THE EFFECTS OF IFRS ADOPTION AND FINANCIAL REPORTING PRACTICE IN NIGERIA.(A STUDY OF FIRST BANK NIGERIA LTD, ORON ROAD, UYO)
BACKGROUND OF THE STUDY (FBN)
International financial reporting standard (IFRS) are body of prescriptive rules and guidelines with global reach and appeal which provides direction and guidance on how business enterprises in a globalised world could achieved the goal of proper record keeping, transparency, uniformity, comparability and enhancing public confidence in financial reporting (Tendeloo and vanstracten,2005). Their adoption represents an essential element to obtain an integrated, competitive and attractive beyond the European capital markets.
With the increasing internationalization of trading activities amongst countries of the world, necessitated by globalization, the Nigerian government was persuaded to approve a roadmap to introduce this set of uniform accounting standards initially for public interest entities (PIES).
Historically, the introduction of an acceptable global high quality financial reporting standards was initiated in 1973 when the international accounting standard committee (IASC) was formed by nine (9) professional bodies from different countries such as; united states of America, united kingdom, France, Canada, germane, Australia, Japan, Netherlands and Mexico (Garuba and Donwa, 2011). According to Ezeani and Oladele (2012), this body was properly recognized in 2001 and later transformed into the international accounting standard board (IASB) which developed accounting standards and related interpretations jointly referred to as the international financial reporting standards (IFRS).
The Quality Of Financial Reporting Is Indispensable To The Need Of Users Who Required Them For Investment And Other Decision Making Purposes (Fashina and Adegbite, 2014). Financial reports can only be regarded as useful if it represents the “economic substance” of an organization in terms of relevance, reliability, comparability, understandability, timeliness and simplified interpretation of accounting n umbers (Kenneth, 2012).
Before the IFRS adoption era, most countries had their own standards with local bodies responsible for developing and issuance of the local standards even if some of them align largely with the IAS. In this vein and in the Nigerian context, the Nigerian accounting standards board (NASB) was responsible for developing and issuing standards known as statements of accounting standards (SAS) and in the new dispensation, the body was renamed financial reporting council (FRC) of Nigeria as the regulatory body overseeing the adoption and implementation of (IFRS) Kenneth 2012.
Apparently, in a bid to take her own share of the benefits of using a set of accounting standards that not only allows for, but also enhance the comparability of financial reports across many geographical frontiers, on Wednesday,28 July,2010, the Nigerian federal executive council accepted the recommend of the committee on the roadmap to the adoption of IFRS in Nigeria, that it would be in the interest of the Nigerian economy for reporting entities in Nigeria to adopt globally accepted, high quality accounting standards by fully adopting the international financial reporting standard (IFRS) in a phased transition. (FIRS,2013; Fashina and Adegbite, 2014).
In December 2010, following the approval of the federal executive council, the Nigerian accounting standards board (NASB), (Now designated as financial reporting council of Nigeria), (FRCN) issued an implementation roadmap for Nigerian’s adoption of IFRS which set a January 2012 data for compliance for publicly quoted companies and banks in Nigeria.
Relatedly, according to Fashina and Adegbilte (2014), the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission also adopted this date for compliance and has issued guidance compliance circular to ensure full implementation of IFRS in Nigeria. The council further directed the Nigerian Accounting Standards Board (NASB), under the supervision of the Nigerian Federal Ministry of Commerce and Industry, to take necessary actions to give effect to the council’s approval.
As part of plans to meet international standards the Federal Government has disclosed that new accounting system, the International Financial Reporting Standard (IFRS) should take off in Nigeria on 1st January, 2012, especially with Public Interest Entities. In Nigeria, the government has taken its stand to involve all stake holders including institution before it finally decided to adopt the IFRS on a gradual basis.
The adoption of IFRS has been argued in contemporary literature to offer numerous financial and no-financial benefits. ,it is therefore in this connection that Barth et al, (2008) agued that IFRS (and their predecessor IAS) constrain managerial discretion while Daske et al, (2008) submitted that IFRS impose a more comprehensive and highly detailed set of disclosure requirements than domestic accounting standards.
When disclosure is improved upon and managerial discretions, with respect to treatment of accounting transactions, are constrained, this arguably suggests that IFRS will improve accounting quality and engender bather financial reporting practices. Importantly, improved comparability is also one of the valve-adding characteristics of IFRS as contended by its advocates.
Many countries all over the world, including Nigeria, are now IFRS-compliant. As a corollary, it is now less costly for investors to compare and evaluate firms inside and outside industries and countries (Coving, Defond, and Hung, 2007). As Nigeria new belong to the league of IFRS-adopting countries with effect from 2012, perhaps persuaded by the gains is promises, it however remains to be convincingly empirically established the extent to which this set of accounting standards has impacted on financial reporting practices in Nigeria.
This study therefore, is an attempt to provide evidence on the impacts of IFRS on Financial Reporting Practices in Nigeria.
1.1 BACKGROUND OF THE STUDY
First Bank of Nigeria Ltd was established in 1894, it is Nigeria’s largest financial services institution by total assets and gross earning. First bank of Nigeria has more than 10 million customer accounts and over 750 branches providing a comprehensive range of retail and corporate financial services.
