ABSTRACT
This study investigated the Challenges of International Financial Reporting Standards (IFRS) Adoption for listed companies in Nigeria. The emergence of IFRS was a major task for Accountants in Nigeria to transit to, and embrace. Both primary and secondary data were used in the study, a population of six (600) Accountants drawn from the pool of one hundred and thirty-eight (138) listed companies were used. A model was formulated using multiple Regression Analysis, with functional expression: LOA = f (AEA, TR, CIAAP). The following findings were made, accounting education and awareness, training resources, and cost of acquiring accounting packages, all have significant effects on the level of IFRS adoption. It is therefore recommended that, Tertiary institutions should be encouraged to integrate International Financial Reporting Standard modules into their programs, in order to produce better equipped graduates who are IFRS certified. This will go a long way to reduce the challenges when these graduates are eventually recruited. Lastly, IFRS adoption in listed companies in Nigeria should be further improved.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgments v
Table of Contents vi
List of Tables vii
Abstract viii
CHAPTER
1: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement
of the Problem 4
1.3 Objectives
of the Study 5
1.4 Research
Questions 6
1.5 Research
Hypotheses 6
1.6 The Scope of the Study 7
1.7 Significance
of the Study 7
1.8 Operational
Definition Terms 8
CHAPTER
2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 10
2.1.1 Development of accounting profession in
Nigeria. 18
2.1.2
History of Nigeria accounting standard board 19
2.1.3 Legal and regulatory framework of
accounting in Nigeria 23
2.1.4 Financial
reporting and development of accounting
standard setting
in Nigeria 25
2.1.5 IFRS
Legal and regulatory framework 27
2.1.6 The
Nigerian accounting standards board Act 2003 27
2.1.7 Compliance
and monitoring regime 27
2.1.8 Some
relevant laws and regulations 28
2.1.9
Financial reporting council of Nigeria 29
2.1.10 International financial reporting standards and
Nigerian
general accepted accounting principles 30
2.1.11 The International financial reporting standards
(IFRS) and U.S. GAAP 31
2.1.12 Changes in nomenclature 32
2.1.13 Changing from historical cost to fair value 32
2.1.14 Changing from depreciation to deemed cost 33
2.1.15 Provisioning for bank loan losses 33
2.1.16 Investment in securities 33
2.1.17 Impairment 33
2.1.18 Transition adjustment 34
2.1.19 The Roles of regulatory bodies 34
2.1.20 External auditors and other professional services providers 34
2.1.21 Others emerging Issues 35
2.1.22 Difference between IFRS and Nigerian GAAP 35
2.1.23 Reasons for IFRS 36
2.1.24 Meaning of convergence with IFRS 42
2.1.25 Benefits of convergence to IFRS 42
2.1.26 Requirements that will assist implementation of IFRS in Nigeria 45
2.1.27 IFRS adoption process in Nigeria (The Road
Map) 45
2.1.28 Statement of adoption by
federal government of Nigeria 46
2.1.29 Adoption statement 47
2.1.30 List of IFRSs and IASs 49
2.1.31 Issues to pay attention in
corporate governance 52
2.1.32 Issues and implications of
IFRS, DFI, financial statements and the economy 53
2.1.33 Is the adoption of IFRS Possible? 56
2.1.34 Benefits of adopting IFRS in Nigeria 56
2.1.35 Perceived benefits of IFRS 58
2.1.36 The challenges of IFRS 59
2.1.37 IFRS implementation, issues and challenges for emerging economies 66
2.1.38 Key Drivers of IFRS 68
2.1.39 Experiences of some Countries
that have implemented IFRS 70
2.1.40 IFRS and Corporate Governance 73
2. 1.41 Corporate governance
regulatory environment in the past 74
2.1.42
Corporate governance regulatory environment in present times 77
2.2 Theoretical
Framework 79
2.2.1 The
pure-impression-management model (PIMM) Theory of accounting
postulated by Keppler in 1995 79
2.2.2 Theory of qualitative characteristic of
financial reporting information 79
2.2.3 Theory of accounting quality 80
2.3 Empirical Review 80
2.4 Gap
Filled/ Contribution to Knowledge 87
CHAPTER 3:
RESEARCH METHODOLOGY
3.1 Research
Design 89
3.2 Study
Area 89
3.3 Population of the Study 89
3.2 Sample Size and Sampling Technique 90
3.5 Sources of Data 90
3.5.1 Primary Sources of Data 90
3.6 Method of Data Collection and
Administration 90
3.7 Instrument of Validation and Reliability 91
3.8 Model Specification 91
CHAPTER 4: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Presentation of Data 94
4.2
Test of Hypotheses 105
4.2.1
Hypothesis one 105
4.2.2
Hypothesis two 106
4.2.3
Hypothesis three 107
4.2.4
Hypothesis four 108
CHAPTER 5:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 109
5.2 Conclusion 109
5.3 Recommendations 110
Reference 119
Appendices 125
LIST OF TABLE
4.1 Response to questionnaire 94
4.2: Demographic characteristics of respondents (n=483) 95
4.3: Distribution of responses between cost of education and training
of accountants and IFRS
adoption 97
4.4: Distribution
