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Abstract of Challenges of International Financial Reporting Standard (IFRS)
The different sectors of the Nigerian economy are working towards being globally competitive and to be able to satisfy the different stakeholders. One of the recent moves in Nigerian companies is to meet the aforementioned position through financial reporting. In this case the Nigeria Accounting Standards Boards has proposed that the international financial reporting standards will soon be adopted in Nigeria. Adoption of international standards to replace local ones would have far reaching consequences. This study therefore examine the challenges of international financial reporting standards implementation in Nigeria. From the perspective of stakeholders. The study present the result from a survey of a sample of respondent.
The data were analysed using the chi-square. The study find that IFRS need to address the challenges of short period of time to implement a complex IFRS that require significant changes to an entity financial reporting system. It also recommended that the efficiency of IFRS is strongly dependent on the level of a country infrastructure.
TABLE OF CONTENTS
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Title Page i
Certificationii
Declaration iii
Dedication iv
Acknowledgement v
Abstract vii
Table of Contents viii
CHAPTER ONE
Introduction 1
Background of the Study 1
Statement of the Research Problem 4
Objective of the Study 5
Hypothesis of the Study 5
Scope of the Study 6
Relevance of the Study 7
Limitation of the Study 8
References 9
CHAPTER TWO
Literature Review 10
2.1Introduction 11
2.2International Financial Reporting Standard (IFRS) 12
2.3IFRS Adoption 13
2.3.1Voluntary IFRS Adoption 13
2.3.2 Mandatory IFRS Adoption 14
2.3.3Economic Consequences Of Voluntary IFRS Adoption 15
2.4.Some World Scenarios 17
2.4.1Australia 17
2.4.2Philippines 19
2.4.3European Union 20
2.4.4Russia 23
2.4.5New Sealand 24
2.4.6Singapore 25
2.5IFRS And Its Beneficial Effect On Listed Companies 25
2.6IFRS And Its Effect On Total Assets 27
2.7 IFRS And Cost Of Capital In The Capital Market 28
2.8Evidence On Capital-Market Effects Of Ifrs Adoption 31
2.9Harmonization And Standardization 33
2.10Costs And Benefits Of Accounting Harmonization 38
2.10.1Accounting Harmonization And International Investors. 38
2.10.2Accounting Harmonization: Standards Evolution And Spread 40
2.10.3Accounting Harmonization In A Political Context 42
2.10.4Accounting Harmonization In A Competitive Environment. 44
2.11Challenges Of Implementation Of Ifrs 45
2.12Managing The Transition Process 50
References 53
CHAPTER THREE
RESEARCH METHODOLOGY 64
3.1Introduction 64
3.2Population And Sampling 64
3.3Source Of Data 64
3.4Actual Fieldwork 65
3.5Data Collection Procedure 65
3.6Data Analysis Technique 65
3.7Decision Rule 68
References 69
CHAPTER FOUR
Data Presentation, Analysis And Interpretation 70
4.1Introduction 70
4.2Data Presentation Of The Questionnaire 71
4.3Testing Of Hypothesis 85
4.3.1Hypothesis Ii 86
4.3.2Hypothesis Ii 87
4.3.3Hypothesis Iii 88
4.3.4Hypothesis Iv 89
4.3.5Hypothesis V 90
References 92
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION 93
5.1Introduction 93
5.2Summary Of Findings 93
5.3Recommendation 94
5.4 Conclusion 95
BIBLIOGRAPHY 97
APPENDIX 109
Questionnaire 109
Chapter One of Challenges of International Financial Reporting Standard (IFRS)
INTRODUCTION
BACKGROUND OF THE STUDY
A financial reporting system supported by strong governance, high quality standards, and sound regulatory frameworks is key to economic development indeed, the IFRS are accounting rules and standards issued by the International Accounting Standard Board (IASB). They purport to be a set of rules that ideally would apply equally to financial reporting by public companies worldwide. Predisposing factors for the adoption of International Financial Reporting Standard (IFRS) is based amongst others on the premise that higher quality and more comparable reporting and disclosure can have economy-wide benefits and positive externalities (Berger and Honn, 2007).
Study by Deloitte and Touche (2006) and Ball (2005) reveal that movement towards standardization of financial reporting are based on the need for “high quality, transparent and comparable information”. This requires low capacity for managerial manipulation, timeliness of financial statement and accurate depiction of economic reality.
Proponent of IFRS argue that the standard reduce information cost to an economy particularly as capital flows and trade become more globalised, a single set of international standards will enhance comparability of financial information and should make the allocation of capital across border more efficient. The development and acceptance of international standards should also reduce compliance cost for corporations and improve audit quality (Leuz level of optimism that the global migration towards IFRS would most likely facilitate cross-border investment; integration of capital market and eases the constraints to investing by foreigners (Merton, 1987; Cooper and Kaplanis, 1986; Stulz, 1981 and Leuz, 2005).
