THE IMPACT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ON THE QUALITY OF FINANCIAL STATEMENT
This study seeks to investigate whether
the International Financial Reporting Standards (IFRS) in Nigeria has improved
the quality of financial reporting in Nigerian Banks. It is phenomenon for
every organization (including banks) to adopt (IFRS) as it ensures
transparency, accounting quality and reduced cost of capital. Thus, the desire
to examine the impact of IFRS on quality of financial statement in First Bank
of Nigeria Plc, Uyo ignited this study. To achieve this objective, five
research questions and three research hypotheses were formulated to guide this
study. A well structured questionnaire was used as the major instrument to
gather data from the 50 staff and personnel First Bank of Nigeria, Plc, Uyo and
a sample size of 38 was randomly selected. The data collected from the
respondents were analyzed using simple percentage and Chi-square statistical
tool was employ for testing the hypotheses. The study concluded with some
recommendations that steps should be taken to ensure a successful adoption and
implementation of IFRS in Nigeria, Government and the regulators should ensure
that there is availability of training facilities and materials for
professional accountants on the concept of IFRS and issues relating to its
implementation and conversion. Finally, top management, external auditors and
regulators being the key players in standards, need to work together and
tighten compliance so that impact of IFRS could be felt more.
BACKGROUND OF THE STUDY
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
1.2 STATEMENT OF THE
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
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.
1.3 OBJECTIVES OF THE
The objective of the study is to find
out the following:
examine the impact of IFRS on quality of financial statement in First Bank of
examine whether the International Financial Reporting Standards (IFRS) in
Nigeria has improved the quality of financial reporting in First Bank of
find out role the of IFRS play in banking institutions in Nigeria.
determine whether IFRS adoption and implementation has been made positive
impact in Nigeria.
find out the problems confronting the staff of First Bank of Nigeria Plc in
adopting IFRS into system.
make useful recommendations based on the findings of the study.
IFRS aid quality of financial statement in First Bank of Nigeria Plc?
International Financial Reporting Standards (IFRS) in Nigeria improved the quality
of financial reporting in First Bank of Nigeria Plc
IFRS play any significant role in banking institutions in Nigeria?
there been effective implementation and adoption of IFRS in First Bank of
there any problem confronting the staff of First Bank of Nigeria Plc, Uyo in
enhancing quality financial statement?
H0: IFRS does not aid quality of financial statement in
First Bank of Nigeria Plc, .
H1: IFRS does aid quality of financial statement in
First Bank of Nigeria Plc.
H0: IFRS does not play any significant role in banking
institutions in Nigeria.
H1: IFRS play any significant role in banking
institutions in Nigeria.
H0: There is no significance relationship between
effective implementation and adoption of IFRS in First Bank of Nigeria Plc.
H1: There is a significance relationship between
effective implementation and adoption of IFRS in First Bank of Nigeria Plc.
1.6 SIGNIFICANCE OF
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.
1.7 SCOPE OF THE
The study concerns about the impact of
IFRS on quality of financial statements with a particular reference to First
Bank of Nigeria Plc.
1.8 LIMITATION OF THE
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
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.
1.9 DEFINITION OF
Financial Reporting Standard.
STATEMENTS: Financial statements are a collection
of reports about an organization’s financial results, conditions and cash
Accepted Accounting Principles.
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).
STATEMENT: Income statementis afinancial statement
that measures a company’s financial performance over a specific period
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