of responses between Integration IFRS Modules
into
tertiary institution programs and level of adoption 99
4.5: Distribution of responses between Awareness of IFRS for
preparers of
financial statement and level of adoption 101
4.6 Distribution of responses between level of IFRS Adoption and
quality
of
financial statement 103
4.7 Regression results of Accounting Education and Awareness and level of
IFRS adoption 105
4.8 Regression results of training resources and level of IFRS adoption 106
4.9 Regression
results of cost implications in acquiring accounting packages
and level of IFRS adoption
107
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
International Financial Reporting
Standards (IFRS) are principally designed to serve as a common global language
for business affairs so that accounts are understandable and comparable across
international boundaries. The advent of technology has made it possible for
companies to have international share holdings which make it possible for
companies to have business dealings in several countries across the globe.
Accounting is the language of business that enables communication among
financial information users and providers. Prior to the advent of IFRS nations
have their different accounting standards influenced by social, political,
economic, and cultural inclinations of each country. (Lainez & Gasca 2006).
In a bid to stem the tide IFRS came into being with a call on countries of the
world to adopt this global accepted accounting standard. In 1st
January, 2005 was the effective date European Union (EU) mandated a global
convergence by companies whose shares are traded in EU stock exchange to
prepare their consolidated financial statements in accordance with the
International Financial Reporting Standards (IFRS) as adopted by EU. Australia
followed suit on the same date; other countries such as Canada, Japan, Mexico,
Philippines, Brazil, India, Pakistan, Singapore, South Africa and Egypt have
all adopted IFRS (Garuba & Donwa 2011). Presently, over 120 countries are
reported to have adopted or converged with IFRS. (IASB 2013).
From 1st July, 2012 IASB
have 16 members drawn from a broad range of professional backgrounds and has
liaison-responsibilities throughout the world. The IASB is an independent
private sector body. It operates under the oversight of IFRS Foundation. Before 1st April 2001 when IASB
took over from International Accounting Standard Committee (IASC) countries and
economic regional blocs, such as Europe, would not be swayed by the thought of
converging to a single set of global accounting standards due to nationalistic
approaches to accounting treatments and disclosures compared to a financial
statement issued in other parts of the world, say, in Germany where German
accounting standards were used. In other words, the “name” that was given to
the set of accounting standards did not matter for several countries since
their national standard setters strongly believed that their own (national)
accounting standards were suitable for their needs and were compatible to other
globally preferred accounting standards. Historically countries around the
world have had their own national accounting standards (which some countries
have treasured for whatever reason, most likely due to the pride of national
sovereignty). However, with such a compulsion to be part of the globalization
movement, wherein businesses across national boundaries are realizing that it
is an astute business strategy to embrace the world as their workplace and marketplace, having different
rules (standards) of accounting for the purposes of reporting financial results
would not help them at all (rather, it would serve as an impediment to smooth
flows of information), therefore, businesses have realized that they need to
talk to each other in a common language. Thus, there is an urgent need for a
common set of global or even universal accounting and financial reporting
standards that are understood, used and interpreted by different people around
the world in the same manner, other than IFRS. International Financial
Reporting Standards (IFRS) is now globally accepted accounting standards that
meet the global capital markets. To wear a global outlook and acceptance
convergence of IFRS and United States General Accepted Accounting Standards (US
GAAP) took a positive turn in 2013 when the International Financial Reporting
Standards Foundation selected Financial Accounting Standard Board (FASB) to
represent United States interest in IASB standard setting process. (IASB News
Letter Aug. 2015).
In Nigeria, adoption of IFRS was
launched in September 2010, by the then Honorable Minister, Federal Ministry of
Commerce and Industry, Senator Jubril Martins-Kuye (OFR). The adoption was
organized such that all stakeholders should use the IFRS by January 2014. The
adoption was scheduled to start with Public Listed Entities and Significant
Public Interest Entities who are expected to adopt the IFRS by January 2012.
