IFRS Proposal From Heed Advisory Services to Arcon

PROPOSAL ON CONVERSION AND IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) FOR

ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) PREPARED BY

HEED ADVISORY SERVICES LIMITED (HASL) (Financial and Management Consultants)

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Technical Proposal on IFRS Conversion and Implementation to ARCON

TECHNICAL PROPOSAL CONTENTS

PAGES

Table of Contents

1-2

1.

Introduction

3

2.

Brief Description of Heed Advisory Services Limited

4

3.

Services

6 - 12

o Management Consultancy Services o Training on IFRS o Quality Control o Firm’s Current Work Load o Focus on Technical IFRS Excellence o Similar IFRS Adoption and Implementation Engagements 4

IFRS Adoption in Nigeria

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Challenges of IFRS to Medium-Sized Organizations in Nigeria

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Current International Regulatory Development

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7

Preparing for Conversion

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Changes and Disclosures of Accounting Policies

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Project Management Expertise

15

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Project Management Methodology and Plan

16 - 24

o Accounting Changes o First Time Adoption of IFRS o Accounting Policies o Consolidation and Boundary issues o Subsidiaries 1

Technical Proposal on IFRS Conversion and Implementation to ARCON

o Associates o Joint Ventures o Non-Current Assets CONTENTS OF TECHNICAL PROPOSAL (Cont’d) CONTENTS

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o Investment Property o Property, Plant and Equipment o Intangible Assets o Debtors o Leases o Finance Leases o Operating Leases 11

Scope/Coverage

25

12

Deliverables

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13

Project staffing

26

14

Resume

27 - 28

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Project Assistance

30

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Tools

30

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Independence and Statement of no Conflicts of Interest

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Lessons Learned from the Private Sector

30-31

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Professional fee

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Proposed work plan for Conversion & Implementation

32 - 39

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Technical Proposal on IFRS Conversion and Implementation to ARCON

INTRODUCTION Heed Advisory Services Limited is honoured and pleased to present this technical proposal for consideration by the management of Architects Registration Council of Nigeria (ARCON) We believe that our IFRS Technical Department, which consists of experienced and highly qualified team of IFRS specialists (IFRS Team) is perfectly suited to assist, provide guidance and manage the implementation of IFRS in a medium-sized group, with significant interest, such as Architects Registration Council of Nigeria (ARCON)

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Technical Proposal on IFRS Conversion and Implementation to ARCON

2. BRIEF DESCRIPTION OF HEED ADVISORY SERVICES LIMITED Heed Advisory Services Limited provides business and financial advisory services to entrepreneurs, investors, buyers, sellers, senior executives and business development teams. We offer business and financial advisory services and our focused set of high-impact financial services includes:

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Merger and acquisition (M&A) & business valuation; International Financial Reporting Standards (IFRS) Consulting & Training Reconciliation & Financial recovery services (Excess charges recovery from Bank) CFO services; Strategic planning & business strategy assessment;

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Outsourced write-ups e.g. Chairman’s statement; Credit and Lease consultancy;

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Investment and project management;

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Financial model design;

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Acting as Nominees, Agents and Managers for individuals and organizations;

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Financial planning and performance measurement;

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Financial due diligence; and

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Management due diligence.

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At HASL, we are strategic and critical thinkers. We understand our core competency lies in the integration of Strategy and Finance. It is from this platform that we leverage the business services provided by HASL. We also understand the power of inter-disciplinary collaboration and have established key strategic alliances with select firms that provide Marketing, Sales, Research, Technology, Strategy and Intellectual capital services to our clients.

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Technical Proposal on IFRS Conversion and Implementation to ARCON

We have the privilege of working with some of the best and brightest people in business today. They all subscribe to our high standards of service and are able to roll up their sleeves to get the job done. BUSINESS ADVISORY SERVICES TO MEET YOUR NEEDS HASL's business advisory services play an integral role in the leadership of business development teams, business development strategy, and in the presentation of investment opportunities to prospective investors and/or key stakeholders. Our job is to carefully analyze and clearly communicate the value of each client's business strategy, financial projections, and business plan. THE BOTTOM-LINE ON FINANCIAL ADVISORY SERVICES Our principal business strategy is to offer solid financial advisory services. We work on mandates to make a real difference to our clients. The fees for our business advisory services are competitive and can be structured to suite the specifics of your business opportunity. SERVICES Heed Advisory Services Limited provides the client with objective analysis and recommendations with respect to financial and investment opportunities, both business and personal. The recommendations are developed from a total perspective of the client's resources, objectives and investment temperament. For many, our services provide the first opportunity to clearly think through their financial and business goals. Our programs are designed to help the client make informed decisions in terms of the client's unique situation. Heed Advisory Services Limited develops financial, investment and business programs tailored towards individual and corporate entities goals: FINANCIAL 1. Summarize the client's present resources - examining the economic mix and positioning of capital in relation to the client's personal and business goals. 2. Co-ordinate the client's tax planning program. 3. Analyze present business opportunities - understanding the client's business and assisting in making good business decisions. 4. Developing long term strategies to add value and accomplish the client's goals, whether to an on-going business for sale at some future time or to own it forever for transfer to the next generation. 5. Analyze the executive's compensation, retirement, and other benefit programs. 5

Technical Proposal on IFRS Conversion and Implementation to ARCON

INVESTMENT 1. Examine the present investment program - assessing current investment risks and returns to determine if any refinement or restructuring is appropriate to bring them in line with the client's objectives. 2. Develop specific recommendations for future capital allocation as available for investment. 3. Assist in assessing new investment opportunities that may arise to determine their viability into individual or corporate plan. The firm draws upon its broad financial backgrounds in the areas of accounting, taxation, securities and investments to develop the client's coordinated program. Every aspect of the service is performed under the strictest professional rules of confidentiality. Heed Advisory Services Limited represents the client's interests exclusively.

