THE ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS: AN IMPERATIVE TOOL FOR EFFECTIVE BUSINESS ORGANIZATION PERFORMANCE IN NIGERIA


Content

ABSTRACT

This study was designed to critically appraise and analyze the “The Adoption of IFRS: An Imperative for Effective Business Organization Performance in Nigeria” The researcher made use of both primary and secondary sources of data as research methodology. The primary sources include, personal interview and questionnaire administration while the secondary sources include; information gathered from text books, newspapers, seminar paper presentation, internet and past project work related to the title. The data collected were analyzed and hypotheses formulated were tested using chi-square. The result from the study reveals that Nigeria has decided to join the rest of the world on the adoption IFRS and this adoption will boost the Nigeria economy and also it will encourage foreign investors to invest in Nigeria economy as IFRS will create uniformity and comparability of financial statement from one organization to another and from one country to another. Based on the findings, the study recommends among others that in other to ensure 100% compliance by business organizations in Nigeria, the federal government should put in place necessary gadgets that would ensure compliance of adoption by all quoted companies in Nigeria at the appropriate transition period, quoted companies should not only adopt IFRS but also consistently apply IFRS in the preparation and presentation of financial statement and they should follow the standards as stated in the statement strictly and since the adoption of IFRS will boost the confidence of foreign investors to invest in Nigeria economy, federal government should also make sure that the environment is conducive for foreign investors to invest in Nigeria economy.

 

 

 

 

 

 

 

 

TABLE OF CONTENT

Title Page                                                                         i

Certification                                                             ii

Dedication                                                               iii

Acknowledgement                                                    iv

Abstract                                                                   vi

Table of Contents                                                     vii

Chapter One – Introduction                                    1

1.1   Background to the Study                                                 1

1.2   Statement of the Problem                                        3

1.3   Research Questions                                                         6

1.4   Objectives of the Study                                            7

1.5   Statement of Hypotheses                                                 9

1.6   Significance of the Study                                                 11

1.7   Scope of the Study                                                   14

1.8   Limitations of the Study                                          14

1.9   Definition of Terms                                                  15

Chapter Two – Review of Related Literature            17

2.1   Introduction                                                             17

2.2   Overview of International Financial

Reporting Standards                                                        24

2.3   Adoption of IFRS                                                      27

2.4    Benefits of the adoption of International

Financial Reporting Standards                                28

2.5   The IFRS in Nigeria                                                  32

2.6   Key Stakeholders in the Adoption and

Implementation of International Accounting

Standards                                                                        39

2.7   The Vital Roles of Expected Key Stakeholders in

the Adoption and Implementation of

International Accounting Standards                                41

2.8   The Challenges of Adopting International

Financial Reporting Standard in Nigeria                  58

2.9   Impact of IFRS on the Financial Services Industry  60

2.10 Financial Instruments: Classification

and Measurement                                                    62

2.11 Business Model for Managing Financial Assets               65

2.12 Hedging fair value measurement and disclosures    68

 

 

Chapter Three – Research Method and Design               75

3.1   Introduction                                                             75

3.2   Research Design                                                      76

3.3   Population of the Study                                           76

3.4   Sample Size                                                             76

3.5   Method of Data Collection                                       77

3.6   Sampling Technique                                                77

3.7   Method of Data Presentation                                   79

3.8   Method of Data Analysis                                          79

Chapter Four – Data Presentation, Analysis

and Interpretation                                                    82

4.1   Introduction                                                             82

4.2   Presentation of Data                                                83

4.3   Data Analysis                                                           83

4.4   Hypotheses Testing                                                  99

Chapter Five – Summary of Findings, Conclusion

and Recommendations                                          109

5.1   Introduction                                                           109

5.2   Summary of Findings                                            109

5.3   Conclusion                                                            111

5.4   Recommendations                                               113

References                                                           116
Appendices                                                          118

Questionnaire                                                      119

 

 

 

 

 

 

 

 

 


CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Much of the world is moving in the direction of International Financial Reporting Standards (IFRSs). While some countries have been using these standards for decades, they are however new for transition economies like Nigeria. Business globalization and international convergence whose combined effects is making a ‘global village’ of the world have posed the challenge of having in place a common financial reporting standards for the countries of the world. The series of World Bank sponsored private and public sector financial management reforms across developing economies as a prerequisite for Foreign Direct investments (FDI) and foreign donor agencies’ intervention, has made the adoption and implementation of international financial accounting reporting standards imperative. However, the successful adoption and implementation of these standards will remain a mirage in any country, including Nigeria, except through the collaboration and appropriate actions of all stakeholders. This research work seeks to critically examine the adoption of IFRS as an imperative for effective business performance in Nigeria, the benefits and also the challenges associated with first time adoption. Also, this research work will access the roles expected of key stakeholders to make the adoption and implementation of international financial reporting a success.