All other Public Interest Entities are expected to mandatorily adopt the IFRS
for statutory purposes by January 2013, and Small and Medium-sized Entities
shall mandatorily adopt IFRS by January 2014. As part of the plans to meet
International Standards, the Federal Government of Nigeria has disclosed that
the new accounting system, the International Financial Reporting Standard
(IFRS) will take off in Nigeria on 1st January, 2012. In Nigeria the
government has taken its stand to involve all stakeholders including
institutions before its finally decided to adopt the IFRS on a gradual basis.
As of 1st January 2012 all listed companies in Nigeria had to adopt
IFRS in order to prepare their financial statements. This decision was issued
by the Nigerian government through the minister of trade and investment dated
28th July, 2010. It was aimed at enhancing the competitiveness of
the Nigerian capital markets by a way of establishing a single set of globalized
and homogeneous, “investor friendly oriented” and internationally recognized
accounting standards.
The decision to adopt IFRS in a vast
and important economic area such as Nigeria cannot be over-emphasized, but in
doing that the government need to consider several factors that may affect the
adoption of IFRS in developing countries (Zeff & Nobes 2007), it has been
advocated by Daskel, Hail, Leuz, Verdi
(2008) that the adoption of IFRS will
lead to greater transparency and understandability, lower cost of capital to
companies and higher share prices, reduce national standard-setting cost,
facilitate international mobility of professional staff across national
boundaries, increase investment opportunities among other things. Although that
research stream concerning international accounting standards had gained
international relevance in most of the developed nations of the world, IFRS
adoption in Nigeria will offer a unique opportunity for researchers to explore
possible ways of assessing the level of compliance and implementation issues of
the subject matter.
A key policy strategy in
repositioning the Nigeria economy is the attraction of Foreign Direct
Investments into the economy to provide investible funds. Empirical evidence
may have confirmed that a strong regulatory country, legal and technological
infrastructure, which seem to be lacking in Nigeria at the moment remains a
fundamental requirement for reaping the perceived benefits of IFRS adoption.
This research work shall therefore critically examine the above issues
including the challenges facing the adoption of IFRS in Nigeria with a view to
making useful recommendations based on the findings that would emerge.
1.2 STATEMENT OF THE PROBLEM
The emergence of International
Financial Reporting Standard (IFRS) in Nigeria accounting landscape posed
multiple challenges. When a country switches from its domestic NGAAP to IFRS it
affects various spectrum of its financial reporting system. The adoption of
IFRS is more than an accounting exercise, there are challenges and issues
envisaged in the implementation of IFRS in Nigeria. According to Abdulkadir
(2012) the following are envisaged, cost of education and training, lack of
awareness to stakeholders, legal and regulations issues etc. Among other
things, the principal problem Nigeria may encounter in the process of
implementation is the shortage of accountants and auditors who are technically
competent to handle the process of IFRS. The time lag between decision and
implementation date is short and not sufficient enough to raise the manpower
required to apply competently the International Standard.
There are major differences between
IFRS and NGAAP, Nigeria accounting practice is hinged on some existing laws
such as Companies and Allied Matters Act (CAMA) 1990, Company Income Tax Act
2004, Bank and Other Financial Institution Act (BOFIA) 1991 etc. These provided
guidelines on preparation of financial statements which IFRS does not
recognize. There is need to harmonization or outright amendment of these laws.
According to Bewaji (2012) there is need for the existing system to be
remolded, there should be change of accounting policies to align with the
provisions of IFRS.
There are obvious difficulties that
Nigeria and Nigerian firms would have to grapple with and surmount for a
successful implementation of IFRS. The big bang question shall be how prepared
is Nigeria to successfully adopt the global accounting standards? Nigeria has
not put the institutional structure to support the adoption of IFRS from the
perspective of tertiary institution programs, preparers and users of financial
reports.
Implementation of IFRS will involve
radical revolution in terms of presentation of financial statements,
especially, software problems, IFRS non- compatibility with local legislation
and lack of proper awareness etc. (Adetoso & Oladejo 2013). These are
compelling problems that needed to be addressed, hence the need to investigated
through this kind of research, challenges to the adoption of the IFRS in listed
companies in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is
the Challenges to the adoption of International Financial Reporting Standards
(IFRS) in listed companies in Nigeria.
The
specific objectives which the study seeks to achieve are:
(i)
To determine the extent
to which Accounting Education and
Awareness affects the level of IFRS adoption among listed companies in
Nigeria.