However there are a number of studies that disagree with the assumption that changing the accounting standards alone can make corporate reporting more informative and comparable. Studies by Joes and Wysocki (2007) and miller and Broadwhaw (2008) reveal that moving to a single set of accounting standards is not enough to produce comparability of reporting and facilitate investment flows even if the standard are strickly enforced. Reporting incentive still very systematically across firms and countries, according to the World Bank (2004) Report, the structure of national economies, the legal framework, the tax system and the level of development of one accounting profession shape the extent to which these international standards can be adopted across countries.
In captioning the experience of most developing countries like Nigeria, the World Bank (2004) note that guidance is not provided on how to appropriately adopt international standard into national legislative and regulatory systems while still ensuring compatibility with the existing legal, economic and regulatory institutions which could contribute to the monitoring and enforcement of international standard. As currently drafted, international standard implicitly assume the existence of legal institutional and policy condition (“preconditions”) which are often undeveloped or absent in money countries. In Nigeria as in other developing /transition economics, the evolution of the body of accounting rules and reporting standard is often as a result of the economic circumstances, peculiar business environment, and legal framework amongst others.
However Mrs Arunmia Oteh, Director-General Securities and Exchange Commission (SEC) noted at a press briefing on 5th February 2010 that; “The SEC is paying attention to make sure listed companies are IFRS compliant because compliance fosters good corporate standards by improving transparency and disclosure. While converting to IFRS can be a complex process those standards have important and positive implications for companies, it allows them to present their financial statement in the same basis as their foreign competitors, for investors, it offers better information for decision making. For regulatory bodies, it provides superior information for market participant in a disclosure based system”.
Though theoretically appealing, evidence from extant literature indicates that convergence is not an unchallenging process. It necessitates certain fundamental challenges, concerns and implication. Consequently, this study is an attempt to evaluate the possible challenges and implementation of IFRSs in Nigeria.
STATEMENT OF THE RESEARCH PROBLEM
The major challenges surrounding the enforcing uniform accounting standards is feasible given that countries differ considerably in almost all faces. The structure of national economies, the legal framework, the tax system, the political environment and the level of development of the accounting profession and all significant factors that influences the extent to which these international standards can be implemented across countries consequently, significant cost are likely to occur from transitioning to IFRS for the purpose of the study the following research question were formulated:
What are the complexity and structure of IFRS in Nigeria?
What are the technical competency of preparers, auditors and users of IFRS in Nigeria?
What are the legislative requirements of IFRS in Nigeria?
What are the system capability and internal capability of IFRS in Nigeria?
What are the accounting educations of IFRS in Nigeria?
OBJECTIVE OF THE STUDY
To identify the complexity and structure of IFRS in Nigeria.
To examine the technical competency of preparers, auditors and users of IFRS in Nigeria.
To evaluate the legislative requirement of IFRS in Nigeria.
To identify the system capability and internal capability of IFRS in Nigeria.
To identify the accounting education of IFRS in Nigeria.
HYPOTHESIS OF THE STUDY
H0: There is no relationship between the implementation of IFRS and the structure and complexity in Nigeria
H1: There is a relationship between the implementation of IFRS and the structure and complexity in Nigeria.
H0: There is no relationship between the implementation of IFRS and technical competency of preparers, auditors and users.
H1: There is relationship between the implementation of IFRS and technical competency of preparers, auditors and users.
H0: There is no relationship between the implementation of IFRS and legislative requirement in Nigeria.
H1: There is relationship between the implementation of IFRS and legislative requirement in Nigeria.
H0: There is no relationship between the implementation of IFRS and system capability and internal capability in Nigeria.
H1: There is relationship between the implementation of IFRS and system capability and internal capability in Nigeria.
H0: There is no relationship between the implementation of IFRS and accounting education in Nigeria.
H1: There is relationship between the implementation of IFRS and accounting education in Nigeria.
SCOPE OF THE STUDY
The scope of the study:
The adoption of International Financial Reporting Standard (IFRS) in Nigeria; challenges of implementation is restricted to the Nigeria environment. Consequently, it is based on a random sample size of 80 respondents consisting of professional auditors and management of selected companies in Nigeria. Questionnaires would be used to generate the required information needed to test the hypothesis formulated.
RELEVANCE OF THE STUDY
This study will be relevance in the following ways:
Regulators such as Security and Exchange Commission (SEC), Central bank of Nigeria (CBN), etc, will find it as usable tool in the formulation of policy as this study does not only identify one key steps involve in the adoption, it also highlight it challenges of implementation.
Companies’ management will find it useful in making their decision to adopt the accounting policy as well as in preparation of financial statement.
Accounting firms/ consultant will find this study very useful in the cause of their service to their clients.
Auditors of companies will appreciate the study as it expose the challenges of implementation involves in adoption as well as its procedure.
General public will find it useful not only because it identiry the challenges of implementation, it also examine the extrent of adoption by Nigeria companies.
LIMITATION OF THE STUDY
The study is restricted to the adoption of IFRS challenges of implementation:
Sample size: the sample was used in ten(10) firms from banking, oil and gas; manufacturing and education sector. This is relatively small sample size.
Time: the study was conducted and submitted within short period of time and this affect the scope of the study.
Geographical location: the study was restricted to ten(10) firms from manufacturing, oil and gas, banking and education section in Benin City.
Availability of data: this study was based on the data that the research could get.
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