The Impact of International Financial Standards (IFRS) on the Quality of Financial Statements

The Impact of International Financial Standards (IFRS) on the Quality of Financial Statements

Chapter One

OBJECTIVES OF THE STUDY

The objective of the study is to find out the following:

1. To examine the impact of IFRS on quality of financial statement in First Bank of Nigeria Plc.
2. To examine whether the International Financial Reporting Standards (IFRS) in Nigeria has improved the quality of financial reporting in First Bank of Nigeria Plc.
3. To find out role the of IFRS play in banking institutions in Nigeria.
4. To determine whether IFRS adoption and implementation has been made positive impact in Nigeria.
5. To find out the problems confronting the staff of First Bank of Nigeria Plc in adopting IFRS into system.
6. To make useful recommendations based on the findings of the study.

CHAPTER TWO

LITERATURE REVIEW

INTRODUCTION

Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.

Precisely, the chapter will be considered in two sub-headings:

• Conceptual Framework
• Theoretical Framework
• Chapter Summary

CONCEPTUAL FRAMEWORK

International Financial Reporting Standard (IFRS)

International Financial Reporting Standards (IFRS) are body of prescriptive rules and guidelines with global reach and appeal which provide direction and guidance on how business enterprises in a globalised world could achieve the goal of proper record keeping, transparency, uniformity, comparability and enhancing public confidence in financial reporting (Tendeloo and Vanstraelen, 2005). They are set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the international Accounting Standard Board, and they specify exactly how accountants must maintain and report their accounts. IFRS were established in order to have common language, so that business and account can be understood from company to company and country to country. Thus, failure on the part of the firm to apply the requirements of IFRS would result in inconsistencies, lack of accountability and transparency, distortion in financial reports, which in turn results into poor financial reporting practices and dissemination of accounting information that is of less value to any particular group of users. This is because the preparation and presentation of financial statements will be bereft of objectivity, reliability, credibility and comparability, and thus results in fraudulent business practices which subsequently lead to business failure and become devastating on the national economy (Atu et al., 2014). Amongst other things, the increasing internationalisation of the standardization of accounting rules has helped to reduce wide judgmental intuition and discretion, which has reduced the work of the external auditor considerably (Saad, 2006). It also allows for a considerable level of consistency in the application of accounting policies, which has helped to strengthen comparability financial reports the world over (Abata 2015). The standard setting process has helped to provoke a high level of research and discussion among members of the professional and this has awakened the profession from its slumber.

Historical Background Of IFRS

The move towards developing an acceptable global high-quality financial reporting Standards started in 1973 when the International Accounting Standards Committee (IASC) was formed by 16 professional accounting bodies from Canada, United States of America, United Kingdom, Germany, France, Netherlands, Australia, Mexico and Japan. The IASC was recognized into the International Accounting Standards Boards (IASB) in 2001. To date, the IASB has developed accounting standards and related Interpretations that are collectively known as the International Financial Reporting Standards (IFRS).

According to (Adam, 2009), the standards set by the IASB began to gain dominance when International Organization of Securities Commissions (IOSCO) in 2000 endorsed the then IASC standards. This was further boosted when in 2002, the European Commission approved a regulation requiring that listed companies in EU countries to prepare consolidated financial statements in accordance with IFRS. The dominance of IFRS further improved in September 2002, when the United States Financial Accounting Standards Board (FASB) and IASB signed the Norwalk Agreement. By this agreement, the bodies undertook to work closely to develop high quality compatible accounting standards that could be used for both domestic and across border financial reporting.

In Nigeria the government has taken its time to involve all stakeholders before it finally decided to adopt the IFRS on a gradual basis as from 1st January 2012. (Umoru et al, 2010), stated that “as part of plans to meet international standards, the Federal Government has disclosed that the International Financial Reporting Standard (IFRS) will take off in Nigeria on 1st January 2012. According to the government, the choice of the date is anchored on the need to effectively transit to IFRS over a three year period”.

Unveiling the IFRS road map, Minister of Commerce and industry, Senator Jubril Martin-Kuye noted that the search for global accounting standard as captured by the IFRS became imperative following the collapse of US energy giant, Enron. According to the Minister, all other public interest entities are expected to mandatorily adopt IFRS for statutory purposes by January 1st 2013, including banks. From the foregoing, it is glaring that to operate in the modern day world economy and to realize the full gains of international listing; no individual country can act alone in its financial reporting standards. In recent times, a number of Nigerian companies (especially financial institutions) had raised capital from international stock markets while others established significant presence in other parts of the world. This call for a better understanding and appreciation of the risks involved and would necessitate that financial statements prepared in Nigeria using the global financial reporting benchmarks. Therefore, the Nigerian government must be commended for taken a wise decision to adopt the IFRS as from 1st January, 2012. In his contribution, Board member, International Accounting Standards Board (IASB), (Kalavacherla, 2010) said that with Nigeria’s latest move, would serve as a lesson to other African countries and to a large extent, the rest of the world, adding that the IFRS would help to create jobs.