(ii)
To determine the extent
to which Training Resources
affects the level of IFRS adoption among listed companies in Nigeria.
(iii)
To determine the extent
to which Cost implications in
acquiring accounting packages affects the level of IFRS adoption among
listed companies in Nigeria.
1.4 RESEARCH QUESTIONS
The
questions raised on this are:
(i)
To what extent does Accounting Education and Awareness affects
the level of IFRS adoption among listed companies in Nigeria?
(ii)
To what extent does Training Resources affects the level
of IFRS adoption among listed companies in Nigeria?
(iii)
To what extent does Cost implications in acquiring accounting
packages affects the level of IFRS adoption among listed companies in
Nigeria?
1.5 RESEARCH HYPOTHESES
This
study is guided by the following hypotheses which are stated in null forms as
follows:
(i)
Accounting
Education and Awareness has no significant
effects on the level of IFRS adoption among listed companies in Nigeria.
(ii)
Training
Resources has no significant effects on the level
of IFRS adoption among listed companies in Nigeria.
(iii)
Cost
implications in acquiring accounting packages have
no significant effects on the level of IFRS adoption among listed companies in
Nigeria.
1.6 SCOPE
OF THE STUDY
It is practically
impossible to include all the period of change SAS to IAS and to IFRS.
Consequently, the scope of this study is limited 2005-2012 a period when the
development process of International Financial Reporting Standards and to the
period of its compulsory implementation and enforcement by the international
community. The study is focused on Challenges to the adoption of International
Financial Standards IFRS, in Listed Companies in Nigeria.
1.7 SIGNIFICANCE
OF THE STUDY
The benefits that will be accruable
from this study cannot be over emphasized. The significance of the study is
buttressed by the fact that the contribution of IFRS towards unification of
global standards will go a long way to enhancing the quality of financial
reporting, attraction of foreign direct investment as well as improvement of
the country’s capital market. This study
is important to policy makers, stakeholders in private and public sectors,
accountants, auditors as well as students of accountancy and other management
sciences scholars.
The overriding benefits this study is
expected to offer to the above groups are summarized hereunder:
Policy Makers: This study will give
them the pure view of compilation of meaningful data on the performance of
various reporting entities at all levels. A proper insight of how IFRS will
enhance comparability, transparency, efficiency, and reliability will be
gained.
Stakeholders: Assurance of useful and
meaningful decision on investment portfolio will be easier. Investors can
easily compare financial results of other entities for informed investment
decision.
Public and Private Sector: This study
will highlight how increased market liquidity; cross border listing will be
facilitated. There will be easier access to external capital and direct foreign
investment to multinationals and indigenous corporations.
Accountants and Auditors: It will
afford them easy consolidation of financial statements and complying with
reporting requirements.
Students: They will gain enhanced
knowledge of global financial reporting standards, thereby making the tertiary
institution IFRS compliant.
It is hoped that this study will provide more
reliable information that may add to the existing body of knowledge in the
areas of accounting and finance and perhaps stimulate further research.
1.8
OPERATIONAL DEFINITION TERMS
The
following terms were defined in line with their usage in the study.
International
financial reporting standard (IFRS): this is the body that replaced the Nigerian
Statement of Accounting Standard (SAS) and the International Accounting
Standards (IAS) and the other similar bodies regulating the practice of the
accounting profession.
Convergence: this means to achieve harmony with IFRS.
Convergence does not mean that IFRS should be adopted word-by-word. Convergence
can be considered to mean to design and maintain national accounting standards
in a way that financial statements are prepared in accordance with national
standards drawing unreserved statement of compliance with IFRS(s).
Adoption: Adoption refers to harmonization
or transformation to conform with IFRS provisions.
Single
reporting: convergence with IFRS eliminates multiple
reporting such as Nigeria GAAP and IFRS.
Challenges:
these are encumbrances, difficulties, short comings, impairment of the old
order which are to be addressed by the new order.
Corporate
governance: this addresses
the issue of board composition, agency theory, ownership shareholders,
stakeholders’ responsibilities, accountabilities, transparency and strategy in
managing business organisations.
Emerging
economies: these are
previously classified third world countries as a result of their backwardness
in sciences, technology, economies and general development but now reclassified
as developing or emerging economies which Nigeria is inclusive.
Regulatory
environment: this
specifically has to do with the various laws, agencies and institutions that
regulate the accounting activities such as training of accountants in
accounting professions such as ICAN, ANAN,
CAMA, Government etc.
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