TAX CONSULTING AND BUSINESS ADVISORY SERVICES

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Strategic Tax Planning

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Tax Due Diligence Reviews

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Contract Structuring

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Investment Structuring of Business Operations & Tax Incentives

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Structuring of Contract Agreements to maximize Business Opportunities & Tax Incentives

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Global Expatriate Cost Management (GECM)

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Compensation Restructuring & Payroll Management.

OUR SERVICE SEGMENTATION  CFO SERVICES: 6

Technical Proposal on IFRS Conversion and Implementation to ARCON

-Outsourced Accountancy services -Banking & Lending Relationships -Cost Reduction -Financial Statements -Cash flow preparation and management -Profitability Improvement  RECONCILIATION/RECOVERY: -Audit of clients’ bank statements to recover previously unnoticed cash leakages in the bank statement. -Bad debt recovery.  REVENUE ASSURANCE: Companies with significant volume of transactions or invoices and complex billing systems and product offerings often face the risk of revenue leakages.

 LOAN MANAGEMENT: Assisting clients in sourcing appropriate cash needed for business operation/expansion with powerful and professional negotiation with the bank on behalf of our clients. We build business, banking and lending relationship to help our clients with their banking and lending needs. We understand how best to present our client's financial information to them. Any business that hires us will improve its chances to maximize business/banking relationship. Strong business, banking and lending relationships are key to a well financed business. A well financed business can operate much more efficiently than cash strapped firms and can take better advantage of business opportunities whenever they arise. Owners of businesses that are well financed are better positioned than those who struggle with cash. Banks are the single largest source of financing (cash) for businesses. Having strong business banking relationships is paramount to having a well-financed and successful business. Some companies, especially start-ups and those with little equity may have difficulty borrowing from banks. There are times when other non-bank lenders can provide better financing options than banks. Therefore, having strong relationships with other lenders such as asset-based lenders, lessors, private investors and investment bankers can be very important to business success. Strong banking and lending relationships are based on trust and good communications between the banker (lender) and the borrower. Providing lenders with accurate and timely financial statements, good cash flow and income projections, and keeping them informed about major business decisions and activities will go a long way in developing trust and cementing a strong relationship. 7

Technical Proposal on IFRS Conversion and Implementation to ARCON

Bankers/lenders will provide better financing for relationship-based borrowers who keep them well informed about good news as well as otherwise in the business. Businesses that have strong financial management and institute good financial procedures and controls (corporate governance) will also be looked on favourably by bankers and other lenders. HEED financing advisors on average, have worked and negotiated with lenders thereby having strong relationship with many banks and alternative financing sources. Our business financing advisors understand which banks and other lenders will serve your company the best, based on your industry and company profile. HEED Advisors will help you put together accurate and timely financial statements and financial projections that will enable you secure a great financing package for your business. In addition, HEED Advisors will determine the most appropriate mix and terms of financing to best meet your companies needs, whether it be short term lines of credit, long term debt and/or leases. HEED Advisors will help you make better business decisions by helping you analyze your business from a financial standpoint and by implementing a management reporting system that gives you the information you need to make better and informed decisions. This will help you increase profitability and drive your firm's growth, strengthening your company and its business banking and lending relationships. Working with banks and lenders can take substantial time and effort. HEED Advisors offers CFO services that will take care of much of the work for you, allowing you to strategise for improved business and increasing sales. Your banker/lender will also feel a sense of security knowing that you have a top financial professional helping you with your financial management and will reward your company with a stronger and more attractive financing arrangement. In summary, HEED Advisory Services can help you secure a better banking/lending relationship which will ensure your firm is well-financed, has the most competitive rates and terms; and will free you up to concentrate your time on growing the business. As an additional benefit, knowing we are taking care of all your CFO services and needs; you will be fully focused on pure business generation strategies. ADVISORY SERVICES -Strategic Planning -Gross Profit Evaluation -Increased Sales -Integrated Performance Management -Investment advisory services -Tax advisory services OUR BOARD Good governance and leadership greatly determine the success of an organization. These are essential throughout the changing phases of an organization's life. Heed Advisory Services 8

Technical Proposal on IFRS Conversion and Implementation to ARCON

Limited is re-inforced with experienced team of leaders who contribute to its strong foundation. SAHEED OLADIRAN is a chartered accountant by profession and an associate of Investment Advisers and Portfolio Managers. He is the Managing Director of Heed Advisory Services Limited. Saheed has over eleven (11) years working experience in various areas of accountancy and finance such as financial reporting, debt management and collection, employees compensation restructuring and strategic tax management in the financial services sector of the economy before collaborating in the establishment of the HASL. He has worked with Jeruti Industrial Services Limited as an accountant, Capital Bancorp Limited as an accountant, Cornerstone Leasing & Investments Limited as Head, Finance & Investments as well as Greenwich Trust Limited as Chief Financial Officer before his resignation to steer the affairs of Heed Advisory Services Limited in June 2012. Saheed, a year 2000 graduate of Accountancy & Finance with Upper credit division from Yaba College of Technology, Yaba, Lagos has attended various trainings including:  2011 West Africa Regional Anti-Money Laundering/CFT Conference in Accra, Ghana organized by Financial Intelligence Training Centre (FITC/GIABA);  Customers Service Excellence organized by Lagos Business School;  Accounting, Taxation and Legal Issues in Equipment Leasing organized by Equipment Leasing Association of Nigeria (ELAN) ; 

RECONCILIATION: Risks, Associated problems and Solutions organized by Precise Financial Systems Limited; and

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Financial Accounting & Reporting organized by ICAN, THE LAGOS AND DISTRICT SOCIETY.