The theoretical foundations underpinning Nigerian Generally Accepted Accounting Policies (GAAP) and International Financial Reporting Standards (1FRS) are not altogether similar. As such, there will be increased responsibilities in setting sound accounting policies that fit business models, on the part of the professional accountant, who must also be ready to explain and justify these policies in the context of the IFRS framework.

The objectives and importance of introducing IFRS include:

Ø    To develop a single set of high quality understandable and enforceable global accounting standard that requires transparent and comparable information in financial statements

Ø    To help participants in various capital markets (investors, stockbrokers etc) across the globe to understand financial statements;

Ø    To work actively with the national standard setter to bring about convergence of national accounting standards;

Ø    IFRSs are designed for adoption by profit-oriented entities.

Ø    IFRSs require that financial statements (FS) give a true and fair view of the financial health of entities.

1.2      Statement of the Problem

There is need for a set of accounting and reporting standards if comparability between and among firms is of any importance. As a result of diversities in laws, norms and standards in different nations on the earth, it is almost impracticable for PhD holders in accounting who also possesses professional certificates in accounting in one country to practice as an accountant when him/herself in another country. Surprisingly debit and credit as well as the double entry principles are the same all over the world.

Globalizing the falling of the previous Herculean trade barrier between nations, and more recently the much awaited response to the global financial crisis, together with intervention by world leaders have change things dramatically in terms of the preferred set of standards of accounting globally. The accounting of financial world is now seriously considering the notion of using a single set of accounting and financial reporting standards that will be used in most if not all the nations around the globe. It appears that the set of global accounting standard is international financial reporting standard (IFRS).

Thus, there is an urgent need for a common set of global or even universal accounting and financial reporting standards that are understood, used and interpreted by different people around the world in the same manner.

The transition from what is used to be in various countries to the adoption of accounting standard that requires qualitative, transparent and comparable information is a step in the right direction and a welcome development by international investors, creditors, stock exchange, financial analyst and other users of financial statement. The absence of a common set of accounting and financial reporting standards makes it difficult to compare financial information reported by entities located in different parts of the world. The use of a single set of a high quality accounting standard facilitate foreign investment and other economic decisions across border, increase market efficiencies, and reduces the cost of raising capital in a global economy that keep increasing at a fast rate.

Earning global income in the current dispensation of IFRS in the preparation and presentation of financial statement, international reporting standards are increasingly becoming the set of globally accepted accounting standards that meet the needs of the world increasingly by integrated global market.

1.3      Research Questions

In order to have a thorough understanding and to carry out a detailed research work of this nature, this research is conducted to seek answers to the following questions:

1.     What is the essence of adoption IFRS in the preparation and presentation of companies’ financial statement in Nigeria?

2.     Does the adoption of IFRS increase the performance of business organizations?

3.     Does the adoption of IFRS enhance the quality of organization’s financial statement?

4.     Does the adoption of IFRS encourage foreign investors to invest in Nigeria economy?

5.     What are the key challenges of adopting IFRS in Nigeria?

6.     Will the adoption of IFRS in Nigeria enhance decision making by the various players in both capital and money market?

1.4   Objectives of the Study

It is imperative that there is a clarion call all over the world for a transition to IFRS based accounting in the preparation and presentation of companies’ financial statement and annual reports

Thus, in this veil, this research work had been embarked on to:

1.          Find out the essence of adopting IFRS in the preparation and presentation of companies’ financial statement in Nigeria.

2.          Know if the adoption of IFRS will increase the performance of business organizations?

3.          Find out if the adoption of IFRS will enhance the quality of organization’s financial statement?

4.          Know if the adoption of IFRS will encourage foreign investors to invest in Nigeria economy?

5.          Find out the key challenges of adopting IFRS in the preparation and presentation of companies’ financial
statements in Nigeria?

6.          Ascertain if the adoption of IFRS in Nigeria will enhance decision making by the various players in both capital and money market?

Since the world is globalizing, there is need for a complete harmonization of different companies’ financial statements in Nigeria and all over the world, thus, the study is also aimed at achieving to reasonable extent comparability between financial statements of different companies. This has been enhanced by the standard set by the International Accounting Standard Board (IASB) and the International Standard Statement Body (IS SB) based in London, United Kingdom.

