The Effects Of International Financial Reporting Standards (IFRS) In Nigeria: A Test Of Financial Statement Quality

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The Effects Of International Financial Reporting Standards (IFRS) In Nigeria: A Test Of Financial Statement Quality


The IFRS adoption is already an issue of global relevance among various countries of the world due to the quest for uniformity, reliability and comparability of financial statements of companies. This research paper investigated the effect of IFRS adoption on Financial Statements. The population consists of quoted companies in Nigeria Stock Exchange (Preparers) and Investment Analysts (Users). Simple Random sampling method was adopted and primary data used to elicit responses with 71 structured questionnaires administered. Findings showed that IFRS has been adopted in Nigeria but only fraction of companies has implemented with deadline for the others to comply. It is perceived that IFRS implementation will promote quality financial statements, increase FDI inflows and economic growth. It was recommended that all stakeholders should endeavour to have full implementation to reap benefits of the global GAAP and principle – based standards

Key-words: International Financial Reporting Standards, Financial Statements, Foreign Direct Investments. Economy

Chapter One


1.1 Background of the Study

Globalization of markets requires a unified global accounting, reporting and disclosure sets of standards. As a result of increasing volume of cross border capital flows and growing number of foreign direct investments in the globalization era, the need for the harmonization of different practices in accounting and the acceptance of worldwide standards has risen. This has led to either convergence or adoption of the international financial reporting standards in countries across the globe including Nigeria (Adejola, 2012). Financial statements apart from stating the financial position and performance of an organization, provides other information such as the value added, changes in equity if any and cash flows of the enterprise within a defined period of time to which it relates (Iyoha and Faboyede, 2011). The quality of financial reporting is indispensable to the need of users who requires them for investment and other decision making purposes. Financial reporting can only be regarded as useful if it represents the economic substance of an organization in terms of relevance, reliability, comparability, and aids interpretation simplicity (Penmam, 1984). Ahmed (2003) stated that useful accounting information derived from qualitative financial reports help in efficient allocation of resources by reducing dissemination of information asymmetry and improving pricing of securities. To prepare and audit financial statements, some accounting conventions and principles known as standards have been put in place by appropriate body set up for the purpose to encourage uniformity and reliability.

The implementation of IFRS would reduce information irregularity and strengthen the communication link between stakeholders (Bushman and Smith, 2001). It also reduces the cost of preparing different versions of financial statements where an organization is a multi-national (Healy and Palepu, 2001).

The goals of the IFRS foundation and the International Accounting Standards Board (IASB) is to develop, in the public interest, a single set of high-quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles. In pursuit of this goal, the IASB worked in close cooperation with stakeholders around the world, including investors, academicians, and others who have interest in the development of high-quality global standards (Akinyemi, 2012).

1.2 Statement of the Problem

Recently, the Central Bank of Nigeria rescued some commercial banks in Nigeria after consolidation. The consolidation exercise was carried out with the aim of boosting the banking sector and restoring confidence of both customers and investors. Unfortunately, the cases of Spring Bank Plc and Wema Bank Plc are well known, both banks were victims of poor corporate governance, Olufemi (2009). In the same vein, some of the rescued banks hide multi-billion losses in taxes (Business Day, 2011). This is done to deceive investors and the general public who accepts accounting information as contained in the entity’s corporate report. Indeed the present accounting systems of most banks is such that a lot of things are hidden which analysts will find it difficult to unravel, Sanusi, (2014).

1.3 Objectives of the Study

The objectives of the study are to find out the following:

  1. To examine the effects of IFRS on the quality of financial statements in Nigeria.
  2. To examine the impact of IFRS adoption and implementation on Foreign Direct Investments in Nigeria.
  3. To ascertain whether the financial statements prepared using International Financial Reporting Standards (IFRS) enhance transparency.
  4. To examine whether the adoption and implementation of IFRSs enhance accountability.
  5. To evaluate the profitability of businesses in Nigeria due to the adoption and implementation of IFRS.

1.4 Relevant Research Questions

  1. Does IFRS aid in improving the quality of financial statements of businesses in Nigeria.
  2. Does International Financial Reporting Standards (IFRS) enhance transparency in reporting the economic activities of business in Nigeria?
  3. Does IFRS enhance proper accountability of the economic activities of businesses in Nigeria?
  4. Does the adoption and implementation of IFRS increases Foreign Direct Investments inflows in Nigeria?
  5. Does the adoption and implementation of IFRS in Nigeria increase access to international capital market?

1.5 Statement of Hypotheses

Hypothesis 1
  • H0: IFRS does not significantly aid in improving the quality of financial statements of banks in Nigeria.
  • H1: IFRS significantly aid in improving the quality of financial statements of banks in Nigeria.
Hypothesis 2
  • H0: There is no significant relation between IFRS adoption and implementation and FDI inflows in Nigeria.
  • H1: There is significant relation between IFRS adoption and implementation and FDI inflows in Nigeria.

1.6 Scope of the Study

The study intends to cover the pre and post periods of IFRS adoption by business organizations in Nigeria. By concentrating on business organizations in Jos North Local Government Area of Plateau State.

