Examination On The Extent Of Compliance To International Financial Reporting Standard (A Case Study Of Wema Bank Plc)

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Examination On The Extent Of Compliance To International Financial Reporting Standard (A Case Study Of Wema Bank Plc)


Abstract


This study seeks to investigate whether the International Financial Reporting Standards (IFRS) in Nigeria has been complied with in Nigerian Banks. It is phenomenon for every organization (including banks) to adopt (IFRS) as it ensures transparency, accounting quality and reduced cost of capital. Thus, the desire to examine the examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. To achieve this objective, two research hypotheses were formulated to guide this study. A well structured questionnaire was used as the major instrument to gather data from the 50 staff and personnel WEMA Bank, Plc, Uyo and a sample size of 38 was randomly selected. The data collected from the respondents were analyzed using simple percentage and Chi-square statistical tool was employ for testing the hypotheses. The study concluded with some recommendations that steps should be taken to ensure a successful adoption and implementation of IFRS in Nigeria, 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 and conversion. Finally, top management, external auditors and regulators being the key players in standards, need to work together and tighten compliance so that impact of IFRS could be felt more.


Chapter One


Introduction

1.1 Background of the Study

The fact that users rely on financial reports when assessing economic decisions, in particular financial reports issued by public companies, required the establishment of standards to regulate the preparation of such statements to improve their reliability. Accounting standards have been developed in several countries to regulate accounting systems specific to their environment. In the overtime, the companies have grown and have expanded beyond the borders. The requirements for corporate capital have also increased, with new capital coming from international markets. Different information needs of users from national and international sources as well as difficulties in the comparability of degrees due to different standards have emerged. Due to the increasing integration of international markets, companies around the world need to work to match the activities of international companies (Beier, 2008). Tafara (2008) rightly stated that stakeholders and investors are no longer limited in their choice of companies and investment opportunities in order to find the best portfolio.

According to Choi and Meek (2005), a higher degree of comparability and quality of financial statements is required as international audiences become more widely known and unaware of the different national accounting standards in which financial statements are prepared. If investors and stakeholders can not gain a reasonable and transparent view of the selected companies, additional costs in the form of potential capital losses or investment opportunities will result in a lack of confidence in the companies.

As the forces of globalization encourage more and more countries to open their doors to foreign investment, and as companies expand beyond their borders, public and private companies are increasingly recognizing the benefits of globalization. Uniform financial reporting system supported by globally recognized strict accounting standards.

Harmonization efforts in 1973 led to the establishment of the International Accounting Standards Committee (IASC), which published a series of standards called International Accounting Standards (IAS). Since April 2001, the International Accounting Standards Board (IASB) has taken over the responsibilities of its predecessor, the IASC, in the definition of accounting standards in order to make the standards set binding for all members. , The IASB has adopted all standards issued by the IASC, which continue to be referred to as IAS. However, the new standards would be published as a series called International Financial Reporting Standards (IFRS). The globally recognized and long-awaited accounting standard has been a success with the IASB’s development of IFRSs, with more than 120 countries converting their standards into IFRS (Institute of Chartered Accountants England and Wales, 2010).


1.2 Problem Statement

Nigeria adopted IFRSs instead of the previous national accounting standards (ANAN) as of January 1, 2007 as part of its efforts to promote accelerated private sector growth. ). The Board of Directors of the Institute of Chartered Accountants of Nigeria (ICAN) officially passed its adoption on January 23, 2007, committing all listed companies, public bodies, banks and insurance companies to IFRS on December 31, 2007 and others. Entities have been given an additional transitional period of two years (United Nations, 2007). Currently, Nigeria is one of 15 countries in Africa, with countries such as Botswana, Egypt, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Sierra Leone, South Africa, Tanzania, Swaziland and Uganda. IFRS (Zori 2011, PricewaterhouseCoopers 2010).

However, empirical studies by Street and Gray (2001) and Glaum and Street (2003) have found that companies in their annual reports have often claimed to fully comply with IFRS, although in reality this is the case material differences to IFRSs. Similarly, the International Federation of Accountants (IFAC) found that accountants confirm that companies comply with IAS when accounting policies and ratings state otherwise (Cairns, 1997). In this context, the study attempted to determine the degree of compliance with IFRS for all companies listed on the Nigerian Stock Exchange (NSE) and to identify the drivers of IFRS compliance and the differences between them. if applicable, between the types in terms of their compliance with IFRS.


1.3 Purpose of the Study

The purpose of the study is the examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. Specifically the study will;

  1. Examine the extent of compliance with IFRS by WEMA bank plc
  2. To determine the factors influencing IFRSs compliance
  3. To examine if there exist any differences, between types of industry with regard to their compliance with IFRSs.

