SECTION ONE
INTRODUCTION
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1.1 BACKGROUD OF THE STUDY
In the past few years, many developed and developing countries have adopted International Financial Reporting Standards (IFRS) as the basis for financial reporting (Blanc 2003). The move towards developing an acceptable global high quality financial reporting standard started in 1973 when the International Accounting standards committee (IASC) was formed by Professional Accounting Bodies from Canada, USA, United Kingdom, Germany, France, Neitherland, Australia, Mexico and Japan (Obazee 2007). The IASC was to formulate uniform and global accountings aimed at reducing the discrepancies in International Accounting Principles and Reporting Practices.
In this light, the IASC was established and has actively been championing the uniformity and standardization of accounting principles for the past few years. In April 2001, the IASC was reorganized into International Accounting Standard Board (IASB). Henceforth, the IASB has updated the already existing International Accounting Standards and referred to them as International Financial Reporting Standards (IFRS). IFRSs are single set of high quality understandable standard for general purpose of financial reporting which are principles based in contrast to the rules based approach.
While some countries have been using these standards for decades, they are however new for transition economies like Nigeria. In Nigeria, implementation IFRS was launched in September 2010, but the successful adoption and implementation of these standards remain a mirage in Nigeria (Oladele2012). The light of this therefore, this study focused on the process of adopting the IFRS in Nigeria as a developing economy, the benefits and the challenges of IFRS, bearing in mind the prevailing domestic legal and regulatory framework.
1.2 STATEMENT OF THE PROBLEMS
In the past few years many developed and developing countries have adopted international financial reporting standards (IFRS) as the basis for financial reporting. While some countries have been using these standards for decades, they are however new for transition economies like Nigeria. In Nigeria, implementation of IFRS was launched in September 2010, but the successful adoption and implementation of these standards remain a mirage in Nigeria.
More so, the researcher observed various problems including high cost of first implementation of IFRS, low level of awareness for preparers and users of Financial Statement, and difficulties in understanding the impacts of IFRS on various sectors of the economy and their economic operations respectively. Therefore, this study is design to examine the implementation challenges of IFRS in Gtbank in Ilorin metropolis.
Asset And Liabilities Management In Commercial Banks
Asset And Liabilities Management In Commercial Banks
1.3 RESEARCH QUESTIONS
In view of the below research objectives, the following are the research question:
- Is the first time implementation of IFRS expensive and costly?
- What is the level of public awareness of other stakeholders on these standards?
iii. Does existing Nigerian laws has any influence on the smooth transition process to IFRS?
1.4 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the implementation challenges facing the adoption of IFRS in the Nigerian money Deposit banks.
Specifically, the study seeks to:
- Ascertain if the first time implementation of IFRS is costly and expensive.
- Examine the level of public awareness by the stakeholders in the use of these standards.
iii. Examine the influence of existing Nigerian laws on the smooth transition to IFRS.
1.5RESEARCH HYPOTHESES:
Taking into consideration the nature and extent of the problems stated so far, it is necessary to formulate the following hypotheses:
Ho1: First time implementation of IFRS is not expensive and costly.
Ho2: IFRS public awareness is not very low among all the stakeholders in Nigeria.
Ho3: There is no significant influence of existing Nigerian laws on the smooth transition process to IFRS.
1.6THE SCOPE OF THE STUDY
This study will focus on the evaluation of the challenges facing the adoption of IFRS in the Nigerian Money Deposit Banks with special emphasis on Guarantee Trust Banks in Ilorin metropolis.
1.7THE SIGNIFICANCE OF THE STUDY
With the IFRS implementation ongoing in Nigeria, this study is therefore aim to assess the implementation challenges facing its smooth adoption, using the Nigerian Banking sector as a case study. This information can be of immense benefits to other sectors implementing IFRS in Nigeria, the relevant stakeholders as well as standard-setters and regulators around the world.
Researchers and students in other developing countries which are yet to adopt the IFRS may also find this study relevant in knowing the likely implementation challenges that their countries may encounter in adopting the Standards. Also finding of this study will contribute to the pool of information needed in making relevant economic policies both in Nigeria and any other part of the world.
1.8 OUTLINE OF THE STUDY
The study will be grouped into five chapters. Chapter one will focus on the introductory aspect and guides to the study. Chapter two will present the literature review on the subject matter. Methodology to be adopted in the study will be stated in chapter three. Chapter four will present the data, results and the findings of the study. Finally, chapter five will give the summary, conclusion and appropriate recommendations based on the findings from the study.
1.9 DEFINITION OF TERMS
- IFRS: Means International Financial Reporting Standards. It represents a unified global commitment to developing a single set of high quality, globally accepted accounting standards.
- Convergence: Convergence means the process of converging or bringing together international standards issued by the IASB and existing standards issued by national standard setters, with the aim of eliminating alternative.
iii. Adoption: Adoption implies that national rules are set aside and replaced by IFRS requirement.
