ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ON THE QUALITY OF FINANCIAL STATEMENTS: A STUDY OF FIVE LISTED BANKS

ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ON THE QUALITY OF FINANCIAL STATEMENTS: A STUDY OF FIVE LISTED BANKS

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CHAPTER ONE

INTRODUCTION

1.0 BACKGROUND OF THE STUDY

The global practice of accounting is guided by sets of rules and regulations which are compilated into accounting standards. The primary objective of the accounting standards is to enable corporations to provide investors and creditors with relevant, reliable and timely information which is in line with the IASB’s accounting framework for the preparation and presentation of Financial Statements. However before the adoption of IFRS in Nigeria, a body called Nigerian Accounting Standards Board (NASB) established in 1982 was responsible for the setting of accounting standards and was mandated to act legally in 2003. Consequently, this body was abolished through the Federal Reporting Council Act of 2011 leading to the enactment of the Federal Reporting Council.

The roadmap of the Financial Reporting Council towards the adoption of IFRS was emitted in September 2010. International Financial Reporting Standards (IFRS) is a set of principle–based issued and established by International Accounting Standards Board (IASB) and generally accepted by different countries around the world to ensure comparability and transparency in accounting practice (Desoky and Mousa, 2014).The establishment of such standards by IASB are aimed at achieving harmonization and promotion of financial practices to ensure consistency in reporting format across countries which should minimize cost of processing financial information to investors and improving efficiency of capital markets (Wen et al, 2011).

IFRS is a set of international accounting standards that state how particular transactions and events should be reported in the financial statement of companies. The standards, which replace the old International Accounting Standards, are issued by the International Accounting Standard Board (IASB), for the purpose of making international comparison of companies as easy as possible.

The concept of accounting quality is based on the IASB framework where relevance, reliability, understandability and comparability (IFRS 2006:38) are key components and therefore, assumed that financial statement with the four qualitative characteristics have better quality. Chen et al. (2010:222) has simply described accounting quality as the extent to which the financial statement information reflects the underlying economic situation. In simple terms, this study seeks to establish if the adoption of IFRS has improved qualitative characteristics of the financial reporting in First Bank Nigeria plc, where such improvement would be regarded as improvement in quality.

1.1 STATEMENT OF THE PROBLEM

            Many countries including Nigeria have faced challenges in their decisions to adopt IFRS, its wide spread adoption has been promoted by the argument that the benefits outweigh the costs. Recently there has been a push towards the adoption of IFRS developed and issued by the International Accounting Standards Board (IASB). The organizations should enable regulators and other key player to gauge the effectiveness of the financial reporting system in place such as training and development for practitioners and new members, due diligence for Accounting standards and the overall institutional and professional organization conducive for effective standards application.

Therefore, implementation of IFRS would reduce information irregularity and strengthens the communication like between all shareholders and also reduces the cost of preparing different version of financial statements where an organization is a multi-national.

1.2 OBJECTIVES OF THE STUDY

The main objective of this study is to examine the effect of the adoption of IFRS on the quality of financial statements.

The following are the specific objectives of this study:

1.      To examine the role of IFRS in ensuring quality accounting information

2.      To determine the quantitative differences in the financial reports prepared by the listed banks under NGAAP and IFRS

1.3 RESEARCH QUESTIONS

The following are the research questions related to this study:

1.      What is the role of IFRS in ensuring quality accounting information?

2.       What are the quantitative differences in the financial reports prepared by the listed banks under NGAAP and IFRS?

1.4 RESEARCH HYPOTHESES

For the purpose of this study, one null hypothesis was derived:

1.       H0: there is no statistical significance in the quantitative differences of financial reports prepared under NGAAP and IFRS

1.5 Significance of the study

The significance of this study is that the findings derived will be very useful for business managers particularly banks in the understanding of the relationship between International Financial Reporting Standards(IFRS) and the quality of financial statements of banks in Nigeria.

This research also will be a contribution to the body of literature in the area of International Financial Reporting Standards (IFRS) and the quality of financial statements in Five Nigerian banks, thereby constituting the empirical literature for future research in the subject area.

1.6 Scope of the Study

This focus of this study is the Nigerian Banking Sector in view of its roles in the Nigerian Economy. This study will be limited to five listed banks which are First Bank Nigeria, Access Bank, Ecobank, UBA Plc and Wema Bank. These listed banks were used due to data availability.

1.7 ORGANIZATION OF STUDY

The study is arranged in five (5) chapters in which chapter one is the introduction/background of the study, chapter two the review of relevant related literature, chapter three is the methodology while chapter four is the data analysis and chapter five is the conclusion and recommendation.

1.8 LIMITATION OF THE STUDY

The limitation of this study was inability of management to divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

Another limitation to the study is time constraint. The period within which the study is conducted is short for a thorough research work, hence gathering adequate information becomes very difficult.

            Also, finance is one of the limitations to study. The researcher is facing financial constraint to meet the all the needed educational requirements including this research study. This caused the researcher to restrict his research to one company for possible completion of the study.

Finally, lack of materials on the topic poses a problem. This is new in the area of quality of financial statement in Nigeria. Therefore, the researcher resolved to seek friendly approach in order to obtain the needed materials or information from the organization under study through the administration of questionnaire.


1.10 DEFINITION OF TERMS

1. ACCOUNTING: This is defined as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information (Frank Wood & A. Sangster, 2005).

2. FINANCIAL STATEMENT: This is a statement, in monetary terms of the assets of an accounting entity's transactions over a period, giving totals for classes of transaction rather than details of individual transactions and presented in a systematic form. Financial statements are a structured representation of the financial positions and financial performance of an entity.

3. INTERNATIONAL FINANCIAL REPORTING STANDARDS: International Financial Reporting Standards usually called IFRS are standards issued and adopted by the IFRS Foundation, International Accounting Standards Board (IASB) and International Financial Reporting Standards Interpretations Committee (IFRSIC) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

4. IMPACT: This is the measure of the tangible and intangible effect or consequences of an entity's action upon another.

5. QUALITY: The standard of something as measured against other things of similar kind; level of excellence.



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