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The short answer
Under IFRS, the Nigerian subsidiary keeps its books in its functional currency, usually naira, and the parent translates them into its presentation currency: assets and liabilities at the closing rate, income and expenses at transaction-date or average rates, with the difference taken to other comprehensive income. Intragroup balances and transactions are then removed, and the Nigerian company still files its own accounts in Nigeria.
Owning a Nigerian company through a UK, US or Canadian parent means two sets of reporting: the Nigerian subsidiary's own statutory accounts, and group accounts at the parent that include it. The naira's movements make the second step harder than it looks. This guide covers the IFRS mechanics; if your parent reports under US GAAP or a local small-company framework, the logic is similar but the rules differ, so check with your accountant.
Step 1: settle the subsidiary's functional currency
IAS 21 asks what currency the subsidiary actually lives in. Paragraphs 9 to 12 look first at the currency that mainly influences sales prices and costs, then at the currency of financing and retained receipts, and for a foreign operation at how independent it is from the parent. A Lagos company that sells in naira and pays naira salaries will normally have a naira functional currency, even though its owner is abroad. A Nigerian company that only performs services for the parent, invoiced in pounds, may point the other way; that is a judgement to document. Paragraph 13 says the functional currency changes only when the underlying conditions change, and a change is applied prospectively.
Step 2: translate into the group's currency
Once the subsidiary's naira accounts are final, IAS 21 paragraph 39 sets the translation method:
- Assets and liabilities at the closing rate at the reporting date.
- Income and expenses at the rates on the transaction dates. Paragraph 40 allows an average rate for the period as an approximation, but says it is inappropriate if rates fluctuate significantly.
- The resulting exchange differences go to other comprehensive income, building a translation reserve in equity.
- On disposal of the subsidiary, paragraph 48 requires that cumulative reserve to be reclassified to profit or loss.
What about hyperinflation?
IAS 29 applies where an economy is hyperinflationary and gives, among other indicators, cumulative inflation over three years of around 100% or more. The NBS reported headline inflation of 14.63% for September 2026 against 20.98% a year earlier, as reported by Voice of Nigeria. Whether Nigeria meets the IAS 29 indicators is a judgement for your auditors using the full three-year index; we do not take a position here. If IAS 29 did apply, IAS 21 paragraphs 42 and 43 would require the restated amounts to be translated at the closing rate.
Step 3: consolidate
IFRS 10 makes control the basis for consolidation and requires a parent that controls subsidiaries to present consolidated statements. In practice, after translation:
- Align accounting policies and reporting dates, adjusting the Nigerian figures where its local policies differ from the group's.
- Eliminate intragroup balances: the parent's loan receivable against the subsidiary's loan payable, and intercompany trade balances.
- Eliminate intragroup income and expenses, such as management fees and interest, and unrealised profit in stock sold within the group.
- Replace the parent's investment in the subsidiary with the subsidiary's net assets, recognising any non-controlling interest if you do not own 100%.
- Check the translation reserve movement against the change in closing rates.
Intercompany balances often fail to cancel because each side records them at a different rate or date. Agree a group policy that the Nigerian side records the pound or dollar amount in its ledger and revalues at month end; see revaluing naira balances at month end and intercompany invoices between Nigeria and abroad.
A worked example
Example only, with illustrative rates that are not market rates. A UK parent owns 100% of a Lagos subsidiary. Closing rate: ₦2,000 to £1. Average rate for the year: ₦1,900 to £1. Opening net assets were ₦362m, translated last year at ₦1,950 (£185,641).
| Item | Naira | Rate | Pounds |
|---|---|---|---|
| Profit for the year | ₦38m | 1,900 (average) | £20,000 |
| Closing net assets | ₦400m | 2,000 (closing) | £200,000 |
| Opening net assets plus profit, in pounds | £205,641 | ||
| Translation difference to OCI | -£5,641 |
Check: ₦362m plus ₦38m profit equals ₦400m closing net assets. In pounds, £185,641 plus £20,000 is £205,641, but closing net assets translate to only £200,000, so £5,641 is a translation loss in other comprehensive income, not in profit.
The Nigerian accounts still matter
Consolidation does not replace the subsidiary's own Nigerian reporting. The IFRS Foundation's jurisdiction profile notes Nigeria adopted IFRS from 2012 for listed and significant public interest entities, with IFRS for SMEs for SMEs from 2014. A UK parent should also note that the UK subsidiary audit exemption in section 479A of the Companies Act 2006 is for subsidiaries established under UK law, so it does not exempt the Nigerian company from a Nigerian audit. See Nigerian company annual accounts when the owner is abroad.
Where Pryme fits
A Pryme Business account for the Nigerian company holds NGN alongside USD, GBP and EUR, so intercompany settlements can stay in the currency they were invoiced in. The Finance agent can prepare intercompany matching and month-end rate schedules for your accountant to review. Pryme's entities page explains which company provides each service.
Questions people ask
What exchange rate do I use to consolidate a Nigerian subsidiary?
Under IAS 21, closing rate for assets and liabilities, and transaction-date or average rates for income and expenses, unless rates fluctuate significantly.
Where do translation gains and losses go?
To other comprehensive income, building a translation reserve that is reclassified to profit or loss when the subsidiary is sold.
Is Nigeria hyperinflationary under IAS 29?
That is a judgement using the three-year cumulative index and other indicators. Ask your auditors; this article takes no position.
Does consolidation mean my Nigerian company needs no audit?
No. The Nigerian company has its own CAMA obligations, and the UK s.479A exemption covers only UK-established subsidiaries.
Sources
- IFRS Foundation: IAS 21 The Effects of Changes in Foreign Exchange Rates (2026 text) · accessed Oct 2026
- IFRS Foundation: IAS 29 Financial Reporting in Hyperinflationary Economies · accessed Oct 2026
- IFRS Foundation: IFRS 10 Consolidated Financial Statements · accessed Oct 2026
- IFRS Foundation: Use of IFRS Standards by jurisdiction, Nigeria · accessed Oct 2026
- legislation.gov.uk: Companies Act 2006 section 479A · accessed Oct 2026
- Voice of Nigeria: Nigeria's headline inflation drops to 14.63 per cent (16 Oct 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.