This research is designed to determine the impact of International Financial Reporting Standards (IFRS) on company’s financial statements of the Nigerian Deposit Money Banks (DMBs). It also tried to examine the effect of IFRS on the quality of financial reporting. Two hypotheses were tested using the Chi-square statistics, SPSS was employed to run the data. The findings and conclusion drawn was that positive relationship exists between the IFRS and disclosure compliance level. It means that the banks under study maintain the same level of mandatory disclosure compliance with the International Financial Reporting Standards, which implies that an increase in the IFRS disclosure compliance has a positive relationship with the quality of financial reporting. Based on these findings, the study recommended that Nigerian Deposit Money Banks should ensure strict compliance with mandatory disclosure requirements and should increase the level of voluntary information in other to boost the confidence of its stakeholders.
1.1 Background of the study
The move towards globalization is a concern for many countries particularly developing countries as it has the potential of having a deep impact on the economy at large. The adoption of IFRS as a global and uniform standard is gaining ground as more countries are adopting IFRS or have intentions of adopting the standard. The European Union commenced the adoption in 2005 by ensuring that all listed companies in the European Union implement IFRS in their financial report (Odia and Ogiedu, 2013). The adoption of IFRS in Nigeria was inaugurated in September 2010 by the then Honorable Minister of Commerce and Industry; Senator Jubril Martins-Kuye. The adoption required that all Public Listed Companies apply IFRS for the presentation of their financial statement by January 2012. Other Public interest entities are required adopted IFRS by January 2013 while SME’s (Small and medium sized entities) adopted IFRS by January 2014. However before the adoption of IFRS in Nigeria the Generally Accepted Accounting Principles was the National Accounting Standards. The adoption of IFRS will have an effect on the banks and capital market’s earnings, credit evaluation, communication between market and stakeholders, long term financial planning, capital management, training, performance measurement, product offering and debt covenants, ( Abata, 2015). The extent and quality of disclosure within published corporate reports however, vary from company to company and from country to country (Umoren, 2009). Literature reveals that the level of reliable and adequate information disclosure by listed companies in developing countries lag behind than in developed ones and government regulatory forces are less effectives in driving the enforcement of the existing accounting standard (Ali, Ahmed and Henry, 2004).The immature development of accounting practice and the structural weakness of the government regulatory bodies and the accounting profession are some of the factors responsible for the debilitating condition in the disclosure environment in the developing nations (Osisioma, 2001). Nigerian banks over the years have been observed to exhibit weak disclosures in financial statement, operational inefficiencies, undercapitalization and a weak corporate governance practice that impede their performance and make it difficult to detect problems easily.
There has also been some opposition to the adoption of IFRS particularly for developing countries like Nigeria. It has been argued that Nigeria and many developing countries have weak institutions, unpredictable economic and political environments which may undermine the successful implementation of IFRS (Tanko, 2012).In their study on the development process of financial reporting standards around the world and its practical results in developing countries, Alp and Ustandag (2009) showed that Turkey experienced lots of challenges in the implementation of IFRS. These challenges include the complicated nature of IFRS, difficulties in the application, enforcement issues and possible knowledge shortfall. This research therefore focused on the effect of IFRS On performance of Nigerian banks before and after the adoption of IFRS. Key performance indicators in terms of liquidity, profitability, leverage, and asset quality of the selected banks were used to measure the effect of the pre and post adoption of IFRS. Secondary data related to the annual report published according to IFRS and GAAP for the last six years before and after the adoption were used. Nigerian banks over the years have been observed to exhibit weak disclosures in financial statement, operational inefficiencies, undercapitalization and a weak corporate governance practice that impedes their performance and makes it difficult to detect problems easily. The quality and standard of financial reporting in Nigerian banking sector seems not to match the high standard of reporting in the banking sector of more developed countries (Garba, 2013). As a result of this, Nigerian banking industry has undergone numerous reforms. This includes the increase in the minimum paid in capital of banks from 2billion Naira (US $14m) to 25 billion Naira (US$173m). This led to the consolidation of most banks. Other reforms include the special examination of banks, the move from accounting year to calendar year to improve transparency and comparability of financial results and the creation of AMCOM (Asset Management Company) to purchase the non-performing loan from banks.
