ABSTRACT
This study was designed to critically appraise and analyze
the “The Adoption of IFRS: An Imperative for Effective Business Organization
Performance in Nigeria”
The researcher made use of both primary and secondary sources of data as
research methodology. The primary sources include, personal interview and
questionnaire administration while the secondary sources include; information
gathered from text books, newspapers, seminar paper presentation, internet and
past project work related to the title. The data collected were analyzed and
hypotheses formulated were tested using chi-square. The result from the study
reveals that Nigeria has decided to join the rest of the world on the adoption
IFRS and this adoption will boost the Nigeria economy and also it will
encourage foreign investors to invest in Nigeria economy as IFRS will create
uniformity and comparability of financial statement from one organization to
another and from one country to another. Based on the findings, the study
recommends among others that in other to ensure 100% compliance by business
organizations in Nigeria, the federal government should put in place necessary
gadgets that would ensure compliance of adoption by all quoted companies in
Nigeria at the appropriate transition period, quoted companies should not only
adopt IFRS but also consistently apply IFRS in the preparation and presentation
of financial statement and they should follow the standards as stated in the
statement strictly and since the adoption of IFRS will boost the confidence of
foreign investors to invest in Nigeria economy, federal government should also
make sure that the environment is conducive for foreign investors to invest in
Nigeria economy.
TABLE
OF CONTENT
Title
Page i
Certification ii
Dedication iii
Acknowledgement
iv
Abstract
vi
Table
of Contents vii
Chapter
One – Introduction 1
1.1 Background to the Study 1
1.2
Statement of the Problem 3
1.3
Research Questions 6
1.4
Objectives of the Study 7
1.5 Statement
of Hypotheses 9
1.6
Significance of the Study 11
1.7
Scope of the Study 14
1.8
Limitations of the Study 14
1.9
Definition of Terms 15
Chapter
Two – Review of Related Literature 17
2.1
Introduction 17
2.2 Overview
of International Financial
Reporting
Standards 24
2.3 Adoption
of IFRS 27
2.4
Benefits of the adoption of International
Financial
Reporting Standards 28
2.5 The IFRS in Nigeria 32
2.6 Key
Stakeholders in the Adoption and
Implementation
of International Accounting
Standards 39
2.7 The
Vital Roles of Expected Key Stakeholders in
the
Adoption and Implementation of
International
Accounting Standards 41
2.8 The
Challenges of Adopting International
Financial
Reporting Standard in Nigeria 58
2.9 Impact
of IFRS on the Financial Services Industry 60
2.10 Financial
Instruments: Classification
and
Measurement 62
2.11 Business Model for Managing
Financial Assets 65
2.12 Hedging fair value measurement and
disclosures 68
Chapter
Three – Research Method and
Design 75
3.1
Introduction 75
3.2
Research Design 76
3.3
Population of the Study 76
3.4
Sample Size 76
3.5
Method of Data Collection 77
3.6
Sampling Technique 77
3.7 Method of Data Presentation 79
3.8
Method of Data Analysis 79
Chapter
Four – Data Presentation, Analysis
and Interpretation 82
4.1
Introduction 82
4.2
Presentation of Data 83
4.3 Data Analysis 83
4.4
Hypotheses Testing 99
Chapter Five – Summary of Findings, Conclusion
and Recommendations 109
5.1 Introduction
109
5.2 Summary
of Findings 109
5.3 Conclusion
111
5.4 Recommendations 113
References
116
Appendices 118
Questionnaire
119
CHAPTER
ONE
INTRODUCTION
1.1
Background to the Study
Much of the world is
moving in the direction of International Financial Reporting Standards (IFRSs).
While some countries have been using these standards for decades, they are
however new for transition economies like Nigeria. Business globalization and
international convergence whose combined effects is making a ‘global village’
of the world have posed the challenge of having in place a common financial
reporting standards for the countries of the world. The series of World Bank sponsored
private and public sector financial management reforms across developing
economies as a prerequisite for Foreign Direct investments (FDI) and foreign
donor agencies’ intervention, has made the adoption and implementation of
international financial accounting reporting standards imperative. However, the
successful adoption and implementation of these standards will remain a mirage
in any country, including Nigeria,
except through the collaboration and appropriate actions of all stakeholders.
This research work seeks to critically examine the adoption of IFRS as an
imperative for effective business performance in Nigeria, the benefits and also the
challenges associated with first time adoption. Also, this research work will access
the roles expected of key stakeholders to make the adoption and implementation
of international financial reporting a success.
