ABSTRACT
The purpose of the study was to examine the impact of international financial reporting accounting standards adoption on the corporate performance of selected manufacturing firms in Nigeria. The specific objectives were to determine the impact of the adoption of International Financial Reporting Accounting Standard on the Returns of Assets (ROA) of selected manufacturing firms in Nigeria and determine the impact of adoption of International Financial Reporting Accounting Standard on the Returns on Equity (ROE) of some selected manufacturing firms in Nigeria. The study adopted ex post facto and survey research design. The data were collected using secondary data. The study used regression analytical technique in the analysis of data. Result findings showed that the introduction of IFRS in the Nigerian economy as an accounting reporting standard and its adoption by companies has led to improved quality financial statements; and has led decrease in the values for returns on assets in these manufacturing companies. IFRS implementation is indirectly associated with the changes in returns on equity of selected firms judging from the beta coefficient of -14.68 approximately. Also the t-statistics of the coefficient which is -2.40 approximately is statistically significant at 5% implying that the influence of IFRS implementation on the returns on equity of these selected firms is considerable enough to warrant statistical conclusion. The study concluded that the adoption of IFRS in the Nigerian manufacturing sector and other sectors of the Nigerian economy has affected the quality of financial statements significantly. The study further recommended that firms of all sizes should endeavor to voluntarily study, introduce and adopt all the requirements of the International Accounting Standards Board (IASB) as contained in the various issues of IFRSs as it has been established in this study that items of the financial statements are better reported when these standards are adhered to and the government through its oversight body.
TABLE
OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Content vii
List of Tables viii
Abstract ix
CHAPTER ONE: INTRODUCTION
1.1
Background of the Study 1
1.2 Statement
of the problem 3
1.3 Objective of the Study 6
1.4 Research
Questions 6
1.5 Research
Hypotheses 7
1.6 Significance
of the Study 7
1.7 Scope of the Study 8
1.8 Definition
of Terms 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 10
2.1.1 Pre-IFRS Era 10
2.1.2 SASs 11
2.1.3 Differences between IFRS and SAS 25
2.1.4 Similarities
and Differences between IFRS and NAS 25
2.1.4 Formation and Membership of NASB in Nigeria 34
2.1.5 Adoption of IFRS 36
2.1.5 Challenges to IFRS Implementation 39
2.2 Theoretical
Framework 40
2.2.1 Agency Theory (Alchian and Demsetz, 1972) 40
2.2.2 Stakeholder’s
Theory (March and Simon, 1958) 41
2.2.3 Stewardship Theory (Donaldson and Davis, 1989) 42
2.3 Empirical Framework 43
2.4
Summary of Literature Review 52
2.5
Gap in Literature 52
CHAPTER THREE
METHODOLOGY
3.1 Research
Design 53
3.2 Area
of the Study 53
3.3 Population
of Study 53
3.4 Sampling and
Sampling Techniques 54
3.5 Method of Data
collection 54
3.6 Method of
Data Analysis 54
3.7 Model
Specification 55
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Descriptive Analyses 57
4.2 Test of Hypotheses 59
4.2.1 Hypothesis I 59
4.2.2 Hypothesis II 61
CHAPTER
FIVE
SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 64
5.2 Conclusion 65
5.3 Recommendations 65
REFERENCES
LIST
OF TABLES
Table 1: Descriptive Analyses of ROA and ROE 58
Table 2: Regression Analysis of IFRS on PAT 60
Table 3: Simple regression of IFRS on returns
on equity of selected firms in Nigeria 62
CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study
The relevance of International Financial
Reporting Standards in the manufacturing firms in this contemporary society
cannot be over-emphasized. However, the adoption of International Financial Reporting
Standards was in a bid and expectation towards creating an increase in
shareholder’s wealth either in the long run or short run; pressure of
globalization, capital market crash cum global economic meltdown, inherent
problems associated with local reporting systems varying from country to
country such as inability of local accounting reporting systems to offer
cross-border or cross-nation uniformity in the face of the dynamic global
business environment (Amaefule,
Onyekpere and Kalu, 2018; Ezeagba, 2017; Blanchette, Racicot and Girard,
2011). The intended aim of IFRS
as a mechanism is to offer room for a greater demand for a corporate performance
that requires by investors and other stakeholders in their quest for financial
reporting quality (Jonas and Blanchet, 2000).
