Value added statement and five-year summary (Rule 7)
What FRC Rule 7's Other National Disclosures add to Nigerian financial statements, and how a firm prepares the value added statement and five-year summary.
By Achekam · · 4 min read · For Accountants & audit firms in Nigeria
A set of Nigerian financial statements that follows IFRS to the letter can still be incomplete. The Financial Reporting Council's Rule 7 asks for two schedules that IFRS does not: a statement of value added and a five-year financial summary. They sit at the back of the annual report, under a heading of their own, and they are easy to leave until the last day.
This article explains what Rule 7 requires, what the two schedules are for, and how a firm can prepare them alongside a set built in Achekam, including the parts no trial balance can supply.
Supplementary information beyond IFRS
Under FRC Rule 7, financial statements in Nigeria must include a Statement of Value Added and a Five-Year Financial Summary as supplementary information headed "Other National Disclosures", in addition to IFRS requirements. The Rule was released in February 2016; its text is in the FRC's compilation of its Rules 1 to 14, which is the place to confirm the format the FRC expects.
The heading matters. The schedules are presented as supplementary information, distinct from the primary statements and notes, under the title the Rule gives them.
Which clients does this reach? IFAC's Nigeria profile says all companies must prepare annual financial statements in accordance with standards issued by the FRC, with public interest entities applying IFRS Accounting Standards and small and medium-sized entities applying IFRS for SMEs. It adds that sector regulators such as the CBN, SEC, NGX and NAICOM may impose additional reporting requirements. A firm should decide, for each client, whether Rule 7 applies to its statements and record that decision on the file.
The statement of value added
A value added statement looks at the year's results from a different angle from the income statement. It is commonly laid out to show the wealth the business created, being what it earned less what it paid outside suppliers for goods and services, and then how that wealth was shared: with employees, with government through taxes, with providers of finance, and what was kept in the business. Read Rule 7 for the FRC's own expectations of its format before relying on any template.
Most of the figures come from the same trial balance as the income statement, regrouped.
A worked example in words. A manufacturing client's income statement shows revenue, cost of sales, staff costs, other operating expenses, finance costs and tax. For the value added statement, the preparer splits cost of sales and other expenses into what was paid to outside suppliers and what was paid to staff, so that staff costs appear once, in the distribution to employees, and the bought-in total is clean. Staff costs, taxes, finance costs and retained profit are all there; the work is in grouping purchases and services consistently, so that the "bought-in" line is defined the same way each year.
The five-year financial summary
The five-year summary does what its name says: it typically presents key figures from the statements of financial position and of profit or loss for the current year and the four before it. Its value to a reader is the trend, so consistency matters more than detail. Keep the same line items, defined the same way, every year.
Naira presentation for both
Rule 8 applies here too. It makes the Nigeria Naira the presentation currency for all general-purpose financial statements in Nigeria, including those filed for statutory purposes and those presented to directors, shareholders, creditors and other stakeholders. Both Rule 7 schedules, being part of the annual report, should therefore be in naira.
Adding custom lines and wording to the set in Achekam
From a mapped trial balance, Achekam's Studio builds a draft set of annual financial statements with every figure calculated in code: the directors' report, the four primary statements, policies, notes and a detailed income statement. A statement of value added and a five-year summary are not in that list, so the firm prepares them as additional schedules.
Two features help keep them consistent with the main set. A firm can add its own statement lines and groups and change the wording of any row title, and later builds keep those choices; each custom line still totals into a standard line, so the notes and the cash flow stay consistent. Grouping the income statement's lines so that bought-in goods and services sit together makes the value added figures easier to read straight from the set. And blocks of the draft can be edited by a person, with an edited block kept when the draft is rebuilt, so the firm's own wording around the schedules is not lost when the figures change.
Facts the trial balance cannot give
Some of what Rule 7 needs is not in this year's trial balance. The five-year summary needs four earlier years of figures. In the Studio, notes take their figures from the mapped trial balance, and facts the trial balance does not hold are left as "[to be completed]". Treat the earlier years in the same spirit: take them from the issued statements of those years, not from memory, and record the source.
| Schedule | Source of this year's figures | Source of other figures |
|---|---|---|
| Statement of value added | The trial balance, regrouped | Prior year from last year's issued statements |
| Five-year financial summary | The current year's set | The four earlier years' issued statements |
| Both | In naira, under the Rule 7 heading | Checked to the primary statements |
Reconcile each schedule to the primary statements before issue: the summary's current-year figures should agree exactly, and the value added total should be traceable to the income statement. For the tax figures the value added statement draws on, see the Nigerian tax note: CIT and the development levy, and for the registration numbers the same annual report must carry, FRC numbers on Nigerian financial statements.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