The theoretical
foundations underpinning Nigerian Generally Accepted Accounting Policies (GAAP)
and International Financial Reporting Standards (1FRS) are not altogether
similar. As such, there will be increased responsibilities in setting sound
accounting policies that fit business models, on the part of the professional
accountant, who must also be ready to explain and justify these policies in the
context of the IFRS framework.
The objectives and
importance of introducing IFRS include:
Ø
To develop a
single set of high quality understandable and enforceable global accounting
standard that requires transparent and comparable information in financial statements
Ø
To help
participants in various capital markets (investors, stockbrokers etc) across
the globe to understand financial statements;
Ø
To work actively
with the national standard setter to bring about convergence of national
accounting standards;
Ø
IFRSs are
designed for adoption by profit-oriented entities.
Ø
IFRSs require
that financial statements (FS) give a true and fair view of the financial
health of entities.
1.2
Statement of the Problem
There is need for a set of accounting
and reporting standards if comparability between and among firms is of any
importance. As a result of diversities in laws, norms and standards in
different nations on the earth, it is almost impracticable for PhD holders in
accounting who also possesses professional certificates in accounting in one
country to practice as an accountant when him/herself in another country.
Surprisingly debit and credit as well as the double entry principles are the
same all over the world.
Globalizing the falling of the previous
Herculean trade barrier between nations, and more recently the much awaited response
to the global financial crisis, together with intervention by world leaders
have change things dramatically in terms of the preferred set of standards of
accounting globally. The accounting of financial world is now seriously
considering the notion of using a single set of accounting and financial
reporting standards that will be used in most if not all the nations around the
globe. It appears that the set of global accounting standard is international
financial reporting standard (IFRS).
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.
The transition from what is used to be
in various countries to the adoption of accounting standard that requires
qualitative, transparent and comparable information is a step in the right
direction and a welcome development by international investors, creditors,
stock exchange, financial analyst and other users of financial statement. The
absence of a common set of accounting and financial reporting standards makes
it difficult to compare financial information reported by entities located in
different parts of the world. The use of a single set of a high quality
accounting standard facilitate foreign investment and other economic decisions
across border, increase market efficiencies, and reduces the cost of raising
capital in a global economy that keep increasing at a fast rate.
Earning global income in the current
dispensation of IFRS in the preparation and presentation of financial
statement, international reporting standards are increasingly becoming the set
of globally accepted accounting standards that meet the needs of the world
increasingly by integrated global market.
1.3
Research Questions
In
order to have a thorough understanding and to carry out a detailed research
work of this nature, this research is conducted to seek answers to the
following questions:
1.
What is the essence of adoption IFRS
in the preparation and presentation of companies’ financial statement in Nigeria?
2.
Does the adoption of IFRS increase the
performance of business organizations?
3.
Does the adoption of IFRS enhance the
quality of organization’s financial statement?
4.
Does the adoption of IFRS encourage
foreign investors to invest in Nigeria
economy?
5. What
are the key challenges of adopting IFRS in Nigeria?
6.
Will the adoption of IFRS in Nigeria
enhance decision making by the various players in both capital and money market?
1.4
Objectives of the Study
It
is imperative that there is a clarion call all over the world for a transition
to IFRS based accounting in the preparation and presentation of companies’
financial statement and annual reports
Thus,
in this veil, this research work had been embarked on to:
1.
Find out the essence of adopting IFRS in
the preparation and presentation of companies’ financial statement in Nigeria.
2.
Know if the adoption of IFRS will
increase the performance of business organizations?
3.
Find out if the adoption of IFRS will
enhance the quality of organization’s financial statement?
4.
Know if the adoption of IFRS will
encourage foreign investors to invest in Nigeria economy?
5.
Find out the key challenges of adopting
IFRS in the preparation and presentation of companies’ financial
statements in Nigeria?
6.
Ascertain if the adoption of IFRS in
Nigeria will enhance decision making by the various players in both capital and
money market?
Since the world is globalizing, there is
need for a complete harmonization of different companies’ financial statements
in Nigeria
and all over the world, thus, the study is also aimed at achieving to
reasonable extent comparability between financial statements of different
companies. This has been enhanced by the standard set by the International
Accounting Standard Board (IASB) and the International Standard Statement Body
(IS SB) based in London, United Kingdom.
1.5 Statement of Hypotheses
To understand this study better,
definition of hypothesis is essential. According to Blaster and Clover,
research is the process of systematically obtaining accurate answer to
significant and prominent questions by the use of scientific method of
gathering and interpreting information.
For the objectives of this research
study, the following hypotheses will be developed and empirically tested and
their results will form the basis of the conclusion and recommendations.
