President Bola Tinubu’s Special Investigator, Jim Obazee, has faulted the Central Bank of Nigeria’s (CBN) treatment of foreign exchange gains and losses in its 2025 financial statements, raising questions over the accounting treatment of a N13.712 trillion Derivative and Foreign Exchange Revaluation Account (DFERA).
Obazee said the magnitude of the DFERA balance made the treatment of foreign exchange-related items one of the highest-risk areas in the CBN’s 2025 financial statements and called for a detailed reconciliation of the figures.
He made the observations in a speech delivered at the commissioning of the new headquarters of the Financial Reporting Council of Nigeria (FRC) in Lagos, where he urged the Council to subject the CBN’s 2025 accounts to an urgent review.
According to Obazee, the CBN’s accounting policy on foreign exchange revaluation stated that realised foreign exchange gains and losses were recognised in the income statement, while certain unrealised foreign exchange gains and losses on monetary items were recognised through the statement of financial position via the DFERA.
He argued that the treatment represented a significant departure from the general IFRS framework, which recognises exchange differences on monetary items in profit or loss, subject to specified exceptions.
“The magnitude of DFERA of N13.712 trillion makes this one of the highest risk accounting policy areas,” Obazee said.
He therefore called on the CBN management to provide a precise reconciliation showing which foreign exchange items were recognised in profit or loss and which were transferred to the DFERA.
The former FRC boss said the issue required particular scrutiny because of the size of the account and its potential impact on the CBN’s reported financial position and performance.
He said the accounting treatment should be sufficiently clear to enable users of the financial statements to understand how foreign exchange movements affected the bank’s reported income, assets, liabilities and reserves.
Obazee’s concerns formed part of a broader assessment in which he questioned several accounting policies and disclosures contained in the CBN’s 2025 summary consolidated and separate financial statements.
He also drew attention to the significant movement in the CBN’s financial position, noting that group assets had risen to approximately N138.856 trillion, with external reserves accounting for about N61.237 trillion, debt instruments at amortised cost approximately N33.430 trillion and other assets about N19.276 trillion.
On the liabilities side, he noted that CBN instruments issued had increased to approximately N48.703 trillion from N24.270 trillion, while group equity stood at about N937.738 billion.
Obazee said such substantial movements required users to be able to distinguish between changes resulting from underlying economic developments and those arising from changes in accounting policies.
He had earlier questioned the CBN’s decision to state that its 2025 figures were not comparable with the previous year after changing the accounting basis used to prepare its financial statements.
According to him, the CBN Financial Reporting Manual was applied to the bank beginning January 1, 2025, while the prior-year statements were prepared under IFRS Accounting Standards and the FRC guideline.
He said this meant that apparent year-on-year movements in the accounts should be treated with caution and subjected to forensic questions, particularly where comparative figures had been retained without restatement.
Obazee also questioned the CBN’s presentation of other foreign exchange-related income. He pointed to a figure of approximately N1.071 trillion in unrealised foreign exchange revaluation gain and a further N1.795 trillion fair-value gain on gold bullion under other income and operating expenses.
He said the treatment of such significant amounts required sufficient disclosure and reconciliation to enable users to understand how the figures were derived and where the gains were recognised.
The former FRC chief also questioned the CBN’s treatment of liquidity management costs, which he said could have implications for the timing of earnings recognition.
According to him, the CBN’s accounting policy allowed some liquidity management costs, including interest expense on open market operations, to be deferred as an asset and amortised for up to four years.
He said the arrangement raised questions about the economic resource represented by the deferred amount, how much had been capitalised in 2025, who approved the deferral and what the bank’s reported profit would have been if the expenditure had been recognised immediately.
Obazee described the policy as creating a potential for timing-based earnings management and urged the FRC to investigate the treatment.
He also questioned the treatment of an approximately N8.345 trillion amount described as “deferred interest and cost” in the CBN’s deposits, CBN instruments and currency-in-circulation figures.
He said the amount should be reconciled with the CBN’s policy allowing deferred liquidity management expenditure and the approximately N5.275 trillion CBN instrument interest expense disclosed elsewhere in the accounts.
The former FRC boss argued that the distinction was important because different accounting treatments could have a significant effect on reported profit and assets.
Obazee subsequently urged the FRC to obtain the full audited financial statements of the CBN, alongside the summary accounts, and conduct an urgent review of the issues he raised.
He said the Council should recommend that the 2025 financial statements be withdrawn and restated if its review established that the concerns were valid.
His call came amid his wider criticism of the CBN’s decision to make only summary financial statements available to the public.
He said the joint auditors, Ernst & Young and KPMG Professional Services, had stated that the summary statements did not contain all disclosures required under the relevant accounting and legal frameworks and were not a substitute for the full audited financial statements.
Obazee also questioned the absence of the auditors’ Key Audit Matters from the summary released to the public.
He said full disclosure was particularly important for the CBN because of its role in managing critical national financial resources and influencing monetary and financial policy.
The former FRC boss urged the Council to intensify its inspection and investigation activities, saying financial statements issued by some government institutions left much to be desired.
He also called on the FRC to examine the controversial N210 trillion figure associated with NNPCL’s financial statements, saying the Council should request the relevant documents and review them if they had not already been submitted by the National Assembly or NNPCL.
The intervention places the CBN’s accounting treatment of foreign exchange movements and its N13.712 trillion DFERA balance among the issues that Obazee believes require closer regulatory examination by the FRC.
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