Nigeria’s New Financial Reporting System Raises Auditing Stakes

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.

• Entity-level controls govern the overall tax posture and define roles, policies, and governance structures within the organization.
• Tests of design assesses whether controls, such as those for deferred tax recognition, are structured to mitigate key risks.
• Tests of operating effectiveness verify if controls, such as review of tax provision workings, are implemented and maintained.

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:

• Income tax: Errors in expense deductibility, misclassification of incentives, and non-compliance with transfer pricing or thin capitalization rules are common. ICFR ensures proper reconciliation of tax adjustments and the accuracy of deferred tax recognition.
• Transaction taxes: Misapplication of value-added tax rates, failure to remit withholding tax, and omission of ancillary transaction levies frequently occur due to weak procedural controls. Automating tax coding through enterprise resource planning systems and validating invoice-level data helps reduce exposure.
• Ancillary levies: Obligations such as the technology development levy, NASENI levy, and education tax are often overlooked. ICFR supports timely threshold assessments and coordination between finance, human resources, and tax functions to ensure compliance.

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.

Author Information

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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