The bank has international presence through its subsidiaries; First Bank UK, First Bank Ghana, First Bank Guinea etc.
With its global reach, First Bank provides prospective investors wishing to explore the vast business opportunities that are available in Nigeria.
1.2 STATEMENT OF THE PROBLEM
It has been observes that the major risk in corporate financial reporting is that financial statements are not fairly presented due to in advent or intentional errors. Management fail to provide certain information to users of financial statements, deliberately misleading them about the company’s operations. It is worthy of note that financial reporting pundits are unanimous in their agreement that financial reporting practice of a country depends on several factors that include the legal, economic, cultural and historical background of s country. It is then argue that financial reporting is not an end in itself, rather it should provide information that is used in making reasoned choices among alternative use of scarce resources in the conduct of business and economic acuities.
The problem is that firms have incentives to withhold or manipulate information in certain situation of poor performance. Life in the case of “Enron” and “WorldCom” who’s financial statements were Windom dressed there by miss leading the public until their eventual financial crises. It is against this backdrop that the researcher delve to investigate the effects of IFRS adoption on financial reporting practice in Nigeria.
1.3 OBJECTIVE OF THE STUDY
In other to carry out this study successfully, the following objectives are to be pursued.
- To find out if financial statements prepared under IFRS enhances transparency and understandability.
- To find out if financial statements prepared under IFRS provides relevant and superior information to users.
- To find out if IFRS adoption enhances comparability of financial reporting across firms and comprise.
- To find out if IFRS adoption promotes efficiency of capital market functioning and cross-border investments.
- To identify the challenges faced by adopting international financial reporting standard (IFRS) as well as its possible solutions.
1.4 RESEARCH QUESTIONS
In other to achieve the aforementioned objective the following research questions are formulated to guide the study.
- Does financial statement prepared under IFRS enhance transparency and understandability?
- Does a financial statement prepared under IFRS provide relevant and superior information to users?
- Does IFRS adoption enhances comparability of financial reporting across firms and comprises?
- Does IFRS adoption promote efficiency of capital market functioning and cross-border investments?
- What are the challenges faced by adopting international financial reporting standard (IFRS) as well its possible solutions.
1.5 RESEARCH HYPOTHESIS
The following hypotheses were formulated to guide the study.
- Ho: There is no significant relationship between transparency and understandability of financial statements and IFRS.
Hi: There is a significant relationship between transparency and understandability of financial statement and IFRS.
- Ho: There is no significant impact of IFRS on information provided by financial statements.
Hi: there is significant impact of IFRS on information provided by financial statements.
- Ho: IFRS adoption does not enhance comparability of financial reporting across firms and countries.
Hi: IFRS adoptions do enhance comparability of financial reporting across firms and countries.
1.6 SIGNIFICANT OF THE STUDY
The study is significant to government, investors, business management, regulation bodies, educators, researchers, accountants, auditors and scholars particularly in the field of accounting.
This research seeks to make theoretical and practical contributions to the field of accounting in the area of international financial reporting standard (IFRS). It will particularly enhance the quality of literature in the field of accounting in Nigeria.
Researchers in this field would benefit from the study because it can serve as a bench mark for future research on corporate disclosure practices which would be of advantage to students and educations.
1.7 SCOPE OF THE STUDY
This study focused on international financial reporting standard (IFRS). It is the research of reaction of entities and users of financial report to ascertain the correction between IFRS and financial reporting.
The work therefore centers on the role of IFRS on the quality of financial reporting practice in streamline to the study of your work.
1.8 LIMITATION OF STUDY
This research work is limited by the time frame within which the researcher is expected to complete it.
The small sample size used for this study may not be capable of leading to generalization.
1.9 DEFINITION OF TERMS
Accounting Standard: Are policy documents or rules that guide the preparation and presentation financial information.
Convergence: Refers ton the process of narrowing difference between IFRS and the accounting standards of countries that retain their own standards.
Corporate Attribute: These are company characteristics that can influence corporate financial reporting.
GAAP: Generally accepted accounting principles.
International Accounting Standard (IAS)
This is a body of accounting standard issued by the international accounting standard committee (IASC) now known as IASB.
International Accounting Standard Board (IASB)
This is the international standard setting body responsible for issuing IFRS
International Financial Reporting Standard (IFRS)
This is a body of accounting and financial reporting standard promulgate by the IASB. It includes standards and interpretations adoption by the IASB.
Mandatory Disclosure: Refers to the information companies are obliged to disclose by the accounting standard sitting bodies.
Nigerian Accounting Standard Board (NASB)
This is the Nigerian accounting standards setting body responsible for issuing statement of accounting standards (SAS)
Statement of Accounting Standard (SAS)
This is the accounting standard issued by the Nigerian accounting standards board.
Financial reporting is the preparation o published report for users of financial statement.
THE EFFECTS OF IFRS ADOPTION AND FINANCIAL REPORTING PRACTICE IN NIGERIA.(A STUDY OF FIRST BANK NIGERIA LTD, ORON ROAD, UYO)