SECTION TWO
LITERATURE REVIEW
2.1 INTRODUCTION
In this literature review, it is the opinion of the researcher to examine and review various views of scholars and researchers of every related concept to this topic of discussion.
2.2 CONCEPTUAL FRAMEWORK
2.2.1 FINANCIAL REPORTING
The objective of general purpose of financial statement is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decision.
Financial statement is prepared for the purpose of presenting the financial health of an organization to the various stakeholders which can be classified into two groups, the internal and external user. Internal relates to management, employees and while external are creditors and equity investors, government i.e. interest group and potential investors. Apart from this basic role, financial statement also shows the performance of management stewardship of the resource entrusted to it.
The objective of financial statements is to provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decision. (e.g whether to sell or hold an investment in the entity). Users include present and potential investors, employees, lenders, suppliers and other trade creditors, customers, government and their agencies and the public. Since investors are the providers of risk capital, it is presumed that financial statements that meet their needs will also meet most of the need of other users
2.2.2 INTERNATIONALACCOUNTINGSTANDARD BOARD (IASB)
From 1973 till 2001, the body in charge of setting the international standards was the International Accounting Standard Committee (IASC). The principal significance of IASC was to encourage national accounting standard setters around the world to improve and harmonize national accounting standards. In 2001, the IASC was replaced by the international Accounting standard Board (IASB) as the body in charge of setting the international standard.
The International Accounting Standards Boards (IASB) is an independent body set up with the responsibility of setting up and supervision of the accounting rules and standard for international reporting standard(www.iasplus.com/restruct/whatis.htm).
2.2.3 PURPOSE OF INTERNATIONAL FINANCIAL STANDARD
The objectives underlining the introduction of IFRS are to promote a common platform for better understanding of accounting internationally. With adoption of IFRS, businesses can present their financial statement on the same basis as its foreign competitors, making comparison easier. (www.pironeducation.com).
The objectives and importance of introducing IFRS according to Fowokan (2011) are:
- To work actively with the national setter to bring about convergence of national accounting standards.
- IFRSs are designed for adoption by profit oriented entities.
iii. IFRSs require that financial statements (FS) give a true and fair view of the financial health of entities.
- To develop a single set of high quality understandable and enforceable global accounting standard that requires transparent and comparable information in financial statements.
2.2.4 BENEFITS OF INTERNATIONAL REPORTING STANDARDS
According to Albrecht (2008), the importance and benefits of adopting IFRS “IAS you can see, the limited state switching their accounting standards over to international financial reporting standards from General Accepted Accounting Principles is necessary if not crucial. The switch or conversion to IFRS will not only be beneficial for the United States but for the world with the growth of Globalization.
International accounting standards create a common language for defining, interpreting and publication of financial statement in the whole world (Blanc, 2003). Furthermore, their aim is “to provide a standardized and coherent sight of the companies to the shareholders and investor”.
2.2.5 CHALLENGES OF IMPLEMENTING IFRS IN NIGERIA
The adoption of IFRS is known to be a Herculean task owing to the fact that several challenges are often encountered in the cause of implementation. These challenges are not peculiar to Nigeria but are common in most countries (Robyn and Graeme, 2009). These challenges are broadly discussed as follows:
1)Implementation Costs: The first time adoption of IFRS framework is perceived by most entities as costly, these costs usually relate to consultants’ costs,costs of training personnel and costsof adjusting. the existing accounting system to effect the change ( Olamide, 2007). 2)Inadequate Technical Capacity: The implementation of the IFRS framework demands sufficient technical capacity within the various stakeholders including the preparers, auditors, regulatory authorities and users of financial reports (Madawaki, 2012).
3) Level of Education and Experience: The implementation of IFRS is strategic and a critical decision that requires a high level of education, expertise and competence to enable users to understand, interpret and effectively use the standards in financial reporting (Adeyemo, 2013). Therefore, lower level of education and weak experience in IFRS reporting in Nigeria has become a barrier to successful implementation of IFRS framework.
Therefore, these challenges are known to affect all sectors in the road to IFRS transition and the Nigerian banking industry is not left out. Most entities perceive the adoption as too costly, there is a low level of technical capacity for smooth transition and also low level of education and experience.
2.3 THEORITICAL FRAMEWORK
There is no generally accepted theory governing financial reporting disclosure (AL-Shammri, 2005; Schipper, 2007). This study is based on New Institutional Theory.
New Institutional Theory in IFRS convergence
The new institutional theory has been widely used by various researchers in sociology, political science, business and management as well as information system and technology. The increasing use of institution theory in other research areas is also prevalent over the years. The corner stone year of the new institutional theory would have to be 1977 when John Meyer Published his paper ‘‘the effect of education as institution’’ in the American Journal of Sociology.
