New Reporting Requirements of SEC - Implications and Imperatives

New Reporting Requirements of SEC - Implications and Imperatives

INTRODUCTION
On 24th March 2010, the Securities & Exchange Commission (SEC) issued new rules and
regulations containing additional reporting and compliance requirements for public
companies in Nigeria. The rules became effective immediately.

Although this development was in furtherance of SEC’s powers to make subsidiary

legislation, the basis for the rules are contained in an Act of the National Assembly – the
Investment and Securities Act, 2007 (ISA)

The basis of SEC’s rules making powers is Section 313 of the ISA which provides that the
SEC may make rules and regulations for the purpose of giving effect to the provisions of
the Act and reserves the powers to prescribe penalties for non-compliance with the
rules.

These new rules are therefore binding on all persons and authorities to whom they are
stated to apply and have the force of law.

CHIEF COMPLIANCE OFFICER

Under Rule B4, every public company shall appoint a compliance officer, who, in
conjunction with the Chief Financial Officer shall ensure compliance with all regulatory
requirements of the SEC.

Although there is no requirement to notify the SEC of the appointment of this officer, it
would be prudent to do so first to provide a point of contact for the SEC on regulatory
matters and second to avoid the cost and expenses that may be required in responding
to summons from the SEC aimed at confirming compliance with this requirement.

There is also no provision about the qualification and background of the

Compliance Officer but it would seem sensible to appoint someone already familiar
with the rules and the operations of the SEC to manage this interface. This for self-
governing companies could be someone from the Legal Department.

Many companies especially those in the financial services sector have already publicly
announced their Chief Compliance Officers and notified the SEC of these appointments.

ANNUAL REPORTS
Rules B4(1) & B4(2) stipulate that every public company shall file with the SEC annually
or on other periodic basis, its audited financial statements and other returns prescribed
from time to time.

The SEC requires that the Annual Report Annual Report shall comply with the provisions
of SAS 2 and contain disclosures on its unclaimed dividend fund covering bank balances,
investments and earned income by way of notes to the audited accounts.

The annual report is required to be filed no later than 90 days after the financial year
end must be certified by the CEO and the CFO or anyone exercising similar functions in
the company.

The auditor is also required to, in his audit report to the company, issue a statement as
to the existence, adequacy and effectiveness or otherwise of the internal control system
of the company.

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 New Reporting Requirements of SEC - Implications and Imperatives

CEO AND CFO CERTIFICATION

In a provision lifted directly from rules made pursuant to the US Sarbanes-
Oxley Act, the SEC ISA in Section 60(2) now requires public companies to have its
annual or other periodic reports to be filed with the SEC to be certified by the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO). The provision stipulates
what these officers must certify.

At a meeting between Company Secretaries of listed entities and the SEC to introduce
the new rules last week, the SEC provided a template of the type of CEO/CFO
certification it would like to see. These are basically drawn from the provisions of
Section 60(2) of the ISA.

EARNINGS FORECAST
Section 64 of the ISA provides that a listed public company, shall within 20 working days
prior to the commencement of the quarter disclose to the relevant stock exchange
its quarterly earnings forecast. In addition to this requirement, the SEC has now
made rules regarding the release of the quarterly earnings forecast to the stock
exchange, the SEC and the investing public.

The SEC now requires that the forecast shall be in line with the company’s policy, the
stock exchange listing requirement and the rules of the SEC.

The stock exchange other than requiring that earnings forecasts be submitted
quarterly in line with the provisions of Section 64 of the ISA has not issued a
format for the forecast; neither has the SEC. This therefore provides an opportunity
for a well regulated company to comply by issuing what it feels comfortable with (at
least until one of the regulators issues a standard format for everyone to adopt)

The forecast is now required to be certified by the CEO and the CFO or any other officer
performing similar functions.

All public companies are also required to notify the stock exchange, the SEC
and the investing public as soon as it is known that the forecast will not be
realised.

QUARTERLY REPORT
Public companies are required under Rule B4(4) to file with the SEC and simultaneously
with the stock exchange and the investing public a quarterly report prepared in
accordance with SAS 30.

The challenge this poses is the requirement of simultaneous filing with the stock
exchange and the investing public using different fora.

The most popular way of informing the investing public is through newspapers
publications (and/or the internet). Ideally, one needs to give the newspapers 1 or 2
days’ notice for the publication. This therefore makes compliance with this requirement
somewhat challenging when dealing with the mass market. This was pointed to the SEC
at its meeting with Company Secretaries last and the body promised to review this
requirement.

The requirement however has an upside and it could help companies focus much
more on the Investor Relations responsibilities and associated/credible
platforms for disseminating such. A company can and should consider the use of the
internet platforms as a bridge to delivering on this requirement.

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 New Reporting Requirements of SEC - Implications and Imperatives

The quarterly report is expected to contain the following: accounting policy changes,
seasonality or cyclicality of operations, unusual items, changes in estimates, issuance,
repurchase and repayment of debts and equity securities, dividends, business
combinations, etc.

This report is also subject to the CEO/CFO certification requirement.

PUBLICATION OF INTERIM FINANCIAL STATEMENTS

All public companies are now required to publish their “signed” quarterly balance sheet,
income statement and cash flow statement in at least one National daily newspaper (and
by definition extension the web).

The accounting policies need not be published in the newspaper if they can be placed on
the company’s website to which reference must be made in the newspaper publication.

The publication must be signed by the CEO and the CFO as with the other periodic
reports.

HALF YEARLY RETURNS

All public companies are expected to file half-yearly returns in the prescribed format with
the SEC containing the following information:
• General Information
• Corporate Governance Issues
• Financial Reporting
• Unclaimed Dividends
• Audit Committee
• Undertakings by the Company Secretary, Chief Internal Auditor, Financial
Controller, Managing Director, Board Chairman and the Chairman of the Audit
Committee certify the reliability of the information provided.

The returns must be made to the SEC within 30 days from the end of the half-year
period either in hard copy or electronic copy.

UNCLAIMED DIVIDEND
All public companies shall file with the SEC in the prescribed form a report of unclaimed
dividends on a half a yearly basis.

The company shall maintain segregated accounts for unclaimed dividend funds.

The unclaimed dividends must be separated from cash balances and explanatory notes
must be provided in the annual reports.

The names of the managers and signatories to the segregated accounts must be
furnished to the SEC in the prescribed form.

Particulars of the qualification and experience of the managers of the fund must also be
stated.

The SEC has powers to inspect the fund on a quarterly basis.

For further information and assistance on implementing these changes, kindly contact info@proshareng.com

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