AYOBAMI YINUSA is a chartered accountant by profession and Board member of Heed Advisory Services Limited. He brings to the Board a wealth of experience. He has vast expertise in the telecommunications sector. He was Taxation and Employee Benefits Manager with IHS Nigeria PLC. For the past over ten (10) years, he has garnered experiences that cut across several areas of finance and accounting such as taxation and strategic tax management, financial reporting process, debt collection and account receivables management, account payables, and employees compensation and remuneration structuring. Ayobami is a year 2000 graduate of Accountancy & Finance from Yaba College of Technology, Yaba, Lagos and an MBA Management from Lagos State University, Ojo, Lagos. He has attended various trainings including: 9

Technical Proposal on IFRS Conversion and Implementation to ARCON

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Intensive Training Programme on International Financial Reporting Standards organized by David Raggay IFRS Consultants; Tax Training for human resources function organized by Stransact Partners;

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PriceWaterhouseCoopers Tax Academy– January- December, 2011;

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Seminar on “International Financial Reporting Standards” organized by Rossad Business and Educational Services under the aegis of the Institute of Chartered Accountants of India; and

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Seminar on “Strategies for Managing and Collecting Debts” at the Lagos Business School of the Pan African University, Ajah- Lekki, Lagos.

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DR. GAFAR AMOO- Dr. Amoo is a medical doctor and Board member of Heed Advisory Services Limited. He is a Medical Officer with the General Hospital Igbo-Ora, Oyo State, Nigeria. He was the winner of 2012 most active NCD Clinic in Oyo State by “Strategy For Improving Diabetics Care in Nigeria (SIDCAIN)”.

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BRIEF DESCRIPTION OF HEED ADVISORY SERVICES LIMITED (HASL) (Cont’d) .1 REPUTABLE AND INTERNATIONAL RESOURCES COMPANY HASL is a well-known management consultancy firm in Nigeria.  International Financial Reporting Standards (IFRS) services:  

Consulting, researching and providing formal opinions on IFRS related issues Planning, developing and delivering training on IFRS for SMEs

Quality control and evaluate financial statements in terms of IFRS and IFRS for SMEs  Performing GAAP analysis and assisting entities in transitioning from local GAAP to IFRS and IFRS for SMEs Accounting services 

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Specialised financial services, including management advisory, wealth management and taxation Internal risk management, including internal audit and due diligence

Company’s Current Workload The extensive experience of our staff and low turnover in personnel provides stability that will provide continuity and enable us to execute our services throughout the planned project with little disruption to your day to day operations. We understand the need to provide continuity in the client service team that works with our clients Therefore barring unforeseen circumstances we will retain the

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Technical Proposal on IFRS Conversion and Implementation to ARCON

proposed engagement team on all future engagements We realize the investment our clients make over time to help us better understand their organization, people and goals. Like your investment in us we invest our people in you. .3

Focus on Technical IFRS Excellence The IFRS Technical and Learning Department at HASL is dedicated to providing technical financial reporting (incl. IFRS, IFRS for SMEs and GRAP/IPSAs) training and consulting services.

Our team consists of technical experts in their respective fields. These include International Financial Reporting Standards (IFRS), IFRS for SMEs, Nigerian-GAAP and International Public Sector Accounting Standards (IPSAS) - used in the public sector. Our IFRS team are well vast in the adoption and implementation of IFRS in the private and public sectors of the Nigerian economy in view of the training received locally and internationally. Our vast experience in offering public courses gives our attendees the opportunity to have first-hand information and to be well-informed on the array of topics they are being trained on. These experts can deliver tailor-made training programs, provide formal accounting opinions, provide accounting guidance and assist you in addressing your financial reporting and accounting issues. .4

Similar IFRS Adoption and Implementation Engagements HASL has extensive experience in performing consulting on IFRS issues and firsttime adoption projects. We have dedicated substantial resources to our IFRS Technical and Learning Department. We have rendered IFRS TRAINING, FIRST TIME ADOPTION AND IMPLEMENTATION to the following Institutions and Companies:     

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Ekili Investments Limited Imo State Board of Internal Revenue Zircon Advisory Partners Limited GTI Microfinance Bank Limited IBT Engineering Services Limited IFRS ADOPTION IN NIGERIA On 28 July 2010, the Nigeria Federal Executive Council approved 1 January 2012 as the effective date for convergence of accounting standards in Nigeria with IFRS. The Council directed the Nigerian Accounting Standards Board (NASB), under the supervision of the Nigerian Federal Ministry of Commerce and Industry, to take further necessary actions to give effect to Council’s approval.

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Technical Proposal on IFRS Conversion and Implementation to ARCON

On 3 September 2010, the NASB announced a staged implementation of IFRS:

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Implementation of IFRS is required for all publicly listed entities and significant public interest entities for financial year-ends on or after 31 December 2012.

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Other public interest entities are expected to implement IFRS by 1 January 2013

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Small and medium-sized entities are expected to implement by 1 January 2014.

CHALLENGES OF IFRS TO MEDIUM-SIZED ORGANIZATIONS IN NIGERIA SUCH AS ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON)            

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Consolidation and boundary issues (for non-departments only). The use of fair value for land and buildings fixed assets and the entity’s approach to valuation of the assets. The use of fair value or depreciated historic cost for non-property assets. The approach used to valuing financial instruments. The approach to valuing and depreciating intangible non-current assets. The application of the revised inventories guidance (where applicable). The calculation of employee benefits accruals. The application of the revised related parties guidance. The explanation of significant areas of judgement and uncertainties in accounting estimates. The approach to recognising and accounting for PPP / PFI arrangements. Are there any adjustments to existing policies which, whilst not strictly required for IFRS purposes, are proposed to aid the clarity and understanding of the financial statements? Consolidation and Boundary Issues.

CURRENT INTERNATIONAL REGULATORY DEVELOPMENT As at today, the IFRS has released the 13 th Standard which is on the determination of fair value. Fair value is the hallmark of IFRS.

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PREPARING FOR CONVERSION IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS. If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate. The main issues that bodies need to be aware of when adopting IFRS 1 are: 

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A full audit trail for all adjustments from SAS - Nigerian GAAP to IFRS will be required;

Technical Proposal on IFRS Conversion and Implementation to ARCON

     

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Additional reconciliations and disclosures will need to be produced, see detailed sections below; A significant amount of analysis and documented evidence will be required even when proving ‘nil’ adjustments; Key issues need to be flagged early and discussed with auditors to ensure there is timely agreement on accounting treatment; The length of disclosures within the accounts as a result of IFRS will be increased; Early engagement with Audit Committees is essential to ensure they are aware of the process and the impact of the change to IFRS; and Significant investments in terms of time and resources are likely to be required to ensure that all issues with IFRS are resolved, especially for more complex accounts.