In the context of IFRS convergence initiatives, institutionalization can be viewed as a social process through which a country accept that national accounting standards; These standards are absorbed in the interest of international accounting harmonization (Craig, 2007). In the field of international accounting research, especially research on IFRS adoption/convergence, new institutional theory has been used both in quantitative and qualitative research.
When a country decides to adopt IFRS and abandon their previous accounting standard, the main reason should be economical such as IFRS will bring economic benefit to the country. The economic benefit can be the decline in the cost of capital or the significant increase of foreign investors in the country’s capital market. However, some studies suggest that the reason of a country adopting IFRS is not economical but more on achieving institutional legitimization.
Institutional theory has long been established as an important perspective in accounting research, because it provides insight into institutional dynamics in accounting (Lounsbury, 2007). The usefulness of institutional theory has largely been driven by theoretical perspectives which broadly define accounting standards and practices as social institutions that are embedded in the institutional environment.
2.3 EMPIRICAL REVIEW
Accounting researchers have investigated relationship between corporate characteristics and disclosures in corporate annual reports since 1960s. Early works on this subject was pioneered by Cerf (as cited in Frmgen (1964) and afterwards, many studies have examined the quality of information disclosures in various contexts. Examples of such studies are: Owusu – Ansah (1998), Ho and Wong (2001), Joshi and Ramadhan (2002), Chau and Gray (2002), Naser et al. (2002); Naser and Nuseibeh (2003), Akhtaruddin (2005).
Each of this studies has been distinguished by differences in research setting, differences in definition of the explanatory variables, differences in disclosure index construction and differences in statistical analysis. Overall, the finding regards the compliances level of companies and the relationship between the levels of disclosure and various corporate attributes are mixed.
In a study carried out by Nwakaeze (2010), sought to correlate the non-compliance with the financial standards and governance code in 20 selected public quoted companies on the Nigerian stock exchange (NSE) in the Delta State.
The population of the study was made up of 20 public companies quoted on NSE. The instrument for data collection was questionnaire. Data collected wasanalyzed using percentages and chi – square.
The study revealed that there is a general problem of accurate financial reporting of accounts of some public companies which resulted in misleading of the prospective investors and the general public at large. The authors recommend that stipulated penalties go to deviants as to enforce a credible reporting system.
In another study carried out by Oladimeji (1997), sought to ascertain the effect of corruption on corporate accounts and behavioural accounting as a measure to achieving public objective. The population for the study comprised 30 public companies in Imo State.
The instrument for data collection was a questionnaire, using 5 – point Likert type of scale. The data generated was analyzed using simple percentages for the research questions, Chi-square and regression analysis for testing the hypotheses formulated for the study. It was found that behavioural accounting recognizes the extent to which internal and external influences in the course of operating the system of accounting changes corporate objectives of the organization.
It recommends the governance to emphasize the effectiveness of what is submitted to them. It was observed that these studies are similar to the present study in the area of instrumentation (use questionnaire). Though, the researchers used percentages, Chi-square and regression analysis but the present study used mean and Z-test statistics.
In another study carried out by OladeleRotimi (2012), the study examined the extent to which adoption of international financial reporting standards (IFRS) can enhance financial reporting system in Nigerian Universities and its implementation Challenges. The population of the study comprised 160 senior accountants and internal auditors.
A survey design was adopted for the study. The mean scores and Z-Test was used in analyzing the data generated for the study. The findings indicated that there are a lot of accounting areas the accountants and auditors should focus in discharging their duties. And as well a lot of implications are also involved.
Mostly accountants, auditors, bursars, financial analyst, etc. are the personnel involve in the IFRS financial instruments. It was recommended among others that the curricula of our institutions should be reviewed to incorporate IFRS, so that accountants and auditors will be acquainted with IFRS guidelines and standards.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION
This section highlight the methodology adopted: it includes the types and sources of data, research design, population of the study, sampling technique, method of data collection and method of data analysis.
3.2 RESEARCH DESIGN
The studywill adopt a descriptive research survey design to give a comprehensive and current report. The descriptive survey research is a method for collecting data through highly structured questions to obtain information from large numbers of respondent on the variable studies.
3.3 POPULATION AND SAMPLING TECHNIQUES
The population for this study will be made up of all the staff of Guaranty Trust Bank Plc. (GTB) in Ilorin Metropolis as at May 2014 totalling One hundred and six (106) out of which sample of 85 would be drawn using Yamane’s sampling size formula for the purpose of this study.
3.6METHOD OF DATA ANALYSIS
In analysing the data collected for the study, the simple percentage method of analysing would be adopted. Also the Z-score statistical method will be used in testing hypothesis formulated for this study.
3.7 DECISION RULE
Reject the null hypothesis (Ho) at the 0.05% level of significance if the Z-score lies outside the range of -1.96 and 1.96 (i.e. Z > 1.96 or Z < -1.96) and vice versa.
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