- BACKGROUND TO THE STUDY
In the last quarter of the previous century, the world economies moved speedily towards globalisation. Multinational companies are manufacturing and selling across the world and many of these firms are listed at foreign stock exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness about international markets. This was soon followed by globalisation of financial markets which increased the value of understanding of international financial results and reporting formats. Rapid improvement in communication technologies and easy access through Internet has further spread the profile of international investor. Nowadays international investors are not limited to some portfolio managers in big banks. International investors are now as diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their portfolio by international equities and bonds. This rapid globalisation fuelled the desire to have common global standards that could be understood, applied and followed across nations.
Nigeria’s Statements of Accounting Standards (SAS) align substantially with the pronouncements of the International Accounting Standards Board (IASB) but maintained its own unique structure and peculiarities until January 1, 2012. The International Accounting Standards (IASs) are principles based, and the Nigerian Accounting Standard Board (NASB) implements the (IASs) in specific contexts in the formulation of its standards. When there is no NASB SAS on the treatment and disclosure of information, the relevant IAS is invoked. This suggests that Nigeria adopted IFRS since its inception. On the premise that the International Financial Reporting Standards (IFRSs)are off shoot of IAS, it becomes an issue whether the formal move of Nigeria to adopt IFRSs in January 1, 2012 is anything extraordinary.
IFRS permits considerable discretion or flexibility in disclosure of financial information regarding certain transactions. They also debar certain alternatives which eliminates accounting information distortions. In a sense, the availability of alternatives guided by principles can lower the quality of accounting information. IASB provides broad guidelines as principles for member countries to adopt or adapt and, in consonance, Nigeria adapted the IFRS by making them specific for reporting entities. This approach permits generalisation of uniformities of accounting information within the Nigeria context. The adoption of IFRS, then, suggests that reporting entities are accorded freedom of discretion to choose from options allowed by a standard which hitherto was not available in a rule-based jurisdiction like Nigeria.If this is correct, then, the adoption of IFRSs should lower quality of accounting information.The adoption of IFRS suggests that where alternative treatments of transactions are permitted, all reporting entities would exercise discretions and disclose the choice of alternative for users of accounting information. In blunter terms, this increases information asymmetry and, hence, lowers quality of accounting information. Leuz, C., Nanda, D and Wysocki, P. D (2003), and Langmead and Soroosh (2009) also subscribe to this argument when they assert that IFRSs lack detailed implementation guidance which affords managers greater flexibility to exploit accounting discretion to their advantage.
The argument advanced in the literature for the adoption of IFRS is that it reduces the opportunity to overstate earnings or delay recognition of losses (Ewert and Wagenhafer, 2005; Barth, M, Landsman, W and Lang M. (2008). Ahmed, A. S., Neel, M. and Wang, D (2013) argued that IFRSs are principles based and as such difficult to structure transactions to avoid recognition of a liability, but they lack implementation guidance (Langmead &Soroosh, 2009); as an example, IFRS is broad in revenue recognition for multiple deliverables, and this can afford managers discretionary interpretation which can lead to distortion of accounting information. Irrespective of the direction of the argument—for or against—the fact remains that Nigeria has since adopted IFRS in disguise, but for better rather than worse—“Better” in the sense that Nigeria tailored IASs to limit flexibility accorded managers of firms, and hence limits opportunity to game on information disclosure.
Every country is unique in terms of culture and controls, and Nigeria is no exception. NASB took into cognizance weaknesses in financial controls to address culture when it adapted IASs for use. Therefore, the formal adoption of IFRS suggests that managers of reporting entities have been awarded a license to exercise discretion in adjusting and mal-adjusting the Nigerianisation in financial controls. Obazee, the Executive Secretary and Chief Executive Officer of Financial Reporting Council of Nigeria (FRCN), aligned himself with this statement when he stated that“… [C]ouncil will require management assessment of internal controls including information systems controls with independent attestations… and Council is to exercise strict oversight of professional practice” (Obazee, 2012, pp. 23-25).