CHANGES AND DISCLOSURES OF ACCOUNTING POLICIES Accounting policies are defined in IAS 8 as the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Some revisions to accounting policies will be required as a result of the adoption of IFRS and the private sector saw a significant increase in the length of accounting policy disclosures in the financial statements as a result of the transition to IFRS. This increase in length was largely due to the need to provide more explanation on application of the standards, but also due to the requirement to explain areas of judgement and an indication of uncertainties in accounting estimates. The adoption of IFRS is an opportunity for clients to revisit their accounting policies and ensure that they comply with the guidance in all areas.

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CHANGES AND DISCLOSURES OF ACCOUNTING POLICIES (Cont’d) Question that should be asked is:  Is the entity reviewing its accounting policies to confirm that they are compliant with the requirements of IFRS? Areas that entities will commonly need to revise include:        

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Consolidation and boundary issues (for non-departments only). The use of fair value for land and buildings fixed assets and the entity’s approach to valuation of the assets. The use of fair value or depreciated historic cost for non-property assets. The approach used to valuing financial instruments. The approach to valuing and depreciating intangible non-current assets. The application of the revised inventories guidance (where applicable). The calculation of employee benefits accruals. The application of the revised related parties guidance.

Technical Proposal on IFRS Conversion and Implementation to ARCON

   

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The explanation of significant areas of judgement and uncertainties in accounting estimates. The approach to recognising and accounting for PPP / PFI arrangements. Are there any adjustments to existing policies which, whilst not strictly required for IFRS purposes, are proposed to aid the clarity and understanding of the financial statements? Consolidation and Boundary Issues

PROJECT MANAGEMENT EXPERTISE  OUR PROJECT MANAGEMENT We manage our projects with clients of International activities by deploying staff locally noting project time delivery. We also take into consideration Project Net Work Management and the identification of Critical Part Management. Our International Affiliate takes charge of the International branch whilst the consolidation shall be done locally. In the same vein, if we have an assignment that requires an expertise that we cannot source locally, our International Affiliates are always available to give such expertise. 

SPECIFIC Conversion benefit to our firm and our clients is principally, the globalisation of financial statements. It eases the consolidation of financial statements where a company has an off shore branch. It also facilitates the trading of local stocks in the International markets as the indices and mode of determining the value of a company relying on the audited financial statements are basically the same, globally. It facilitates the current value of the company, since fair values of assets are used in preparing the financial statements and making provision for impairment.

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PROJECT MANAGEMENT METHODOLOGY AND PLAN .1

SPECIFIC TOPICS 

Accounting Changes In April 2008 the Treasury announced the Trigger Points for the implementation of IFRS that lead to the first set of IFRS compliant accounts for the year ending 31 December 2012. IFRS shadow accounts for 2010-11 will also be produced. Management will need to ensure that it is able to produce financial reporting information on an IFRS basis to feed into restated comparatives. Until 31 December 2010 Management will also need to produce information on the current local, entity-specific GAAP basis for their 2010-11 published financial statements.

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Technical Proposal on IFRS Conversion and Implementation to ARCON

In overview there is a need for organisations to:     

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Assess the areas of impact on its financial statements; Capture the required data for the restatement figures required by the trigger points; Assess the impact of the revised standards on the format of the financial statements; and Review the accounting policies to identify any required revisions. The Corporation need to consider the following standards in their first time adoption review process:  IFRS 1 - First Time Adoption of IFRS;  IAS 1 – Format of the Accounts;  IAS 8 – Accounting Policies

First Time Adoption of IFRS IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS. If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate. The main issues that bodies need to be aware of when adopting IFRS 1 are: 

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A full audit trail for all adjustments from SAS - Nigerian GAAP to IFRS will be required;  Additional reconciliations and disclosures will need to be produced, see detailed sections below;  A significant amount of analysis and documented evidence will be required even when proving ‘nil’ adjustments;  Key issues need to be flagged early and discussed with Management to ensure that there is timely agreement on accounting treatment;  The length of disclosures within the accounts as a result of IFRS will be increased;  Early engagement with Management is essential to ensure that they are aware of the process and the impact of the change to IFRS;  Significant investments in terms of time and resources are likely to be required to ensure that all issues with IFRS are resolved, especially for more complex accounts. Accounting Policies Accounting policies are defined in IAS 8 as the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Some revisions to accounting policies will be required as a result of the adoption of IFRS and the private sector saw a significant increase in the length of accounting policy disclosures in the financial statements as a result of the Technical Proposal on IFRS Conversion and Implementation to ARCON

transition to IFRS. This increase in length was largely due to the need to provide more explanation on application of the standards, but also due to the requirement to explain areas of judgement and an indication of uncertainties in accounting estimates. The adoption of IFRS is an opportunity for your company to revisit its accounting policies and ensure that it complies with the guidelines in all areas. Question that shall be asked and answered is:  Is your company reviewing its accounting policies to conform with the requirements of IFRS? 

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The areas we shall revise include:  Consolidation and boundary issues (for non-departments only).  The use of fair value for land and buildings, fixed assets and the company’s approach to valuation of the assets.  The use of fair value or depreciated historic cost for non-property assets.  The approach used in valuing financial instruments.  The approach in valuing and depreciating intangible and non-current assets.  The application of the revised inventories guidance (where applicable).  The calculation of employee benefits accruals.  The application of the revised related parties’ guidance.  The explanation of significant areas of judgement and uncertainties in the accounting estimates.  The approach to recognising and accounting for PPP/PFI arrangements.  Are there any adjustments to existing policies which, whilst not strictly required for IFRS purposes, are proposed to aid the clarity and understanding of the financial statements?

Consolidation and Boundary Issues IAS 27, 28, 31 – Areas of impact We shall determine the effects of IFRS on the accounting boundary

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SUBSIDIARIES – IAS 27 Are there relevant relationships which demonstrate the following factors that indicate control and may, as a result, impact on the financial statements? (Note – one or more of these factors will be judged to indicate control and it is the theoretical ability to control, not the exercise of it which is relevant)  

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Ownership of more than 50% of the voting power. Power over more than 50% of the voting rights.

Technical Proposal on IFRS Conversion and Implementation to ARCON

 

Power to govern financial and operating policies. Power to appoint or remove the majority of the members of the board of directors.  Power to cast the majority of votes at meetings of the board of directors. Are there changes to the entity’s consolidation process as a result of IFRS? .6

ASSOCIATES – IAS 28 Under IAS 28, investors must use the equity accounting method to account for all Associates. Associates are classified as such if the investor has significant influence over the investee, being “the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies”. Are there relevant relationships which demonstrate the following that indicate significant influence? (Note – As for control, one or more or these factors will indicate significant influence) 

Representation on the board (greater than 20% of the voting power results in significant influence).  Participation in the policy making process.  Material transactions with the investee.  Interchange of managerial personnel.  Provision of essential technical information. Are there changes to the bodies which will be equity accounted as a result of the transition to IFRS? .7 JOINT VENTURES – IAS 31 Joint ventures are defined in terms of a contractual arrangement, “whereby two or more parties undertake an economic activity that is subject to joint control”. Note – IAS 31 only applies when decisions require unanimous consent. Three types of joint ventures are identified, jointly controlled operations, jointly controlled assets and jointly controlled entities. What contractual arrangements whereby two or more parties undertake an activity that is subject to joint control, and unanimous consent is required to take decisions, exist? If such arrangements exist then is the body accounting for them as follows, dependent on the nature of the arrangement? Jointly controlled operations:    17

The assets it controls and the liabilities it incurs. The expenses it incurs. Its share of the joint venture income.

Technical Proposal on IFRS Conversion and Implementation to ARCON

Jointly controlled assets:     

Its share of the jointly controlled assets. Any liabilities it has incurred directly. Its share of any liabilities incurred jointly. Its share of the joint venture income and expense. Any expenses it has incurred.

Jointly controlled entities – the venturer will need to apply one of the following treatments:  

Proportional consolidation. The equity method of accounting for the entity.\

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NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS – IFRS 5  Are non-current assets held for sale classified appropriately and shown separately on the SFP?  Are all such assets valued at the lower of carrying amount and fair value less costs to sell and not being depreciated?  Has any impairment as a result of the change in valuation to lower of carrying amount less costs to sell been recognised? Note – The recognition of subsequent gains is allowed, but only to the extent that they reverse any impairment loss.

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INVESTMENT PROPERTY– IAS 40  Is your company holding investment properties at fair value and not depreciating them?  Is your company passing all revaluation gains/losses related to investment property through the OCS?  Is your company classifying investment properties that they have developed for sale as stock?  Is investment property that is to be occupied by your company being, correctly, classified as property, plant and equipment?

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Non-Current Assets Background The transition to IFRS with regard to non-current (fixed) assets will affect your company. The International standards require some significant changes in accounting treatment that will result in adjustments: The standards that impact on the accounting for non-current assets are: •

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IAS 16 – Property, Plant and Equipment;

Technical Proposal on IFRS Conversion and Implementation to ARCON

•

IAS 38 – Intangible Assets;

•

IAS 23 – Borrowing Costs;

•

IAS 36 – Impairment.

Note – These standards do not apply to assets held for sale, biological agricultural assets, exploration and evaluation assets, mineral rights and reserves, or investment properties.

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PROPERTY, PLANT AND EQUIPMENT Background IAS 16 is similar to the equivalent Nigerian SAS, in many respects though there are some changes in emphasis and new rules. These are highlighted below. We shall revisit your company’s accounting for non-current assets as a result of the adoption IFRS and introduce a more component based approach. This will require material components of non-current assets to be capitalised and depreciated separately, which will allow a more accurate reflection of the consumption of economic benefits and the recapitalisation of components when they are replaced. However, we shall take a pragmatic approach to the recognition of components under IAS 16 and only recognise components if there is a clear case for doing so.

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Questions that shall be addressed are: We shall determine if your company is valuing property fixed assets:    

At valuation and not historic cost? Using the most appropriate method? As assets under construction as appropriate? Using the most appropriate reserve to record the revaluation (revaluation reserve, donated asset reserve or government grant reserve)?

If your company is recognising and valuing non-property fixed assets at fair value, or depreciated historic cost for assets with a short life or low value; If your company is capitalising donated assets at fair value with the credit entry made to the donated asset reserve; If your company is capitalising subsequent expenditure when it is probable economic benefits will flow and the costs can be measured reliably; If the company is taking revaluation losses, first to reserves, then to the OCS for any loss in excess of previous revaluation gains; 19

Technical Proposal on IFRS Conversion and Implementation to ARCON

(Note – We shall post donated assets to the donated asset reserve, grant financed to government grant reserve). If the company’s non-current assets have a residual value; Note - If so then this residual value, where material, must be revisited by us at every reporting date with depreciation adjusted accordingly. If the company values assets that have been purchased for non-monetary assets at fair value; .13

INTANGIBLE ASSETS Question that we shall address is: Is the company recognising intangible assets, when they are separately identifiable from the business and meeting the criteria of IAS 38? If your company is holding intangible assets at the appropriate values; On first time adoption, IAS 38 allows entities to elect to used deemed cost for initial recognition of the intangible asset where that asset meets the recognition criteria in IAS 38 and the revaluation criteria. That deemed cost may be fair value, or cost or depreciated replacement cost (DRC). Under IFRS 1 an entity can only elect to use these routes if the intangible asset meets both recognition criteria in IAS 38, including reliable measurement of original cost. Thus, an entity can only use retrospective capitalisation where it holds reliable original cost information in relation to the internally generated asset. For subsequent measurement IAS 38 allows the use of either the cost or revaluation model for each class of intangible asset. Note – Intangibles will have to be retrospectively valued at the date of adoption of IFRS. If your company is capitalising development costs (they shall be capitalised under IAS 38). To do so, the management shall demonstrate the following:

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•

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

•

the intention to complete the intangible asset and use or sell it;

•

the ability to use or sell the intangible asset;

•

how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for

Technical Proposal on IFRS Conversion and Implementation to ARCON

the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; •

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

•

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

If your company is capitalising internally generated software as an intangible asset; If your company expensing website costs rather than capitalising them, unless the entity can prove that the site is used to deliver future service potential; Note – If the website is simply for the purpose of informing stakeholders of the services or objectives of the reporting your company, we shall capitalise the cost. .14

DEBTORS IAS 39 has one specific rule relating to bad debt provisions that may impact on the government sector. Is your company providing for specific bad debts (specifically stated in IAS 39)?

.15

LEASES Background IAS 17 is similar in many respects to Nigerian SAS, but the focus on the assessment of the finance/operating lease split is based solely on the whether substantially all of the risks and rewards of ownership of the asset have been transferred to the lessee. In addition IAS 27 states that any land and building leases should be subject to separate assessments for the land and building elements. This is likely to lead to more buildings being included on public sector balance sheets. IFRIC 4 extends the scope of the lease based accounting treatment beyond the legal form or leases to “lease type arrangements”, which will increase the disclosure and recognition requirements for some entities. The following issues shall be addressed: Following a review of material contracts, extensive changes are required to ensure that the classification of operating/finance leases are correct; The lease classification test is based on the balance of risk and rewards of ownership. Indicators that a lease should be classified as a finance lease include: • •

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The lease transfers ownership to the lessee at the end of the term. The lease contains a bargain purchase option.

Technical Proposal on IFRS Conversion and Implementation to ARCON

• • • • •

The present value of the minimum lease payments covers at least substantially all of the fair value of the asset. The asset is specialised. The lessee has an obligation to compensate for the lessor’s losses. The lessee is exposed to the residual value of the asset. The lease can be extended at a rent substantially lower than the market rent.

IFRIC 4 requires the recognition of a lease (finance or operating) together with the appropriate disclosure. (Two criteria must be met: the arrangement must be based on the right to use a specific asset; and the arrangement must contain a right to control the use of an asset, for example an outsourcing arrangement or a telecoms contract that provides the right to capacity/bandwidth). If the arrangement falls under the scope of IFRIC 4 then the standard risk and rewards tests will need to be applied to assess the operating/finance lease split as detailed above. If your company is reviewing all finance leases for land and buildings; Such leases will need to be revisited and reassessed using the above classifications as, under IAS 17, land elements must be separated from buildings elements in combined leases and classified as operating leases unless the land transfers to the lessee at the end of the lease term. If any of the company’s leases include incentives such as rent free periods or minimum incremental increases; If so, they shall be included in the classification assessment and accounted for appropriately within the finance/operating lease; If the company is disclosing operating lease payments on the basis of the year they are paid rather than the year in which the commitment expires; .16

.17

Finance lease: •

Initially recognise the asset as a receivable at an amount equal to the net investment in the lease (gross investment discounted using the implicit interest rate).

•

Subsequently recognises income on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease.

Operating leases: •

Present the asset as appropriate to its nature.

•

Recognise lease income in a straight line basis over the lease term.

•

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Include the transaction expenses with the asset and depreciate in line with the entities policy.

Technical Proposal on IFRS Conversion and Implementation to ARCON

Other Areas of Impact  Borrowing costs Is the entity capitalising any finance costs related to fixed assets while being prepared for intended use or sale (except cost of capital)?

12.

SCOPE/COVERAGE Prior to the start of the engagement we will schedule a meeting with management to discuss possible issues, establish an overall liaison for the project and make arrangements for workspace and other needs. Additionally, Management will be kept up to date on the status of the project and required reports during the course of the engagement. In order to accomplish our IFRS objectives and meet your deadlines for delivery the sequence and timing of our procedures are critical. We will provide ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) with a detailed plan for the project soon after being notified that we have been selected as your consultant. As the project is on-going, the ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) Finance and Accounts staff shall be carried along to understand and implement independently the IFRS. With the on-the-job training, they shall be able to catch up quickly during the training at the end of the exercise.

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Technical Proposal on IFRS Conversion and Implementation to ARCON

13.

DELIVERABLES DELIVERABLES INCLUDE: 

Business Impact Analysis Report



Organisational Readiness



Financial Statement Disclosures



Accounting Manual and Guidelines



System change plan



Preparation of the Comparative Amounts in Accordance with IFRS



Training



Development of Training Plan



Preparation of Training Material



Delivery of Training



Implementations



Follow-up on implementation

14.

PROJECT STAFFING OUR TEAM

ORGANISATIONAL STRUCTURE OF PROJECT TEAM ENGAGEMENT ORGANOGRAM

Managing Partner IFRS Technical Partner 24

IFRS Training Partner

Technical Proposal on IFRS Conversion and Implementation to ARCON

Managers

Managers

Supervisors

Supervisors

15.

RESUME OF OUR PROPOSED PROJECT TEAM

SAHEED OLADIRAN is a chartered accountant by profession and an associate of Investment Advisers and Portfolio Managers. He is the Managing Director of Heed Advisory Services Limited. Saheed has over eleven (11) years working experience in various areas of accountancy and finance such as financial reporting, debt management and collection, employees compensation restructuring and strategic tax management in the financial services sector of the economy before collaborating in the establishment of the HASL. He has worked with Jeruti Industrial Services Limited as an accountant, Capital Bancorp Limited as an accountant, Cornerstone Leasing & Investments Limited as Head, Finance & Investments as well as Greenwich Trust Limited as Chief Financial Officer before his resignation to steer the affairs of Heed Advisory Services Limited in June 2012. Saheed, a year 2000 graduate of Accountancy & Finance with Upper credit division from Yaba College of Technology, Yaba, Lagos has attended various trainings including: 25

Technical Proposal on IFRS Conversion and Implementation to ARCON

  

2011 West Africa Regional Anti-Money Laundering/CFT Conference in Accra, Ghana organized by Financial Intelligence Training Centre (FITC/GIABA); Customers Service Excellence organized by Lagos Business School; Accounting, Taxation and Legal Issues in Equipment Leasing organized by Equipment Leasing Association of Nigeria (ELAN) ;



RECONCILIATION: Risks, Associated problems and Solutions organized by Precise Financial Systems Limited; and



Financial Accounting & Reporting organized by ICAN, THE LAGOS AND DISTRICT SOCIETY.