1.5   Statement of Hypotheses

To understand this study better, definition of hypothesis is essential. According to Blaster and Clover, research is the process of systematically obtaining accurate answer to significant and prominent questions by the use of scientific method of gathering and interpreting information.

For the objectives of this research study, the following hypotheses will be developed and empirically tested and their results will form the basis of the conclusion and recommendations.

Hypothesis I

Ho:  There is no significant relationship between the adoption of IFRS and the effectiveness of business organization performance.

HI:    There is a significant relationship between the adoption of IFRS and the effectiveness of business organization performance.

Hypothesis II

Ho: The adoption of IFRS does not enhance the quality of financial statement of business organizations.

HI: The adoption of IFRS enhances the quality of financial statement of business organizations.
Hypothesis III

Ho: The adoption of IFRS does not encourage foreign investors to invest in Nigeria economy.

HI:    The adoption of IFRS encourages foreign investors to invest in Nigeria economy.

Hypothesis IV

Ho:  The adoption of IFRS in Nigeria will not enhance decision making by the various players in both capital and money market.

HI:    The adoption of IFRS in Nigeria will enhance decision making by the various players in both capital and money market.

 

 

1.6   Significance of the Study

This study is significant in the dimension that it takes a survey of the beneficiaries of the adoption of IFRS in companies’ financial statements in Nigeria. It also goes further to seek the importance of adopting these standards all over the world. It will also sensitize the public and practitioners in the field of accounting about the benefit embedded in this standard of accounting and its pressing need in the world.

This study is relevant since it is a new reform in the standard setting, which has been accepted in other parts of the world. The study is also relevant to the following interest groups:

1.     Accounting Professionals: Before now, accounting professionals in Nigeria cannot practice in other countries but with the adoption of IFRS in Nigeria and the world at large, accounting professionals in one country can practice effectively in another country and sell their services as experts in different parts of the world. So, this research study will be relevant to the accounting professionals in that they will embrace the importance of IFRS adoption and as well as the challenges of adopting IFRS in Nigeria.

2.     Practicing Auditors: This study is also relevant to auditors who express independent views and opinion in companies’ financial statements. Also, auditors in Nigeria cannot audit other companies in other countries because of the divergence in standards, but with the adoption of IFRS, auditors can now
go beyond the shores of Nigeria and sell their services to other countries.

3.     Investors: This research work will also be useful to both foreign and local investors in that investors want information that is more relevant, reliable, timely and comparable across the jurisdiction. Financial statement prepared using a common set of accounting standards help investors better understand investment opportunities as opposed to financial statement prepared using local generally accepted accounting principles (GAAP).

4.     Tax Authority: With the adoption of IFRS in Nigeria, tax authority can now compare the profits of different companies and their tax liability. This will help to eliminate fraudulent practices by companies in Nigeria.

5.     Industry: This study will show the various means of raising capital from foreign capital market for the industry at lower cost of capital if the foreign investors can have confidence in their financial statements and if it complies with globally accepted accounting standards.

6.     Economy: This also benefits the economy by increasing the growth of international business. It facilitates maintenance of orderly and efficient capital market and also helps to increase the capital formation and thereby economic growth and development. If there is economic growth, foreign investors will come to invest in Nigeria economy thereby leading to more capital flows in Nigeria.

7.     This study is not an end to this research but a stepping stone into further research on this topic. So, this material will be relevant to any researcher seeking to venture into further research on the same issue.

1.7   Scope of the Study

This study is mainly concerned with the adoption of IFRS: an imperative for effective business organization performance in Nigeria, taking the quoted companies in Edo State as a case study.

1.8   Limitations of the Study

In carrying out this study, there are some limitations that militated against its smooth and successful completion.

One of them was the attitude of the respondents in responding to the questions contained in the questionnaire provided. Some respondents exhibited a non-chalet attitude towards the researcher, while some collected the questionnaire but never returned it.

Also, some did not give detailed/accurate information because of the fear of using the information provided against them.

Another limitation faced by the researcher was inadequate material for the research work in that the study is a new area in accounting.

1.9   Definitions of Terms

The following terminologies relating to the adoption of IFRS will be defined and explain below:
Accounting: Accounting is the systematic identification, measuring, recording, classifying, summarizing, interpreting and communicating of financial or economic information so as to enable the user of the information to make informed judgment there from. Financial Statement: This is the statement prepared by the directors of a company to be presented to the shareholders at the annual general meeting.

 


Standards: These are standards set by a defined and recognized body that govern the practice of accounting in any country.

IFRS: This is a set of standards promulgated by the International Accounting Standard Board (IASB) and the International Standard Setting Body (ISSB).
Investors: These are existing and potential shareholders who have investment in various companies.

 

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