NNPC Limited Finance and Accounts Financial Reporting Policy PDF

NNPC Limited Finance and Accounts Process and Procedures 9.0 Financial Reporting 9.1 Objectives This policy covers all the activities geared towards establishing financial reporting requirements and practices to facilitate the preparation and reporting of timely, accurate and relevant financial in...

NNPC Limited Finance and Accounts Process and Procedures 9.0 Financial Reporting 9.1 Objectives This policy covers all the activities geared towards establishing financial reporting requirements and practices to facilitate the preparation and reporting of timely, accurate and relevant financial information on which to assess the performance NNPC Limited and its subsidiaries. The processes under Financial Reporting are designed to ensure:  Timely, complete and accurate recording and update of financial records;  Standardized and efficient close-the-book process to facilitate timely preparation and generation of management and financial reports across the NNPC Limited and its subsidiaries; and  9.2 Compliance with statutory and other relevant reporting guidelines. Scope/Applicability The policy covers the following sub-sessions and is applicable to NNPC Limited and its subsidiaries: 9.3  Chart of Accounts (COA) management  Accrual processing  Prepayment processing  General ledger reconciliation  Month end closing and management reporting; and  Year-end closing and statutory reporting Policy Statements  The directors of NNPC Limited and its subsidiaries shall be responsible for preparing the financial statements in accordance with applicable law and regulations. 80 NNPC Limited Finance and Accounts Process and Procedures  NNPC Limited and its subsidiaries shall prepare separate monthly financial reports and financial statements.  NNPC Limited shall present consolidated financial statements in which it shall include all controlled entities.  Financial reports shall be prepared in conformance with the International Financial Reporting Standards (IFRS).  The financial statements shall be prepared on the assumption that the NNPC Limited and its subsidiaries are operating as going concerns (and will continue to do so in the foreseeable future, which is at least 12 months from the balance sheet date).  NNPC Limited and subsidiaries shall develop and maintain an IFRS compliant Chart of Accounts. All requests to create or amend the Chart of Accounts shall be approved by the Head of Finance and Accounts. 9.4 Procedural Guidelines 9.4.1 Chart of Accounts Management  COA shall be developed from an understanding of the underlying economic activity of the business and shall appropriately describe the assets, liabilities, owner’s equity, revenues, and expenses of NNPC Limited and its subsidiaries.  All requests for modifications to the chart of accounts (adding, editing, or deleting an account) shall be approved by the Head of Finance and Accounts.  COA shall be broadly classified into:  Assets  Liabilities  Revenue 81 NNPC Limited Finance and Accounts Process and Procedures  Expenses  Shareholders’ Equity  Each broad classification shall be assigned a base code.  Respective unit managers of the Finance department shall be responsible for managing and proposing an update to the Chart of Accounts as necessary. Changes to the chart of account include:  Addition of new general ledger accounts;  Deactivation of general ledger accounts;  Merger of general ledger accounts;  Splitting of general ledger accounts;  Reclassification of general ledger accounts; and  Renaming of general ledger accounts.  The Finance and Accounts Department shall publish the full COA quarterly to users, showing the codes, description and cost element of each general ledger account.  The Finance and Accounts Department shall from time to time review the COA and ascertain the need for updates and changes based on newly identified transaction types and/ or in response to the need for improved or different classification and reporting of business activities.  The Finance and Accounts Department shall from time to time review the COA and ascertain the need for updates and changes based on newly identified transaction types and/ or in response to the need for improved or different classification and reporting of business activities.  All updates to the COA shall be done by the NNPC Limited’s Finance and Accounts Department. 82 NNPC Limited Finance and Accounts Process and Procedures  Updates to the COA may also be recommended to Finance and Accounts Department by external auditors as a result of audit adjustments or recommendations from technical consultants.  System access rights to change the COA shall be restricted to the designated finance department staff. 9.4.2 Accrual Processing  Expenses shall be recognised in the period in which they are incurred, irrespective of when payment is made.  Transactions in which goods/services have been received but are yet to be paid for shall be accrued for on a monthly basis.  Expenses that have been incurred or services received, which have not been invoiced by the vendor, shall be accrued against the relevant period using the best estimates of the costs from the user department.  Accruals shall not be made for services that are yet to be contracted or received at period end.  An accrual schedule shall be prepared on each period-end cut-off date, obtaining a list of estimated accruals, monthly invoice summary report, and other relevant supporting documents.  