Kool (2011) affirms that, the purpose of
introducing a new accounting standard such as IFRS is to improve the
transparency and comparability of firms and since the capital market is
primarily defined by investors and creditors, this increasing transparency and
comparability (as a result of change in accounting standards) will have a
direct impact on the capital market reflected by a change in cost of capital
and market liquidity.
The
corporate performance is of paramount concern to
shareholders, management, employees, investors,
creditors, tax authority etc which have different
interest in the organization. Their various performance
interests focus ranges from profitability, solvency,
and efficiency to capital structure performance
(Frank and Alan, 2008). Corporate performance
can be measured through the analysis and
interpretation of the components that make up the financial statements.
Therefore in a bid to ensuring improved
uniform corporate performance in the manufacturing firms, Jeno (2010), support
the fact that uniform accounting standards should be adopted in order to increase
market liquidity, decrease transaction costs for investors, lower costs of
capital, and facilitate international capital formation and flow exists; and
such reduced costs will in turn, lead to increased cross-listings and
cross-border investments.
However, the International Financial
Reporting Standards (IFRS) are accounting standards developed by the
International Accounting Standard Board (IASB) which has become the global platform
for the preparation and presentation of public company financial statements
(Ezeagba, 2017). The International Financial Reporting Standards (IFRSs) are a
set of global accounting standards developed for the preparation and
presentation of the financial statement of companies (Aseoluwa and Jelil,
2017).
As a global language, IFRS is established for
business dealings to enhance understanding and comparability across
international boundaries. With the world’s revolution into a global village,
the magical aspect of globalization has led to the evolution of “global
village” that we all live in now. Accounting is the language of business; and
businesses around the world can no longer afford to be speaking in different
languages, with each other while sharing and exchanging results of their
international business activities (Holt & Mirza, 2011).
The framework for the preparation and
presentation of financial statements depicts the principles underlying IFRS.
The IASB’s IFRS Framework states that; “The objective of financial statements
is to provide information about the financial position, performance and changes
in financial position of an entity, that is useful to a wide range of users in
making economic decisions” (IASB, 2010).
The quality of financial reporting is
indispensable to the need of users who require 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 simplifies interpretation of accounting
numbers (Kenneth, 2012).
The adoption of IFRS arguably leads to more
accurate, comprehensive and timely financial statement information, better comparability
of financial statements and much more, transparency in reporting (Barth,
Jagolizer, Armstrong & Riedl, 2008; Chua & Taylor, 2008; Gebhardt &
Novotny-Farkas, 2010). The Implementation of IFRS reduces information
irregularity and strengthens the communication link between all stakeholders
(Bushman & Smith, 2001). It also reduces the cost of preparing different
versions of financial statements where an organization is a multi-national
(Healy & Palepu, 2001). It is on this basis that this study is carried out
to ascertain the impact of international financial reporting standard on the
corporate performance of selected manufacturing firms in Nigeria.
1.2 Statement of the problem
Since the dramatic collapse of Nigerian
Version of Enron Corporation Scandal Case in which the Cadbury Nigeria had been
caught in a scandal on October 2006. The nature of scandal is: Firstly, the
scandal caused Cadbury Nigeria losing a lot of money, it had recorded roughly a
loss of $15 million on the year and will continue lose money again in the next
year. Cadbury Nigeria shares quickly dropped 5% of their value and writing the
shares down over 26% since the scandal. The company shares have been hit hard
on the Nigerian Stock Exchange. The corruption of Cadbury Nigeria has led to
Nigeria loss the public confidence to do business in the country and has a bad
reputation. The CEO tried to shed its corruption image to encourage greater
shareholder to activism in the country and attract foreign investment. The
company’s public affairs managers also said that the overstatement of financial
position was traced to the CEO and the financial executive director keen to
achieve its set ambitious growth target. The scandal also disgraced Nigeria’s
reputation and leave a bad impression to foreign investors, which the country
will recognized as a risky place to trading, suffer from widespread corruption,
political instability, lack of transparency as well as the arbitrary
enforcement of trade and investment regulations.
