THE IMPACT OF INTERNATIONAL FINANCIAL REPORTING STANDARD ADOPTION ON FOREIGN DIRECT INVESTMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria adopted international Financial Reporting standards (IFRS) in September, 2010 but the implementation in 2012. The IFRs are standards set by the International Accounting Standards Board (IASB) which is the international body responsible for monitoring the preparation of financial statements worldwide. Before the advent of IFRs, most countries had their own accounting standards which were issued by national accounting bodies. For instance, the Nigerian Accounting Standards Board (NASB) was responsible for developing and issuing standards known as Statement of Account Standards (SAS) up to 2012 in Nigeria. This adoption is expected to improve corporate transparency especially in financial terms which in turn should lead to an increase in foreign direct investment (FDI).

Okpala (2012) in his journal “adoption of IFRs and financial statement effects” claimed that the preparation of financial statement in accordance with IFRs increase transparency in the statements, thus boosting the investment potential of the corporation because of reduction of rivalry in international markets. In addition, he said FDI allowed firms to better exploit their monopolistic advantages and diversify risk. In a time, coastal or littoral national as Nigeria, there is an unending growth in international trade, cross border financial transactions and investments which unavoidably involves the preparation and presentation of accounting reports that are useful across various national borders. This has brought about the adoption of IFRs in the country. In the light of the globalization and changes in financial reporting process in the capital markets, many foreign and local investors invest in the Nigerian capital market, some opted out, because the financial crisis that made investors loose confidence in the capital market.