The quality and standard of financial reporting in Nigeria banking sectors seems not to match the high standard of reporting in the banking sector of more developed countries (Garba, 2013). According to Adekunle and Asaolu (2013), the convergence from Nigerian Generally Accepted Accounting Principles (NGAAP) to IFRS will improve comparability, accountability, integrity and transparency in financial reporting, which is evidence in countries such as Ghana which is believed to have an improved financial reporting. This is pertinent to deal with the crisis in the financial sector in Nigeria. Beke (2011) also stressed the fact that a global accounting standard will result to a rise in market liquidity, fall in transaction costs for investors, and cost of capital reduction. The disclosure of financial information in corporate annual reports and their determinants has attracted considerable attention in the West, but, there has been much less concern in developing countries. Only a handful of works have been carried out in developing countries on the issues of disclosure and its determinants. Therefore, very little is known about the degree of disclosure and corporate attributes influencing it. Additional empirical evidence on mandatory and voluntary disclosures and the factors influencing them in Nigeria will enhance the quality of literature in this field of study, hence the need for this study, which will focus on new and upgraded financial instruments standards.
1.2 STATEMENT OF THE PROBLEM
Value relevance of accounting information has been a subject of academic debate in the past decades and even presently. It is of great interest to standard setters, investors and researcher since it empirically proves the reflection of accounting information in share prices of firms.
Although, studies on value relevance of GAAP financial information have been embarked on but the results have been inconsistent until the hit of capital market crash and the Enron‟s case. The capital market crash, economic meltdown and the Enron‟s case revealed that firms that were proved to be profit making became insolvent and as such pose a big question as to whether reporting under GAAP is value relevant. Arising from the economic crises, accounting profession arose to the need of providing value relevant information by introducing a single set accounting standard for global use called IFRS. Empirical works on value relevance and IFRS adoption from foreign countries have produced mixed results that is there is no consensus empirically as to whether accounting information from IFRS adoption are value relevant. Moreover, it has been realized that empirical works in Nigeria on IFRS adoption and value relevance are not in existence to the best of my knowledge. This is largely owing to the fact that IFRS was adopted in 2012 in Nigeria. Isenmila and Adeyemo (2013) studied the impact of mandatory adoption on institutions using questionnaires while Okafor and Ogiedu (2011) sought to understand the effect, challenges and potential benefits of IFRS adoption by issuing questionnaire and conducting interviews. Conclusively, studies in Nigeria had focused on theories and forecast of expected impact of IFRS adoption on value relevance of accounting information.
1.3 OBJECTIVE OF THE STUDY
The study has one major objective which is divided into two; the general and specific objective, the general objective is to examines the impact of international financial reporting standard on company financial statement, the specific objectives are;
- i) To examine the impact of IFRS on the quality of financial statement of access bank
- ii) To ascertain if there is any significant relationship between IFRS and value relevant of the financial statement
iii) To examine the role of IFRS on the credibility of financial statement of access bank
- iv) to proffer suggested solution to the identified problem
1.4 RESEARCH QUESTIONS
The following research questions were formulated by the researcher to aid the completion of the study;
- i) Does IFRS has any impact on the quality of financial statement of access bank?
- ii) Is there any significant relationship between IFRS and value relevant of the financial statement?
iii) Does IFRS play any role on the credibility of financial statement of access bank?
1.5 RESEARCH HYPOTHESES
The following research hypotheses were formulated by the researcher to aid the completion of the study;
H0: There is no significant relationship between IFRS and value relevant of the financial statement
H1: There is a significant relationship between IFRS and value relevant of the financial statement
H0: IFRS does not play any role on the credibility of financial statement of access bank
H2: IFRS does play a role on the credibility of financial statement of access bank
1.6 SIGNIFICANCE OF THE STUDY
This study contributes to knowledge as IFRS is very recent especially to Nigeria, by increasing awareness about IFRS its concept and challenges and its impact on accounting information. The study will also be significant to managers of firms in Nigeria as it is very imperative to know how the newly introduced IFRS affect earnings, change in earnings and book value of share capital and the anticipated report takes manager into the future reaction of investors and shareholders.
The academia would find this study interesting as it would aid comparisms of the effect of IFRS with that of developed countries that had adopted IFRS before now. It will also provoke empirical researches on IFRS in Nigeria either to confirm or refute the research.
Investors and analyst would find the result of this research to be of great interest to them as their curiosity on how their investment would be affected with adoption of IFRS would be answered and based on it they could also know if IFRS accounting information enhances informed investment decision.
1.7 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers the impact of international financial reporting standard on company financial statement, with emphasis on access banks. But in the course of the study, there are some factors that limit the scope of the study;
- a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
- b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
- c) FINANCE: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.8 OPERATIONAL DEFINITION OF TERMS
International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable around the world. They specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact.
Financial statements are reports prepared by a company’s management to present the financial performance and position at a point in time
GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules and standards for financial reporting. The acronym is pronounced “gap.” GAAP specifications include definitions of concepts and principles, as well as industry-specific rules
1.9 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.