In addition, the global leading and well-known
brand ‘Cadbury’ also affected by the scandal, it decreases the brand reputation
and sales of all the company’s subsidiary in worldwide. The scandal also
damaged the CEO and the finance executive director’s reputation and ended their
long years of service at the company. Besides, the board and the auditor of
Cadbury Nigeria were suing by more than 300 shareholders for breach of duty.
Another shareholder’s suing was carried out by the independent auditor of
Cadbury Nigeria for access to a review the financial position. This is because
the shareholders were suffering a huge loss due to the overstatement of Cadbury
Nigeria’s accounts and the board failed to act in their interest. Moreover,
corporate ethics has gone in Nigeria due to some crooks in the society. For
instance, the board of Cadbury Nigeria, it has packaged itself act as the good
example of professional establishment, best practice as well as strong ethical
in managing the company over the number of years. In fact, who was under the
mask of ruse deception and fooled the general public. The external auditor,
Akintola Williams Deloitte (AWD) affected by the scandal and loss the investing
public’s confidence in the capital market and it has been strongly warned and
reprimanded to desist from its action by public. The Union Registrars, a
registered market operator in the capacity of Registrars which engaged in acts
that adversely affected the investors’ confidence in capital market (Economic
Confidential, 2008).
Despite all this financial regulation adopted
and implemented by Central Bank of Nigeria (CBN), most quoted organizations
still evade this regulation through fraudulent mechanisms which involves them
ensuring that the audited financials records sent to the central bank of
Nigeria (CBN) are usually profit-oriented since it is the audited account that
would be published and this often shows bogus profit in order to make them
attractive to the capital market after a compromised approval have been
obtained from the CBN. Certain issues such as limited time to transition to the
new standard, lack of effective and efficient mechanism to ensure compliance,
lack of technical expertise in IFRS concept and shortage of skilled
accountants, inadequate information and communication technology to relay
information about IFRS requirements, structural system changes among other
factors constitute the major challenges to the successful adoption and
implementation of IFRS.
However, for the same accounting period, the
audited account that would be forwarded to the Nigeria Deposit Insurance
Corporation (NDIC) would have a depleted deposit base for the manufacturing
firms to pay an inconsequential 1% insurance premium to NDIC. For the same
accounting year too, the audited accounts that is sent to the Federal Inland
Revenue Services (IFRS) would have a reduced profit so that these firms would
not pay any corporate tax to the coffers of the Federal Government of Nigeria
while at the same time concealing withholding tax and value added tax (VAT) deductions
thereby defrauding the federal government of Nigeria of revenue due to her for
economic development. Following the fact that the corporate performance of an
organization is of great interest to stakeholders who want to determine
beforehand the Earnings Per Share (EPS) and Return on Equity (ROE) of such
organization before investing their limited scare resources, the adoption of
IFRS gives confidence to stakeholders in relying on the financial statements to
take relevant and informed decisions. It is on this basis that this study is
carried out to ascertain the impact of international financial reporting
standard as a consolidated and generally accepted accounting reporting system
on the corporate performance of selected manufacturing firms in Nigeria.
1.4 Objective
of the Study
The main objective of this study were to
examine the impact of international financial reporting accounting standard on
corporate performance of selected manufacturing firms in Nigeria while the specific
objectives included to:
i)
determine
the impact of the adoption of International Financial Reporting Accounting
Standard on the Returns of Assets (ROA) of selected manufacturing firms in
Nigeria,
ii)
determine
the impact of adoption of International Financial Reporting Accounting Standard
on the Returns on Equity (ROE) of some selected manufacturing firms in Nigeria.
