Afrigather Loss-making corporations in Nigeria can revalue their property and return them to a optimistic web place, because of naira devaluation.
At an occasion co-organised by BusinessDay and Diya Fatimilehin & Co on Thursday, monetary analysts mentioned the present naira scenario can present a buffer for loss-making corporations.
Jamiu Olakisan, associate and assurance chief, EY, mentioned that the devaluation of the naira provides a rebound alternative for corporations’ property.
“It has led to a number of firms choices of valuation of the property that they carry of their monetary statements,” Olakisan mentioned on the occasion entitled, ‘Decoding Valuation Requirements: Implications for Monetary Reporting and Investments,’ in Lagos.
Nigeria’s naira, which is down by round 70 p.c since final 12 months, has seen many corporations in Africa’s largest economic system document materially increased web foreign exchange losses, leading to important loss after tax.
Learn additionally: CBN to sanction banks for rejecting overcirculated naira banknotes
Ten shopper items corporations in Nigeria incurred a mixed international alternate lack of N987.7 billion in 2023 on the again of naira devaluation, in comparison with the earlier 12 months when 9 of them misplaced round N129.8 billion, in response to information compiled by BusinessDay.
This loss has led to many firm shareholders’ funds closing at a adverse steadiness.
There are two strategies utilized in valuations of property: the associated fee strategy technique and revaluation technique.
When an organization’s fastened property similar to property, plant, & gear expertise substantial adjustments of their market costs, the corporate should account for adjustments in worth utilizing both the associated fee technique or revaluation methods.
Then again, revaluation technique of a set asset is the accounting course of of accelerating or lowering the carrying worth of an organization’s fastened asset or group of fastened property to account for any main adjustments of their honest market worth.
Olakisan mentioned that firms are allowed to modify between completely different fashions of accounting however such firms should disclose such to buyers.
“If an organization switches to the revaluation technique, it means it was beforehand utilizing a price mannequin and wishes to hold out an in depth disclosure that clearly states that its coverage has modified from what it was.”
He mentioned that the IFRS 13 commonplace prohibits, although circuitously, that such an organization goes again to an preliminary mannequin after utilizing a brand new one and requires that the brand new technique is revised continuously, often between three and 5 years.
“When the revaluation technique provides you a achieve, it doesn’t go to the revenue assertion however the complete assertion and the revaluation reserve after which it boosts shareholders’ fund,” he mentioned.
Not too long ago, Nestle board of administrators accepted a shift from historic price methodology to revaluation methodology for valuing Property, Crops and Gear (PP&E) on its books.
Learn additionally: PZ Cussons swings to N96.4bn loss on naira weakness
Nestle’s change in methodology resulted in a revaluation reserve of N150.04 billion and elevated the corporate’s property, plant and gear worth to N389.17 billion within the first quarter of 2024, from N165.38 billion within the full 12 months of 2023.
Gboyega Fatimilehin, founding associate, Diya Fatimilehin & Co, in his opening remarks, mentioned credible valuation reporting is important, particularly as Nigeria races in direction of a $1 trillion economic system by 2030.
He mentioned the seminar is well timed, given the inflationary developments and macroeconomic challenges dealing with the nation’s economic system to offer a greater understanding of valuation requirements.
In line with Nestle’s administration, a revaluation train will probably be carried out each three years, by an unbiased licensed valuer, to make sure that the carrying quantity of the property don’t differ materially from its honest worth.
This has led CardinalStone Securities, an funding financial institution, projecting that Nestle’s shareholders’ fund will materially enhance to a adverse steadiness of N10.94 billion within the full 12 months of 2024 from a adverse N78.04 billion in the identical interval 2023 and adverse N70.81 billion in first quarter 2024.
Rabiu Olowo, chief govt officer of the Monetary Reporting Council, represented by Ugochukwu Obu Nwora, mentioned that by valuation requirements, buyers can confidently make correct selections.
“We’re hopeful that by the top of August, a primary of its form valuation regulation will probably be out,” he mentioned.
In a fireplace session, Chris Thorne, director, Valuology, mentioned the aim of valuation is to provide companies insights into key decision-making, stressing that it’s important for monetary stability.
Learn additionally: Naira gains at black market
“Valuation is the measurement of an asset or legal responsibility. It informs funding selections whereas requirements enable for consistency,” Thorne mentioned.
He mentioned that the latest adjustments in rates of interest and alternate charges around the globe require revaluation of markets to measure all of these dangers.
Whereas responding to one of the best valuation strategy to undertake as valuers, Thorne mentioned there are not any finest valuation strategies, stating that valuers want to grasp their market dynamics and think about the dangers concerned.