For projects with Assets Under Construction, duly approved certificates of work done shall form the basis of the accruals. 9.4.3 Prepayment Processing  The Finance and Accounts Department shall ensure timely, complete and accurate posting of prepayments and also ensure accurate subsequent entries for amortisation of prepaid expenses over the prepayment period or recovery from subsequent invoices received from the contractor on project. 83 NNPC Limited Finance and Accounts Process and Procedures  NNPC Limited and its subsidiaries shall treat payments of expenses greater than N250,000 or $1,000 that have a time-sensitive future benefit as prepaid expense in the financial records and to expense them in the proper period. Examples of prepaid expenses shall include, but are not limited to:  Annual rents that do not qualify as lease  Insurance premiums  Travel expenses for future events  Room and catering deposits for future events, and  Other payment of any expense that has a definite time-sensitive future benefit.  The Finance and Accounts Department shall maintain a detailed prepayment amortisation or recovery schedule for all prepayments to ensure that prepayments amortizations/recoveries are correct, complete and relevant to the period.  The prepayment amortisation/recovery schedule shall include the following:  Vendor name;  Date of payment;  Amount paid;  Monthly amortization/recovery;  Amortised/recovered balance;  Unamortised/unrecovered balance;  Duration of the service paid for  Purchase order reference; and  Relevant invoice number. 84 NNPC Limited Finance and Accounts Process and Procedures  Prepayment amortisation/recovery schedule shall be appropriately reviewed and approved by the Head of Finance and Accounts to ensure accuracy of entries for amortization.  Proposed adjustments to the prepayment accounts must be reviewed and approved by the Head of Finance or his designate. 9.4.4 General Ledger Reconciliation  All accounts shall be reconciled to the trial balance on a monthly basis after the close of the General Ledger (GL) for the month. GL reconciliation statements must be finalised on or before the 10th working day of the following month.  The Finance Department (N-5/6) shall ensure that all reconciling items are duly investigated and cleared within ten (10) working days.  There shall be proper segregation of duties in the reconciliation of all general ledgers. Segregation of duties requires that an individual cannot be both the preparer and the approver of a reconciliation report.  The reconciliation shall ensure that:  The account balances are complete and that all transactions that should have been recorded have been recorded;  The account balance is accurate and valid;  Errors are identified and the required corrective action either taken or recorded as an adjustment to be made;  The account balance has been adequately explained with relevant supporting document attached and clear explanatory comments added.  Unreconciled items that have been outstanding for ten (10) working days or more must be reported to the Head of Finance and Accounts 85 NNPC Limited Finance and Accounts Process and Procedures who shall then take appropriate action. Reconciling items begin aging from the first working day following month end.  All reconciling items regardless of amount and aged greater than 30 days shall be reviewed by the Head of Finance and Accounts quarterly and a plan for resolution shall be recommended.  Each GL account reconciliation shall be signed off to include:  Name and signature of the preparer, reviewer and approver; and  Date of preparation/review. 9.4.5 Bank Reconciliation  All bank accounts must be reconciled no later than the 10th working day of the following month. The Finance and Accounts Department of each business unit shall be responsible for ensuring monthly reconciliation of all its bank accounts.  All bank reconciling items shall be duly investigated, and the issues resolved. The Reconciling items must be cleared within ten (10) working days of the bank reconciliation statement date.  Reconciling inflows that are outstanding for more than ten (10) working days shall be reported to the Head of Treasury for resolution.  Bank charges shall be recomputed and confirmed by the Treasury Department monthly. Significant deviations from bank charges computed shall be escalated for resolution with the banks.  The following information shall be indicated on all bank reconciliation statements:  The reconciliation period;  Date of preparation of statement;  Name and signature of preparer and date;  Name and signature of reviewer and approver and date. 86 NNPC Limited Finance and Accounts Process and Procedures  The Head of Treasury or his Designate shall review and approve all bank reconciliation statements before posting the reconciling items into the financial system. 9.4.6 Intercompany GL Reconciliation  All intercompany reconciliations shall be conducted by the Finance and Accounts Department of respective entities.  All intercompany transactions must be reconciled with relevant companies/business units monthly after the close of the General Ledger (GL). Only non-commercial transactions shall be processed through intercompany accounts.  Intercompany reconciliation reports must be finalised and approved on or before the 10th working day of the following month by the Finance departments of the respective business units.  Where there are outstanding reconciling items, both finance departments shall liaise to regularise reconciling items within five (5) working days of preparation of the reconciliation statement.  BUs undertaking transactions on behalf of other BUs shall provide relevant supporting documents pertaining to such transactions within two (2) working days of the transaction.  Intercompany transactions must be backed by adequate supporting documents. Business units have the right to reject transactions not backed by appropriate supporting documents.  Intercompany account reconciliation statements shall contain the following information:  The reconciliation period:  The entities involved;  Schedule of reconciling items;  Name and signature of preparer, reviewer and approver; 87 NNPC Limited Finance and Accounts Process and Procedures  Date of preparation, review and approval.  All reconciliation statements shall be backed by copies of the relevant supporting documents for the reconciling items. 9.4.7 Month end Closing and Management Reporting  The Finance and Accounts Department shall develop and publish an annual calendarized period-end closing activities schedule at the beginning of each accounting period and shall be complied with by NNPC Limited and its subsidiaries.  Cut-off date for entry of financial transactions into the financial system shall be the 6th day of the following month after month end. Only the reconciliation team shall have posting rights till the 10th of day of the month.  The period-end closing process shall be completed and reports generated in line with the calendarized date.  Each business unit shall maintain a checklist of month-closing activities tailored to their business operations and Financial Reporting requirements.  Subsequent to the closure of the accounts for the month, Head of Finance and Accounts Department may approve the re-opening of the period to allow posting of material adjustments and omitted transactions. Otherwise, all adjusting transactions shall be posted in the subsequent month.  Upon successful closure of the GLs for the month, each BU shall forward the approved trial balance to the Finance and Accounts Department of NNPC Limited. 9.4.8 Year-end Closing and Statutory Reporting  The financial year of NNPC Limited and its subsidiaries shall be from the 1st of January to the 31st of December every year. Any variations 88 NNPC Limited Finance and Accounts Process and Procedures to this timeline or to other financial close shall be approved by the Board.  Year-end postings shall be completed latest by the 8th day of January. Only the reconciliation team shall have journal posting rights till 13th day of January after year end.  Unaudited financial statements shall be produced latest on the 17th of January of each year.  The Finance and Accounts Department shall begin the annual audit process by preparing and circulating the necessary planning checklists, audit confirmations, etc.  For each account classification, work papers are prepared in a specified format for delivery to the auditors for review and finetuning entries are made by the Controller, reviewed, and approved by the CFO.  The financial system shall be configured to restrict the posting of prior year transactions in the financial system after the date of closure of the previous year.  System access rights to re-open closed accounting periods shall reside with the Finance Department designated unit.  The financial statements of NNPC shall comprise the following:  Statement of financial position;  Statement of comprehensive income;  Statement of changes in equity;  Statement of cash flows;  Notes to the accounts  Comparative information shall be presented for the immediately preceding period. 89 NNPC Limited Finance and Accounts Process and Procedures  The CFO/Head, Finance & Accounts shall have the overall responsibility for ensuring that:  Proper accounting records are kept, in a manner as determined from time to time by the NNPC Limited;  Annual reports are prepared, including the financial statements, in accordance with International Financial Reporting Standards (IFRS);  Available financial resources of NNPC Limited and its subsidiaries are used economically, in the most effective and efficient manner; and  Assets, accounting and other financial records are properly safeguarded.  The CFO shall be responsible for presenting the separate and consolidated financial report to the Board.  Each SBU and NNPC Limited shall be audited by external auditors appointed by their respective Boards from a list of competent auditors. The Board shall also approve the audit fees for the year.  The annual external audit of NNPC Limited and its subsidiaries’ financial statements shall be completed on or before the last working day in March of the next year.  Board of Directors of respective subsidiaries shall sign off on all audited financial statements before presentation to the Shareholders at respective AGMs and EGMs. The Board of Directors of NNPC Limited shall sign off on the consolidated financial statements before presentation at eth AGM/EGM. 9.5 Compliance 90 NNPC Limited Finance and Accounts Process and Procedures Governance, Risk and Compliance (GRC) shall perform a biennial review of the execution of this Policy for compliance and report any infringement to the Board. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 9.6 References This policy is an integral part of the NNPC Limited Finance Policy Manual, and It is complemented by the Accounting Policy. 91