1.4 Significance of the Study

The study aims to help the public sector take a comprehensive approach to accounting standards and IFRS. The study will also be of interest to public universities, higher education institutions, research institutes and individual researchers interested in accounting standards and will use the results for further research. This study will encourage researchers to identify the effectiveness and efficiency of the sector. The research will help individual bankin industry understand their position relative to the standard of their financial report.


1.5 Study Hypothesis

The study hypothesis is:

HO1: there is no compliance of IFRS by WEMA bank plc

HO2: there is no significant differences, between types of industry with regard to their compliance with IFRSs.


1.6 Scope and Limitations of the Study

The study scope is limited the examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. Limitation faced by the research was limited time and financial constraint


1.7 Definition of Basic Terminologies

Corporate Size:

It is the size of a firm irrespective of the way it is measured (e.g., total assets, sales turnover, and number of shares) is a variable that can explain to a reasonable extent, the quality of firms disclosures.

Profitability:

Profitability is the degree to which a business or activity yields profit or financial gain.

Leverage:

Leverage is the the ratio of a company’s loan capital (debt) to the value of its ordinary shares (equity); gearing.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Introduction

This chapter presents summary, conclusion and recommendations for further studies


5.2 Summary

This study was carried out an examination on the extent of compliance to International Financial Reporting Standard in WEMA Bank PLC. To achieve this ultimate goal, the study revealed that:

In table 4.2.2 shows that 28 of the respondents representing 93% indicated extent of compliance to International Financial Reporting Standard in WEMA Bank PLC, Uyo while 2(7%) respondents pointed “Not Sure” on the question and it discovered that international financial reporting standards aid quality financial statement in WEMA Bank Plc.
In table 4.2.3 shows that 25(83%) of the total respondents pointed” while 2 of the respondents representing 7% opted “No”. Also 3(10%) respondents asserted “Not Sure”. From the analysis, it was concluded that international financial reporting standards (IFRS) in Nigeria improve the quality of investment decision making in WEMA Bank Plc, Uyo.

Also in table 4.2.4 shows that 23(77%) of the respondents indicated “Yes” that international financial reporting standards play a very significant role in banking institutions in Nigeria and also 4 respondents representing 13% pointed “No” while 3(10%) asserted Not Sure. It was discovered that international financial reporting standards has play a very significant role in banking institutions in Nigeria.

Table 4.2.5 shows that 25(83%) of the respondents indicated “Yes” that it has been effective implementation and adoption of IFRS in WEMA Bank Plc, while 5(17%) opted on not sure on the question. From this analysis, it was concluded that there is effective implementation and adoption of IFRS in WEMA Bank Plc

Table 4.2.6 shows that 16 (53%) of the respondents that indicated “Yes” there are problems confronting the staff of WEMA Bank Plc, Uyo in enhancing quality financial statement. Also, 8 (27%) respondents pointed “No” while 6 respondents representing 20% asserted “Not Sure on the question. Therefore, it was noted that there are problems confronting the staff of WEMA Bank Plc, Uyo.


5.3 Conclusion

Based on the findings and subsequent recommendation of this study, it was concluded that the adoption of IFRS is a right step in the right direction. Although there are many issues and challenges facing the implementation, the benefits outweigh the challenge. With adoption, Nigeria companies will produce a more credible financial statements that will not only be uniformed but also provide a basis for better interpretation. The invariably will boost investment confidence and attract cross border financial transactions which is the basis for economic growth.
Accordingly, these findings are not different from the results from other studies, in other parts of the world, such as Germany by Paananen and Lin (2008:26), Clarkson et al. (2009:26), Houque et al. (2010:22) and many others where they all reported that IFRS adoption does not necessarily lead to improved quality in financial reporting. Paananen. (2008:17) in a similar study in Sweden stated that IFRS adoption did not improve the quality of accounting in Sweden and went on to advise that it is dangerous to draw conclusions on using this kind of measures. These results should therefore be seen as part of the evidence vetting IFRS. Notwithstanding the mixed outcome, these results can also be used to explain that accounting quality can improve from IFRS adoption rather than changes in managerial incentives.


5.4 Recommendations

From the findings of this study, the researcher hereby recommends the following:

  1. Steps to ensure a successful adoption and implementation of IFRS in Nigeria.
  2. 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 and conversion.
  3. Compliance with IFRS timetable should be mandatory and failure should be marched with appropriate sanctions.
  4. Government should Release more fund to FRC to educate all stakeholders with special reference to the academic to staff and accounting students who will uphold the future IFRS in the country and developing a plan to help properly equip the company for upcoming changes (Lewis and Pendril (1996).
  5. Professional accounting bodies in Nigeria should make IFRS training a part of MCPE at a reduce cost.
  6. 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.
  7. It is recommended that top management, external auditors and regulators being the key players in standards, need to work together and tighten compliance so that impact of IFRS could be felt more.

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