THE IMPACT OF INTERNATIONAL FINANCIAL STANDARDS (IFRS) ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK PLC)
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THE IMPACT OF INTERNATIONAL FINANCIAL STANDARDS (IFRS) ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK PLC)
THE IMPACT OF INTERNATIONAL FINANCIAL STANDARDS (IFRS) ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK PLC)CHAPTER ONE
This study sets out to examine whether the impact of International
Financial Reporting Standards (IFRS) in Nigeria has improved the quality
of financial reporting in First Bank of Nigeria Plc. Nigeria adopted
IFRS, and then referred to as International Accounting Standards (IAS),
in 1999 through a resolution by the Council of the Institute of
Certified Public Accountants of Nigeria (ICPAN), the legally mandated
accounting institute in Nigeria. The study compares changes in the
quality of accounting between the pre-adoption period from 1995 to 1999
and the post adoption period from 2000 to 2004. The study specifically
tests whether there is less earnings management, more timely loss
recognition and higher value relevance in the adoption period as opposed
to the pre adoption period. It also takes a global perspective to the
IFRS question in relation to quality. The outcomes of the study show
mixed results with some of the metrics indicating a marginal increase in
accounting quality and others showing a decrease in the quality of
accounting.
Since their inception, International Accounting Standards
have been produced by two bodies. The first, the International
Accounting Standards Committee (IASC) came up with 41 accounting
standards between 1973 and 2000. The IASC was replaced by the
International Accounting Standards Board (IASB) in the year 2000. The
new Board embarked on a review processes aimed at refining the
standards. The result was a reduction in the number of standards from 41
in the year 2000 to 28 by the year 2008. By 2011, 13 standards had been
issued by the board as International Financial Reporting standards
(IFRS). According to IAS Plus (2010), IFRS refers to the entire body of
IASB pronouncements including standards and interpretations approved by
IASB, IASC and their interpretations produced by the Accounting
Standards Interpretations Committee (IASIC). IFRS orIAS have also been
described as a set of standards stating how particular types of
transactions and other events should be reflected in financial
statements, issued by IASC and IASB (ACCA 2008:41). 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. Such
information, it is argued, contributes towards the achievement of
orderly capital markets around the world Imhoff (2003:117). 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 Nigeria, where such improvement would be regarded
as improvement in quality.
In spite of the arguments, many countries
and companies have adopted IFRS and the need to evaluate their impact
has been overwhelming. Barth et al. (2007:2) indicate that accounting
amounts results from interaction of features of the financial reporting
system which include accounting standards, their interpretations,
enforcement, and litigation and this obviously leads to obtaining
different results from application of the same standards. Ball et al.
(2003) by extension argue that high quality standards like IFRS may also
lead to low quality accounting information depending on the incentives
of the preparers. It is these contradictions that led Ball et al. (2003)
and others to conclude that poor preparer incentives, underlying
economic and political factors influence manager and auditors incentives
as opposed to accounting standards. Many factors have also been cited
as impacting financial reporting practices such as effective enforcement
of standards and strong corporate governance.
Although many countries 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.
The objective of the study is to find out the following:
- To examine the impact of IFRS on quality of financial statement in First Bank of Nigeria Plc.
- To examine whether the International Financial Reporting Standards
(IFRS) in Nigeria has improved the quality of financial reporting in
First Bank of Nigeria Plc.
- To find out role the of IFRS play in banking institutions in Nigeria.
- To determine whether IFRS adoption and implementation has been made positive impact in Nigeria.
- To find out the problems confronting the staff of First Bank of Nigeria Plc in adopting IFRS into system.
- To make useful recommendations based on the findings of the study.
- RESEARCH QUESTIONSÂ Â
- Does IFRS aid quality of financial statement in First Bank of Nigeria Plc?
- Does International Financial Reporting Standards (IFRS) in Nigeria
improved the quality of financial reporting in First Bank of Nigeria Plc
- Does IFRS play any significant role in banking institutions in Nigeria?
- Has there been effective implementation and adoption of IFRS in First Bank of Nigeria Plc?
- Is there any problem confronting the staff of First Bank of Nigeria Plc, Uyo in enhancing quality financial statement?
HYPOTHESIS 1
H0:Â Â Â Â IFRS does not aid quality of financial statement in First Bank of Nigeria Plc, .
H1:Â Â Â Â IFRS does aid quality of financial statement in First Bank of Nigeria Plc.
HYPOTHESIS 2
H0:Â Â Â Â IFRS does not play any significant role in banking institutions in Nigeria.
H1:Â Â Â Â IFRS play any significant role in banking institutions in Nigeria.
HYPOTHESIS 3
H0:Â Â Â Â
There is no significance relationship between effective implementation
and adoption of IFRS in First Bank of Nigeria Plc.
H1:Â Â Â Â There
is a significance relationship between effective implementation and
adoption of IFRS in First Bank of Nigeria Plc.
SIGNIFICANCE OF THE STUDY
The ultimate goal of every industry or organization including banks
is to quality financial reporting (statement) information is issued to
public. This goal can be achieved in the banking sector adopting IFRS
for effective financial reporting.
This study necessary because would
enable the managers of First Bank of Nigeria Plc, and other banks to
improve on their implementation of the standards.
It would also help the employers, employees and the potential investors who may want to invest on the company.
Finally,
it would serve as a reference source to students or other researchers
who might want to carry out their research on the similar topic.
The study concerns about the impact of IFRS on quality of financial
statements with a particular reference to First Bank of Nigeria Plc.
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. 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.
DEFINITION OF TERMS
- IFRS:International Financial Reporting Standard.
- FINANCIAL STATEMENTS: Financial statements are a collection of reports about an organization’s financial results, conditions and cash flows.
- IAS: International Accounting Standards.
- GAAP: Generally Accepted Accounting Principles.
- ACCOUNTING: This is defined as the process of
identifying, measuring, and communicating economic information to permit
informed judgements and decisions by users of the information (Frank
Wood & A. Sangster, 2005).
- INCOME STATEMENT: Income statementis afinancial
statement that measures a company’s financial performance over a
specific period (Investopedea.com).
- STATEMENT OF CASH FLOW: Statement of cash flow is a
financial statement that shows changes in the balance sheet (financial
position) accounts and income affect cash and cash equivalents and
breaks the analysis down to operating, investing and financing
activities(Bodie, Zane; Alex Kane and Alan J. 2004).
THE IMPACT OF INTERNATIONAL FINANCIAL STANDARDS (IFRS) ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK PLC)
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This study sets out to examine whether the impact of International Financial Reporting Standards (IFRS) in Nigeria has improved the quality of financial reporting in First Bank of Nigeria Plc. Nigeria adopted IFRS, and then referred to as International Accounting Standards (IAS), in 1999 through a resolution by the Council of the Institute of Certified Public Accountants of Nigeria (ICPAN), the legally mandated accounting institute in Nigeria. The study compares changes in the quality of accounting between the pre-adoption period from 1995 to 1999 and the post adoption period from 2000 to 2004. The study specifically tests whether there is less earnings management, more timely loss recognition and higher value relevance in the adoption period as opposed to the pre adoption period. It also takes a global perspective to the IFRS question in relation to quality. The outcomes of the study show mixed results with some of the metrics indicating a marginal increase in accounting quality and others showing a decrease in the quality of accounting... accounting project topics
THE IMPACT OF INTERNATIONAL FINANCIAL STANDARDS (IFRS) ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK PLC)