1.4 Research Questions
The following research questions were adopted
in ascertaining the impact of international financial reporting standards on
corporate performance of some selected manufacturing firms in Nigeria:
i)
What is
the impact of the adoption of IFRS on the Returns of Assets (ROA) of selected
manufacturing firms in Nigeria?
ii)
What are
the impact of IFRS adoption on Returns on equity (ROE) of some selected
manufacturing firms in Nigeria?
1.5 Research Hypotheses
The following null research hypotheses were
adopted in the course of the research findings:
Ho1: There
is no significant relationship between adoption of IFRS and Return on Assets (ROA) of some selected manufacturing
firms?
Ho2: There
is no significant relationship between the adoption of IFRS adoption and
Returns on Equity of some selected
manufacturing firms?
1.6 Significance of the Study
The study is significant because it will
provide more information to the following personnel which will give financial
information that will enable them to develop confidence in financial reports:
To
the investors: The
outcome of the research work would assist investors in the Nigerian Deposit
Money Banks to examine whether earnings reported are still adequate to meet
their expectations and to take into consideration if they should revise their
expectations from the organization’s performance.
To the Management: The findings of this study would be of
tremendous assistance to the management of manufacturing companies to determine
whether the adoption of IFRS would change their reported performance in the
financial statements, and if so, to incorporate this information on their
planning process.
To
students and the entire academic bodies: The academic community has been at the forefront of
research on the impact of IFRS adoption on reported corporate performance of
organizations. The outcome of this study would contribute to both domestic and
international literature that relates to the adoption and implementation of
IFRS by focusing on a given period of time rather than the traditional approach
of focusing on the “same firm year” found in most of the empirical
studies.
To Consultants in Practice: The findings of this study would
strategically position consultants to provide better services to their numerous
clients. Through a clear understanding of the nature and extent to which IFRS
influence banks’ financial performance, consultants will be in a vantage
position to advice firms’ management on how to improve performance using the
outcome of this research work.
To
the Policy Makers: The findings of this study would also broaden
the expectations of policy makers and assist them to know the practical
implications of converting to IFRS.
1.7 Scope
of the Study
Although the effect of the International
Financial Reporting Standard (IFRS) is becoming visible in most financial and
manufacturing institutions. However, this study focused on ascertaining its
impact on the manufacturing firms. This study focused on five (5) manufacturing
firms quoted in the Nigerian Stock Exchange Database; these firms included
Nigeria Bottling Company, Nestle Nigeria Plc, Nigerian Breweries Company,
Dangote Nigeria Plc, Unilever Nigeria Plc from 2011-2018. To achieve the
objectives of this study, comparision was made between the pre and post
adoption periods of the standards; 2006-2009 accounting periods for the pre
adoption period 2011-2018 accounting periods for the post adoption period;
bringing the accounting periods for the post adoption period.
1.8 Definition of Terms
The following terms are defined as follows:
a) Accounting standard: This is defined as the basic law or rule upon
which the preparation of financial statements are based.
b) Financial Reporting: This is defined as activities which are
intended to serve the informational needs of external users who lack the
authority to prescribe the financial information they want from an enterprise
and therefore must use the information that management communicates to them.
c) Corporate Performance Measurement: Corporate performance measurement entails a
critical assessment and review of the overall business performance. It is also
viewed as the process of quantifying the efficiency and effectiveness of action
(Neely, Gregory & Platts, 1995).
d) Financial Performance: This refers to the process of carrying out an
assignment in an organisation in an efficient and effective manner
e) Return on Asset: this is the ratio of profit after tax to the
total asset of the selected quoted companies considered in this research work.
f) Return on Equity: This is the ratio of profit after tax to the
Equity of the selected quoted companies considered in this research work
g) Quality of Financial Reporting: This refers to major criteria of the
financial reporting that emphasises that information contained in the financial
report should be reliable and credible.
h) Profit After tax: This is the profit after subtraction of tax
for the period under consideration.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment