The Financial Reporting Council of Nigeria (FRCN) has revoked Rule 4 of the FRCN Rules through a public notice (PN) dated 11 July 2019. Based on Rule 4, transactions that require approval or registration with statutory bodies could only be accounted for in audited financial statements after such registration had been made or approval obtained from the relevant regulatory body. Thus, with this revocation, companies would now be able to accrue for expenses incurred in respect of transactions that are yet to be registered or approved by the relevant statutory or regulatory body.


FRCN is the regulatory body responsible for supervising how financial transactions are reported in the audited financial statements. As part of its functions, it is also responsible for the issuance and setting of accounting standards adopted by preparers of financial statements and reports in Nigeria. In 2016, the FRCN issued Rule 4, which mandated business entities to obtain relevant regulatory authority approvals in respect of certain expense items, as a prerequisite for recognition of such items in their financial statements.

Over the years, the application of Rule 4 had created difficulties for companies seeking to recognize expenses incurred with respect to legally binding contracts and commercial transactions simply because the contracts were not registered with relevant regulatory bodies.

For instance, in the case between Stanbic IBTC Holdings Plc v Financial Reporting Council of Nigeria & Anor, there was a litigation in respect of the recognition of payments for franchise and management fees, without prior approval from the National Office for Technology Acquisition and Promotion (NOTAP). Although the case commenced at the Federal High Court (FHC) prior to the issuance of Rule 4, the Court of Appeal (COA) recently held that failure to obtain NOTAP approval does not mean the payments are illegal.

Consequently, the FRCN has now published the revocation of Rule 4 effective 11 July 2019. According to the PN, the revocation will apply prospectively.


The revocation of Rule 4 implies that companies would now be able to recognize/accrue for expenses relating to valid contractual/legal transactions even where such contracts are not registered with relevant statutory or regulatory body.

The revocation further indicates FRCN's willingness to align its rules and practices with the Conceptual Framework for Financial Reporting issued by the International Accounting Standard Board (IASB) which hitherto provides for accrual of expenses on financial transactions once the recognition criteria is met, even in the absence of an approval or registration with the relevant statutory or regulatory body.

While the revocation of the rule is a welcome development, companies and taxpayers also need to evaluate the tax deductibility of payments made in relation to such unregistered transactions. Tax authorities often require such regulatory approvals as a basis for treating such transactions as tax deductible. Thus, taxpayers may still encounter difficulties with the relevant tax authority in claiming tax deductions on certain types of payments.

It is, therefore, important that taxpayers seek professional guidance when carrying out similar transactions to ascertain their legal rights and obligations and to avoid unforeseen liabilities.

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