors, Violate IFRS — And Regulators Turn Blind Eye

Now in its 11th year, each company is still battling the case at the Federal High Court, Abuja, where a guilty verdict for copyright infringement can see one or more of them shoulder the total judgment sum.

Not disclosing these claims in their annual reports violates the International Financial Reporting Standards (IFRS).

WHAT IS THE IFRS?

International Financial Reporting Standards (IFRS) are a set of accounting standards introduced to govern how particular types of transactions and events should be reported in financial statements. They were developed by the International Accounting Standards Board (IASB).

This IASB has a set of accounting standards that guide certain aspects of financial reporting.

IAS 37 is a standard for accounting for and disclosing provisions, contingent liabilities and assets.

It describes contingent liabilities as “possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity”.

“An example is litigation against the entity when it is uncertain whether the entity has committed an act of wrongdoing and when it is not probable that settlement will be needed,” it states.

“A contingent liability is not recognised in the statement of financial position. However, unless the possibility of an outflow of economic resources is remote (distant), a contingent liability is disclosed in the notes.”

READ MORE: After FIJ’s Story, FRC to Close ‘Exploitable Gap’ Used by Companies to Hide Contingent Liabilities

Going by this provision, all defendants in the suit had contingent liabilities of at least N1.2 trillion each.

It is important to highlight that companies in business either have assets or liabilities. Assets add to the financial health of the company while liabilities are losses. ‘Contingent’ is a term that refers to something that is subject to probability or chance, and just as there are contingent liabilities, there are contingent assets.

WHAT HAPPENED BEFORE?

After an investigative report, the FRC wrote to FIJ, saying the companies were taking advantage of an exploitable gap in the IAS37.

The letter read in part: Interestingly, Council generally observed an exploitable gap in discloure requirements as per IAS 37: Provisions, Contingent Liabilities and Contingent Assets, especially as it relates to Contingent Liabilities. Paragraph 92 of IAS 37 which states that ‘In extremely rare cases, disclosures of some or all of the information required by paragraph 84-89 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed’ is instructive in this regard. This implies that entities are not compelled to disclose number of claims and financial implications thereon as such information has the potential to prejudice their position in disputes with other parties.

After the FRC wrote to FIJ, Access Holdings PLC, the parent company of Access Bank Group, declared N11.3 trillion in contingent liabilities in its 2023 annual report; the highest it had ever declared since 2014.

Despite the FRC’s vocal commitment to addressing inaccurate financial reporting, FIJ’s findings reveal partial compliance two years later.