1.7 Limitation of the Research

One of the limitations of this study relates to homogeneity of the sample subjects. For example, the sample subjects in this study (accounting staff, investors, auditors and managers), exhibit commonality of traits which may induce systematic biases in their perceptions of the relevance of IFRS. Secondly, any random sampling of respondents from a homogenous population is bound to induce bias in sampling procedures which may introduce response biases. Thirdly, the contextual limitation of this study to a relatively homogenous cultural setting – institutions and practices domiciled in Jos North of Plateau State of Nigeria – may pose generalization problem. Also, future research may be warranted even within other geographic contexts to validate or refute the findings of this study. This notwithstanding, this study provides a useful incipient comparative analysis of the views of academics and practitioners on IFRS adoption in Nigeria.

The time and cost of conducting this research work as well as constrains involved in the administration of the questionnaires were also limiting factors.

1.8 Significance of the Study

This research work is aimed at unraveling the importance of adopting and implementing the international financial reporting standards on financial statements banks. Quality financial statements are aimed at providing vital information to the following:

1. Shareholders

For analyzing the viability and profitability of their investment and determining any future course of action.

2. Management

For analyzing the organization performance and position and taking appropriate measures to improve the company results.

3. Employees

For assessing company’s profitability and its consequence on their future remuneration and job security.

4. Tax authority

To determine the credibility of the tax returns filed on behalf of the company.

5. Creditors

For determining the credit worthiness of the organization.

6. Regulatory authority

For ensuring that the company’s disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in forming their decisions.

1.9 Definition of Unfamiliar Terms

International Financial Reporting Standards:

These are sets of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standards for the preparation of public company financial statements.

Window Dressing:

It refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements.

Financial Position:

This is the status of the assets, liabilities, and owners equity of an organization, as reflected in its financial statements.

Financial Performance:

This is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues.

Corporate Governance:

Broadly refers to the mechanisms, processes, and relations by which corporations are controlled and directed.

Chapter Five

Summary of Findings, Conclusion and Recommendation

This chapter covers the summary of findings from the questionnaire administered to the chartered accountants, auditors, managers, investors in Jos North Local Government of Plateau State. The conclusion and recommendation will also be looked at in this chapter.

5.1 Summary of Findings

The research work was carried out with the objective of unraveling the benefits Nigerian companies stand to achieve by the adoption and implementation of the International Financial Reporting Standards in preparing and reporting its financial statements. To this effect, two hypotheses were assumed and tested, so that it can be accepted or rejected at the end of the research work when it will be analyzed using questionnaire to obtain data from chartered accountants, auditors, managers, investors in Jos North Local Government of Plateau State.

The outcome of the study revealed the following:

  1. The adoption will increase the level of confidence of global investors and investment analysts in the financial statements of companies in Nigeria.
  2. The adoption of IFRS is an effective tool for enhancing the uniformity and comparability of financial statements of companies in Nigeria.
  3. The companies that have adopted IFRS will be able to generate more funds from foreign sources.
  4. There are still challenges militating against the successful adoption and implementation of IFRS but government has put adequate measures in place to address these issues.
  5. The adoption and implementation of IFRS will increase the FDI inflow in Nigeria.

5.2 Conclusion

In this paper, attempts were made to assess the relevance of IFRS in the preparation and presentation of financial statements in Nigeria. Based on the findings, it was concluded that adoption of IFRS is a right step in the right direction which actually has been more relevant in the preparation and presentation of financial statements in the Nigerian. Although, there are many issues and challenges facing implementation, the benefits outweigh the challenge. With adoption, Nigerian Companies will produce more credible financial statements that will not only be informed but also provide a basis for better interpretation. This invariably will boost investors’ confidence and attract cross border financial transactions which is the basis for economic growth.

5.3 Recommendations

Abstracting from the above mentioned, the research makes the following recommendation to ensure a successful adoption and implementation of IFRS in Nigeria.

  1. Government and the regulators should ensure that there is availability of training facilities and materials for Professional Accountants on the concept of IFRS and issues relating to its implementation conversion
  2. Compliance with IFRS timetable should be mandatory and failure should be marched with appropriate sanctions.
  3. Government should release more fund to FRC to educate all stakeholders with special reference to the academic, staff and accounting students who will uphold the future of IFRS in the country and developing a plan to help properly equip the company for upcoming changes
  4. Professional accounting bodies in Nigeria should made IFRS training a part of MCPE at a reduce cost.
  5. While monitoring the IFRS implementation timetable, the government, the Central bank of Nigeria and other regulatory bodies should ensure that ethical environment and corporate transparency are observed.
  6. IFRS should be included in universities, Polytechnics and Professional accounting bodies in Nigeria Curriculum so a s to build human capacity that will support the preparation of Financial Statements in Organization.
  7. A continuous research is in fact needed to harmonize and converge with the International Standard through mutual International understanding of corporate objectives.
  8. Since tax laws of different nations gives rise to varied tax liabilities, IFRS under the auspicious of FRC in conjunction of IASB should also resolve the question of tax liabilities as a result of convergence.

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