Nigeria and IFRS Adoption

Before 2012, the Statements of Accounting Standards was used in accounting practice in Nigeria. These local accounting standards are issued in Nigeria by the Nigerian Accounting Standard Board (NASB) till 2011 in accordance with Section 335(1) of the Companies and Matters Act of 1990. In the wake of financial crises in late 1990s, the international community emphasized the major role that the observance of international standards and codes of best practices in order to strengthen global financial systems. Although the Nigerian Statements of Accounting Standards (SAS) are similar to IFRS in certain respects, many differences exist. SAS promulgated by NASB were largely based on past IAS promulgated by IASC. Due to the increasing complexity of financial reporting requirements, some of the original IASs were reviewed resulting in their amendment or withdrawal. The SASs were not reviewed or updated with the IASs/IFRSs. The significant disparities between the Nigerian SASs and IFRSs have resulted in the SAS being regarded as outdated and incomplete as an authoritative and internationally accepted guide to the preparation of financial statements. This has significantly diminished the degree of confidence on Nigerian Standards especially by international users of financial statements produced in Nigeria. Based on the premise of NASB to promote general acceptable published financial reports and high quality accounting standards that are consistent with international practices, inaugurated a Stakeholders’ Committee on the Roadmap to the Adoption of IFRS in Nigeria on October 22, 2009. In July 2010, the Nigerian Federal Executive Council approved the Roadmap to the Adoption of IFRS in Nigeria (NASB 2010)., it was shown in the report that, that it will be in the interest of the Nigerian economy for reporting entities in Nigeria to adopt globally accepted, high-quality accounting standards by fully converging Nigerian national accounting standards with International Financial Reporting Standards (IFRS) by following a Phased Transition effective January 1, 2012. The Nigerian banking sector is made up of commercial banks and other financial institutions such as finance companies, micro-finance companies, discount houses and mortgage institutions. The Central Bank of Nigeria (CBN) regulates their activities. The CBN has authorized only 21 commercial banks to transact business in Nigeria. Out of these 14 are listed banks. Nigerian listed banks and other public and significant public interest entities were required to adopt IFRS for years beginning on or after January 1, 2012. Among the listed companies, the listed banks were the first to complete the transition and have adopted the standard for reporting.

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CHAPTER THREE

RESEARCH METHODOLOGY

INTRODUCTION

In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.

RESEARCH DESIGN

Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e. mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.

POPULATION OF THE STUDY

According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.

This study was carried out on the impact of international financial standards (IFRS) on the quality of financial statements using First Bank Plc as case study. Hence the population of this study therefore comprise of the accounts and financial department staff of selected First bank branches in Abuja.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

INTRODUCTION

This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of sixty seven (67) questionnaires were administered to respondents of which fifty fifty (55) were returned while 50 were validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of  50 was validated for the analysis.

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS:

Introduction

This chapter summarizes the findings on the impact of international financial standards (IFRS) on the quality of financial statements using First Bank Plc as case study. The chapter consists of summary of the study, conclusions, and recommendations.

 Summary of the Study

In this study, our focus was on the impact of international financial standards (IFRS) on the quality of financial statements using First Bank Plc as case study. The study is was specifically focused on examining the impact of IFRS on quality of financial statement in First Bank of Nigeria Plc., whether the International Financial Reporting Standards (IFRS) in Nigeria has improved the quality of financial reporting in First Bank of Nigeria Plc., finding out role the of IFRS play in banking institutions in Nigeria, determining whether IFRS adoption and implementation has been made positive impact in Nigeria, finding out the problems confronting the staff of First Bank of Nigeria Plc in adopting IFRS into system and  making useful recommendations based on the findings of the study.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 50 responses were validated from the enrolled participants where all respondent are staff of selected First Bank branch, Uyo, Akwa Ibom State.

Conclusions

In the light of the analysis carried out, the following conclusions were drawn.

1. There are problems confronting the staff of First Bank of Nigeria Plc, Uyo in enhancing quality financial statement?
2. IFRS does aid quality of financial statement in First Bank of Nigeria Plc.
3. IFRS play any significant role in banking institutions in Nigeria.
4. There is a significance relationship between effective implementation and adoption of IFRS in First Bank of Nigeria Plc.

Recommendation

Based on the findings the researcher recommends that;

1. In other to improve the comparability of banks’ financial statements, the banks should try to improve on the presentation of trend analysis, to aid understanding ability of the users of financial statements. Stop making use of ambiguous words so that the financial statements can be easily understood, interpreted and user will be able to compare financial statement to determine the changes.
2. There should be effective communication that will aid better understanding of users in relation to financial information; this will bring about greater clarity.
3. Auditors should declare if the accounts comply with the requirements of the standards and guide against creative accounting and window dressing of the financial statements being prepared
4. All information relating to the banks’ financial statements should be properly and timely disclosed in the notes to the accounts, directors’ reports and the chairman’s report to reduce the complexity of the financial statements prepared.
5. The financial statements of banks should be prepared in accordance with the requirements of IFRS so as to improve the quality and public confidence of the financial statements.
6. 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 conversion

REFERENCES

• Abdullah, S. N. (2006). Board Composition, Audit Committee and Timeliness of Corporate Financial Reports in Malaysia. Corporate Ownership and Control, 4(2): 33-45.
• Adam, M. (2009). The chalanges of Adopting International Financial Reporting Standards, Zenith Economic Quarterly Vol. 4. Nigerian Banks, pp. Pp 17 – 26.
• Adams, P. (2004, August 2). Resolving Conflicts in Accounting System. Issues and Arguments, pp. 12 – 13.
• Adejola, P. A. (2012). International Public Sector Accounting Standards. (1st Ed.). Abuja: Rainbow Graphics Printers & Publishers.
• Adekoya, O. (2011). Similarities and Differences Between IFRS and Nigerian GAAP Lagos: Price water House Coopers International Limited.
• Ahmad, Z. (2011). An Essential Course for Getting to KNOW IFRS. Chartered Accountant and Entop Consulting Ltd UK.
• Ahmed, A. (2003). Bank Loan Loss Provisions: A Re-examination of Capital Management, Earnings Management, and Signaling Effects. Journals of Accounting and Economics, 28(1), 1-25.

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