The Nigerian Accountant 2012 - The Institute of Chartered ...

Financial Reporting
Governments. This option guarantees
adequate funding of Local Government
Projects, and thereby enables them to
discharge their statutory functions.
METHODS OF RAISING FINANCE
IN THE CAPITAL MARKET
Before embarking on sourcing for
funds from the capital market, the local
government must first identify a project
and then prepare a feasibility report. A
feasibility report is essential to ensure
that the project is economically, financially
and technically viable. From the feasibility
report, the financial structure will determine
the most prudent methods of funding the
project in terms of costs. If part of the
funds will be provided by way of equity, it
will be funded through debt instruments
in which case a bond or loan stock may
be issued. The project may also require
the issuance of a combination of debt
and equity.
To enhance the marketability of
the bond/loan stock, the government
concerned might be required to guarantee
the stock by the issuance of standing
payment order on their statutory Revenue
Allocation Account with the CBN in addition
to the mortgages/security provided. This is
necessary since the project has no past
financial records on which investors can
analyse and access the risk. Investors
therefore, need to be adequately
protected although they will rely more
on the earnings from the project and the
willingness of the local government to
meet her obligations.
BENEFITS OF RAISING FUNDS
THROUGH THE CAPITAL MARKET
Capital market is a medium whereby
eligible government can source for funds
through offer of equity to the public as
well as raise debt instrument known as
debenture stock. There are a number of
benefits which accrue to local government
to embark upon more projects and to
complete such projects within the tenure
of office of the government:
1. Capital market enables local
government to borrow long-term finance
via the sale of loan stock or debenture/
bonds. This process enables a government
to embark upon more projects and to
complete such projects within the tenure
of office of the government.
2. The capital market provides
cheap and long-term funds for project
developments by the local government.
3. There will be better accountability
for use of the funds and the regulatory
agencies including the stock exchange
will normally request for financial reporting
on such projects to be financed which will
reduce some of the leakages in the local
government accounting.
4. Capital market financing breeds
discipline among government to evaluate
its performance on a continuing basis with
1993-2007 (N million)
Capital Total Overall Financing (a) Loans (b) Opening (c) Other
Expenditure Expenditure Surplus (+) Cash Funds
/Deficit (-) Balance 3/
5,508.0 19,475.3 399.2 -399.2 39.9 – -439.1
4,082.9 18,967.1 256. 0 -256.0 71.5 – -327.5
6,126.1 22,443.3 1,969.4 -1,969.4 50.5 – -2,019.9
6,045.5 22,665.6 1,124.0 -1.124.0 -11.0 – -1,113.0
8,083.4 29,939.9 1,314.5 -1,314.5 -1,51 – 204.6
14,864.7 44,056.9 891.3 -891.3 9.1 523.0 -4,303.2
18,827.3 60,441.2 359.4 -359.4 2,88 2,499.4 -3,118.4
59,964.9 153,864.8 -1,987.5 1,987.5 8.9 3,356.0 -5,103.1
48,661.8 171,374.5 148.6 -148.6 259.6 3,756.3 -3,904.9
45,118.6 169,820.2 2,330.9 -2,330.9 3,734.6 4,928.1 -7,259.0
150,0802 361,713. 2 8,457.7 -8,457.7 – 6,805.4 -15,263.1
165,395.9 461,050. 6 7,244.6 -7,244.6 – 8,714.4 -15,959.0
213,463.2 587,977.8 9,241.3 -9,241.3 – 51,707.2 -60,948.5
267,656.7 665,838.0 8,417.8 -8,417.8 – -20,560.1 -12,142.3
143,800. 0. 827,400.0 4,900.0 -4,900.0 2,800.0 37,300.0 -45,000.0
1/ Provisional
2/ Includes
Stabilisation Fund.
Gen. Ecology and
share of Excess Oil
Revenue in 2007 &
2008 and Budget
augmentation.
3/ Positive
(+) sign connotes
decrease while
negative (-) sign
connotes increase in
‘Other Funds’.
4/ Local
Government Survey
started in 1993.
THE NIGERIAN ACCOUNTANT 7
April/June, 2012