Accounting in the Nigerian Manufacturing Industry

Regulatory bodies that govern the operations of Manufacturing Companies in Nigeria and how they operate to ensure compliance with their regulations

a.)  STANDARD ORGANIZATION OF NIGERIA (SON) : SON is responsible for setting industrial standards for goods and services produced or imported into Nigeria. It ensures that products meet quality and safety standards through regular inspections and testing.

 

b.) NATIONAL AGENCY FOR FOOD AND DRUG ADMINISTRATION AND CONTROL (NAFDAC) : This agency is critical for companies involved in the manufacture of food, drugs, cosmetics, and other related products. NAFDAC's role is to regulate and control the production, importation, exportation, advertisement, distribution, sale, and use of these products. It ensures safety and efficacy by conducting facility inspections and evaluating product samples.

 

c.) FEDERAL ENVIRONMENTAL PROTECTION AGENCY (FEPA) : While FEPA has been incorporated into the Ministry of Environment, it initially started as a body focused on environmental protection. Its functions are now carried out under the National Environmental Standards and Regulations Enforcement Agency (NESREA). NESREA enforces environmental laws, guidelines, and standards concerning air, land, and water quality.

d.) NATIONAL INDUSTRIAL SAFETY COUNCIL OF NIGERIA (NISCN) : The NISCN plays a crucial role in ensuring that manufacturing practices adhere to safety and health standards, reducing workplace accidents and injuries.

 

e.) CORPORATE AFFAIRS COMMISSION (CAC) : While not a regulatory body in the traditional sense of supervising manufacturing standards, the CAC is essential as it handles company registration and legal compliance, ensuring that all companies operate within the legal framework provided by the Nigerian government.

 

Note: These agencies enforce compliance through routine inspections, certification processes, and audits. Non-compliance can result in sanctions ranging from fines to the revocation of licenses or operational bans. By these mechanisms, these regulatory bodies play a fundamental role in maintaining ethical standards and protecting consumer rights in Nigeria's manufacturing sector.

 

Specific accounting considerations to support manufacturing Companies in implementing sustainable practices and Reporting on ESG (Environmental, Social and Governance) criteria to meet global standards include the following:  

a.)   FINANCIAL INTEGRATION OF ESG FACTORS
Include ESG-related expenses and investments directly in the financial statements.
Example: If a company invests in solar panels, the cost should appear as a capital expenditure in the balance sheet, affecting both the asset values and potentially depreciation schedules.

b.)  TRACKING AND ALLOCATING COSTS
Keep detailed records of all costs associated with ESG initiatives, such as environmental compliance or social welfare programs.
Example: Costs incurred from setting up a recycling facility should be tracked separately to show the investment towards environmental sustainability.

 

c.) VALUATION OF ESG ASSETS
Accurately appraise and report the value of assets created through ESG activities.
Example: If a company generates carbon credits by reducing emissions, these should be valued and reported as intangible assets.

d.) STANDARDIZED ESG REPORTING
Use internationally recognized ESG reporting frameworks like the Global Reporting Initiative (GRI) or SASB standards.
Example: Adopt GRI standards to report on various sustainability metrics like greenhouse gas emissions, water usage, and labor practices.

 

e.) INCORPORATING ESG INTO RISK MANAGEMENT
Evaluate how ESG factors affect the company's risk profile and manage these risks accordingly.
Example: Assess risks related to climate change regulations that could impact operations and decision-making.

 

f.) TRANSPARENCY AND REGULAR UPDATES
Be transparent about ESG strategies, achievements, and areas of improvement in public disclosures.
Example: Regularly publish progress on ESG goals in annual reports and on the company website.

Accounting principles and guidelines for recognizing and measuring revenue in the Manufacturing Industry include the following:

a.) REVENUE RECOGNITION PRINCIPLE
Revenue is recognized when it is earned and realizable, regardless of when cash is received.
Example: A manufacturer completes the production of goods and ships them to a customer. Revenue is recognized at the point of shipment if the ownership and risks are transferred to the customer, even if payment will be received later.

b.) MATCHING PRINCIPLE
Expenses related to generating revenue should be recorded in the same accounting period as the revenue.
Example: Costs of materials and direct labour used in manufacturing a product sold during a period should be recognized as cost of goods sold in that same period.

 

c.) INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 15
IFRS 15 specifies that revenue from contracts with customers is recognized when (or as) a company transfers control of goods or services to a customer at an amount that reflects the consideration to which the company expects to be entitled.
Example: Under IFRS 15, a manufacturer must assess each contract for performance obligations, allocate the transaction price, and recognize revenue when each performance obligation is satisfied.

 

d.) VARIABLE CONSIDERATION

When determining the transaction price, any expected discounts, rebates, refunds, or incentives that could impact the price are taken into account.

Example: If a manufacturer offers a volume discount based on the number of units purchased over a year, the expected discount impacts the transaction price and revenue recognition.

 

e.) COSTS TO OBTAIN OR FULFILL A CONTRACT

Costs directly associated with securing a contract or fulfilling a contract need to be recognized in a way that matches the revenue recognition.

Example: Direct costs like commissions paid to sales personnel should be capitalized and amortized over the period of benefit.