Hypothesis
I
Ho: There is no significant relationship between
the adoption of IFRS and the effectiveness of business organization
performance.
HI:
There is a significant
relationship between the adoption of IFRS and the effectiveness of business
organization performance.
Hypothesis
II
Ho:
The adoption of IFRS does not enhance the
quality of financial statement of business organizations.
HI:
The adoption of IFRS enhances the quality of financial statement of business
organizations.
Hypothesis III
Ho:
The adoption of IFRS does not encourage foreign investors to invest in Nigeria
economy.
HI:
The adoption of IFRS encourages foreign
investors to invest in Nigeria
economy.
Hypothesis
IV
Ho: The adoption of IFRS in Nigeria will not enhance decision
making by the various players in both capital and money market.
HI:
The adoption of IFRS in Nigeria will
enhance decision making by the various players in both capital and money market.
1.6
Significance of the Study
This study is significant in the
dimension that it takes a survey of the beneficiaries of the adoption of IFRS
in companies’ financial statements in Nigeria. It also goes further to seek the
importance of adopting these standards all over the world. It will also
sensitize the public and practitioners in the field of accounting about the
benefit embedded in this standard of accounting and its pressing need in the world.
This study is relevant since it is a new
reform in the standard setting, which has been accepted in other parts of the
world. The study is also relevant to the following interest groups:
1. Accounting Professionals:
Before now, accounting professionals in Nigeria cannot practice in other
countries but with the adoption of IFRS in Nigeria and the world at large,
accounting professionals in one country can practice effectively in another
country and sell their services as experts in different parts of the world. So,
this research study will be relevant to the accounting professionals in that
they will embrace the importance of IFRS adoption and as well as the challenges
of adopting IFRS in Nigeria.
2. Practicing Auditors:
This study is also relevant to auditors who express independent views and
opinion in companies’ financial statements. Also, auditors in Nigeria cannot audit other companies in other
countries because of the divergence in standards, but with the adoption of
IFRS, auditors can now
go beyond the shores of Nigeria
and sell their services to other countries.
3.
Investors:
This research work will also be useful to both foreign and local investors in
that investors want information that is more relevant, reliable, timely and
comparable across the jurisdiction. Financial statement prepared using a common
set of accounting standards help investors better understand investment
opportunities as opposed to financial statement prepared using local generally
accepted accounting principles (GAAP).
4.
Tax Authority: With
the adoption of IFRS in Nigeria,
tax authority can now compare the profits of different companies and their tax
liability. This will help to eliminate fraudulent practices by companies in Nigeria.
5. Industry: This
study will show the various means of raising capital from foreign capital
market for the industry at lower cost of capital if the foreign investors can
have confidence in their financial statements and if it complies with globally accepted
accounting standards.
6.
Economy: This
also benefits the economy by increasing the growth of international business.
It facilitates maintenance of orderly and efficient capital market and also
helps to increase the capital formation and thereby economic growth and
development. If there is economic growth, foreign investors will come to invest
in Nigeria economy thereby
leading to more capital flows in Nigeria.
7. This
study is not an end to this research but a stepping stone into further research
on this topic. So, this material will be relevant to any researcher seeking to
venture into further research on the same issue.
1.7
Scope of the Study
This
study is mainly concerned with the adoption of IFRS: an imperative for
effective business organization performance in Nigeria, taking the quoted
companies in Edo State as a case study.
1.8
Limitations of the Study
In
carrying out this study, there are some limitations that militated against its
smooth and successful completion.
One
of them was the attitude of the respondents in responding to the questions
contained in the questionnaire provided. Some respondents exhibited a non-chalet
attitude towards the researcher, while some collected the questionnaire but
never returned it.
Also,
some did not give detailed/accurate information because of the fear of using
the information provided against them.
Another
limitation faced by the researcher was inadequate material for the research
work in that the study is a new area in accounting.
1.9
Definitions of Terms
The following terminologies relating to the adoption
of IFRS will be defined and explain below:
Accounting: Accounting is the
systematic identification, measuring, recording, classifying, summarizing,
interpreting and communicating of financial or economic information so as to
enable the user of the information to make informed judgment there from.
Financial Statement: This is the statement prepared by the directors of a
company to be presented to the shareholders at the annual general meeting.
Standards: These are standards set
by a defined and recognized body that govern the practice of accounting in any
country.
IFRS: This is a set of standards promulgated by the
International Accounting Standard Board (IASB) and the International Standard
Setting Body (ISSB).
Investors: These are existing and potential shareholders who have investment in
various companies.
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