AYOBAMI YINUSA is a chartered accountant by profession and Board member of Heed Advisory Services Limited. He brings to the Board a wealth of experience. He has vast expertise in the telecommunications sector. He was Taxation and Employee Benefits Manager with IHS Nigeria PLC. For the past over ten (10) years, he has garnered experiences that cut across several areas of finance and accounting such as taxation and strategic tax management, financial reporting process, debt collection and account receivables management, account payables, and employees compensation and remuneration structuring. Ayobami is a year 2000 graduate of Accountancy & Finance from Yaba College of Technology, Yaba, Lagos and an MBA Management from Lagos State University, Ojo, Lagos. He has attended various trainings including:



Intensive Training Programme on International Financial Reporting Standards organized by David Raggay IFRS Consultants; Tax Training for human resources function organized by Stransact Partners;



PriceWaterhouseCoopers Tax Academy– January- December, 2011;



Seminar on “International Financial Reporting Standards” organized by Rossad Business and Educational Services under the aegis of the Institute of Chartered Accountants of India; and



Seminar on “Strategies for Managing and Collecting Debts” at the Lagos Business School of the Pan African University, Ajah- Lekki, Lagos.



DR. GAFAR AMOO- Dr. Amoo is a medical doctor and Board member of Heed Advisory Services Limited. He is a Medical Officer with the General Hospital Igbo-Ora, Oyo State, 26

Technical Proposal on IFRS Conversion and Implementation to ARCON

Nigeria. He was the winner of 2012 most active NCD Clinic in Oyo State by “Strategy For Improving Diabetics Care in Nigeria (SIDCAIN)”.

16.

PROJECT ASSISSTANCE The Project may, inter alia, require the following from Architects Registration Council of Nigeria (ARCON) (vis-à-vis Financial, Operational, Information Technology and other relevant Systems): Prompt provision of information and answers to our enquiries The availability of documents and records as and when needed. RESOURCES AND KNOWLEDGE AS UNDERSTOOD BY MANAGEMENT:            

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Key impacts on the organisation and its financial reporting arising from the implementation of IFRS. Key changes to accounting policies. Level of resource required to successfully manage the transition. IFRS staff training required. Note – Consideration should be given to training finance and non-finance staff (such as procurement staff and business managers) in the impacts of IFRS. Actions required to ensure that subsidiaries that are consolidated into the financial statements will successfully implement IFRS. Role of internal audit have in aiding the transition. The potential impact on the accounts preparation timetable as a result of the transition to IFRS. Plan to keep the Management informed of the timetable and progress being made towards adoption of the revised standards. Potential budgetary impact of the move to IFRS. How and when the engagement with the external auditor will take place. Will the 2011 Accounts include a statement on preparedness and the potential impact of the transition to IFRS?

Technical Proposal on IFRS Conversion and Implementation to ARCON

PREPARATIONS – SYSTEMS AND DATA  

Implications on the configuration of financial systems arising as a result of the transition to IFRS. Balances and disclosures for which there is a need to capture new and revised data with regard to IFRS.

Note – Areas such as leases, financial instruments and fixed assets may require additional data capture.   

17.

Anticipated management accounting processes which need to be re-engineered to ensure they are compatible with IFRS. Reformatting of the accounts format, i.e. account structure and numbering conventions, to ensure it is line with the new requirements. Possible parallel systems needed for 2011, for IFRS and SAS based information, to ensure that comparative information can be accurately produced.

TOOLS To facilitate our work, ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) should provide us with access to the computer system, avail us with passwords to be able to assess the data/information in the computer system. Avail us with both office and hotel accommodation facilities. Provide means of transportation as we shall be required to move from one place to the other. Sensitise the staff to co-operate with us as we shall be asking question and also be liaising with them.

18.

INDEPENDENCE AND STATEMENT OF NO CONFLICTS OF INTEREST Heed Advisory Services Limited (HASL) is independent of ARCHITECTS REGISTRATION COUNCIL OF NIGERIA (ARCON) as defined by International Standards of Auditing (IAS) and there is no conflict of Interest.

19.

LESSONS LEARNED FROM THE PRIVATE SECTOR The introduction of IFRS in the private sector caused a number of difficulties. The standards that created the most problems were IAS 32, 39 and IFRS 7 on Financial Instruments; IAS 27, 28 and 31 on Subsidiaries, Associates and Joint Ventures; IFRS

28

Technical Proposal on IFRS Conversion and Implementation to ARCON

2 on Share Based Payment; and IAS 12 on Income Taxes. IFRS 2 and IAS 12 will not apply to the public sector in general, but the other standards will be applied, which will result in significant impacts for some organisations. The key lessons from the private sector transition to IFRS are as follows: 

Early preparation is essential to ensure that there is no knock-on impact on the timetables for the first year of IFRS compliant Accounts;



The level of disclosure required under IFRS and therefore the length of accounts, increased significantly as a result of the transition and the new standards;



For most organisations the impact assessment and understanding of the new standards took considerably longer than was expected;



19.

A significant investment in staff training was required;

LESSONS LEARNED FROM THE PRIVATE SECTOR (CONT’D) 

Flagging up and discussing key issues and potential areas of difficulty with key stakeholders early aided smooth transition;



Board and Audit Committee engagement is crucial, to ensure that they are involved in the project and aware of the areas of impact and the potential risks involved in the transition.

19. PROFESSIONAL FEE Our fee for this service shall be one million four hundred and sixty thousand Naira Only (N1,460,000) broken down as follows: =N= Professional fee VAT (5%) Disbursements Total

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1,200,000 60,000 200,000 1,460,000

Technical Proposal on IFRS Conversion and Implementation to ARCON

PROPOSED WORK PLAN FOR CONVERSION & IMPLEMENTATION

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Technical Proposal on IFRS Conversion and Implementation to ARCON

WORK PLAN

DETAIL WORK REQUIRED

   Conversion of  opening balances as at 1 January 2012 to  IFRS

Recognize all assets and liabilities whose recognition is required by IFRSs; Not recognizing items as assets or liabilities if IFRSs do not permit such recognition Reclassify items in accordance with IFRSs and Apply IFRSs in measuring all recognised assets and Liabilities Prepare reconciliation Statement of Nigeria GAAP and IFRS.

AVERAGE NUMBER OF HOURS

16 hrs

However, to carry out this exercise, some key accounting staff will be involved to give some vital information during conversion

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Technical Proposal on IFRS Conversion and Implementation to ARCON

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Technical Proposal on IFRS Conversion and Implementation to ARCON

 

Creating new charts of accounts in line with IFRS

 



Incorporation of opening balances as at 1 January, 2013

Review the accounting Manual and Guidelines for the institution



   

Implementation

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Review the already existing charts of accounts Not those items no longer required Note the additional account heads to be added due to conversion to IFRS Creating the charts of accounts

Open an accounting period for 2011 to run concurrently with the local GAAP Incorporate the already converted opening financial positions into the period Monitor and review the progress of the project against the agreed roadmap Manage and supervise those individuals charged with specific responsibilities Overall quality control of the project. Posting proper



Review all the postings done by staff



Preparation of financial statements in accordance with International Financial Reporting Standards (IFRS)



Analytical review of financial statements



Retraing staff where they are not clear

8 hrs

20 hrs

32 hrs

46 hrs

Technical Proposal on IFRS Conversion and Implementation to ARCON

• Post implementation

•

• •

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Review all the postings done by staff Preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) Analytical review of financial statements Retrain staff where they are not clear

24 hrs

Technical Proposal on IFRS Conversion and Implementation to ARCON

PROGRAMME ON SOME MAJOR IASs /IFRSs IAS/IFRS Property, plant and equipment - IAS 16

Investment property-IAS 40

PROGRAMME Ensure that PPE are recognised with its initial costs and included in the financial statements at carrying amount. The costs to include purchase price, handling cost, installation cost, import duties, etc and less trade discounts or rebate Ensure that the depreciation rates are determined by the economic useful life of the assets. Identify assets to be regarded as investment property i.e. held in order to earn rentals and/or for capital appreciation Identify the accounting for investment property Ensure appropriate recognition and measurement of the Investment property Ensure adequate treatment for gain or loss on disposal. Ensure that owner occupied property or property held on sale are not included. Ensure that derecognition is carried out when the investment properly is permanently withdrawn from use and no future economic benefits are expected from its disposal

Identify assets that qualify as good will and intangible Intangible assets assets/goodwill- IAS Separate intangible assets from goodwill 38 Ensure reliable measurement as specified by the standards Ensure that the appropriate disclosure requirements are applied

Leases-IAS 17

Inventories- IAS 2

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Ensure that the primary and secondary indicators are used to classify leases into financial and operating. Ensure that the disclosure requirement applicable to each are met. Ensure that the correct measurements are applied. Ensure adequate computations on the leases. Ensure that inventories are recognised at lower of cost and net realisable value Ensure that the costs are measured either at weighted average method or first in first out (FiFo) depending on the policy of the company. Ensure that cost incurred in bringing the inventories to their present location and condition are recognised

Technical Proposal on IFRS Conversion and Implementation to ARCON

as the cost.

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Technical Proposal on IFRS Conversion and Implementation to ARCON

PROGRAMME ON SOME MAJOR IASs /IFRSs IAS/IFRS

PROGRAMME

  Insurance Contract1FRS 4

  

Borrowing cost – IAS 23

  

Non Current assets for sale & discontinued operation- IFRS 5

Events after the Reporting date - IAS 10

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

Ensure that claims recognized are in existence at the end of the reporting period e.g. provision for unexpired risk etc. Ensure that insurance liabilities are removed from financial position when discharged or cancelled Ensure that insurance liabilities are not offset against insurance assets. Carry out liability adequacy test Carry out impairment test on reinsurance assets

Identify various borrowing costs Ensure that borrowing cost associated with acquisition, constitution or production of a qualify assets is capitalized. Identity period of capitalization of the borrowing costs.

 

Recognise & separate non current assets held for sale and discontinued operation from other assets. Ensure that these non – current assets are not depreciated Ensure appropriate disclosures and measurement

 

Identify events that occurred after the reporting date Classify them into adjustable and non – adjustable items.

Technical Proposal on IFRS Conversion and Implementation to ARCON

OUR IFRS CONVERSION APPROACH Our approach is tailored towards achieving great success in any sector of the Nigerian economy. For companies searching for a solution to guide them through the intricacies of GAAP conversion, our approach allows a firm to move quickly from establishing a conversion plan through the use of pre-defined templates to assigning responsibilities and monitoring the conversion process through real-time workflow and reporting tools. This approach provides a phased work plan for conversion that is specific to the issues faced by finance officers in different industries. It allows for the creation of the project plan, the identification of significant accounting policy changes and the management of concurrent dual reporting requirements for existing GAAP and IFRS. Benefits of our approach

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

Industry specific conversion plans and templates

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Assignment of required tasks to task leaders and sub-task owners

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Progress charting and monitoring

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Audit committee and monthly management reporting

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Complete audit trails are maintained

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Complete document management

Technical Proposal on IFRS Conversion and Implementation to ARCON