Chapter one
Introduction
BACKGROUND TO THE STUDY
The increasing growth in international trade and investment has brought to the force the craze for adaptation of International Financing Report Standard (IFRS) by both the developed and developing countries. A number of African countries including Nigeria, Ghana, Sierra Leone, South Africa, Kenya, Zimbabwe and Tunisia among others have adopted or declared intention to adopt the standard. This is a welcome development considering the fact that the quality of financial reporting is essential to the needs of users who require useful accounting information emanating from financial reporting in regard as useful when it faithfully represent the “economic substance” of an organization in terms of relevance, reliability and comparability (Spiceland et al, (2001) P. 36.
Thus, high quality financial reports which IFRS have the potential to support should produce financial information that report event timely and faithfully in the period in which they occur.
IFRS has been described as a single set of high quality accounting standard geared towards globalization. The global movement towards IFRS reporting may facilitate cross – border investment and integration of capital markets. Cut the cost of doing business across borders by reducing the need for supplement information. They make information more comparable, thereby enhancing evaluation and analysis by users of financial statement (Adekoye, 2011). To bridge the gap between accounting standards among countries, the International Accounting Standard Committee (IASC) was founded in 1973 by a ground of professional accounting practitioners. The IASC was to formulate uniform and global accounting standards aimed at reducing the discrepancies in international accounting principles and reporting practices. In this light, the International Accounting Standards Committee (IASC) was established.
Since its establishment the IASC has actively been championing the infirmity and standardization of accounting Standard Board (IASB) took over the setting of International Accounting Standards from the Intertional Accounting Standards and referred to them as International Financial Reporting Standard (IFRS).
It is in recognition of the need to have quality financial report that the adoption of IFRS is becoming the vogue among countries. The process of adoption received a significant boost in 2002 the European Union (EU) Adopted a regulation requiring public companies to converge to IFRS, beginning in 2005. The major objective of the requirement of adopt IFRS is harmonization of accounting standard for listed companies in Europe. Most of the publicly trade companies reported their financial statement based on the standard set in their individual countries which made interpretation of financial statement difficult beyond boundaries. While IFRS adoption may well suit the purpose of the countries in the European Union (EU), the story may not be the same for Africa countries in which the adoption could be catastrophic.
In Nigeria adoption of IFRS was launched in September 2010, by the Honorable Minister, Federal Ministry of Trade and Investment, Senator Jubril Martins – Kuye (OFR). The adoption was organized such that all stakeholders use the IFRS by January, 2016. The adoption was scheduled to start with Public Listed Entities and significant public interest entities who are expected to adopt the IFRS by January 2012. All Government Business Entities are expected to mandatory adopt the IFRS for statutory purposes by January, 2013, and Small and Medium size Entities shall mandatory adopt IFRS by January 2016. The public sector is the chief driver of the nation’s economic activities will similarly adopt the international public sector accounting standard form 1st January, 2015. The delay in the public sector commencement is explained by the fact that it will have to first transit from current cash accounting to modified each, modified accrual and then to accrual accounting. The compliance by the public will complete the entire transition cycle the view is rife that this strategy will no doubt enhance Nigeria perception by foreign investors, review its risk profile was well as provide a reliable and comparable bases such that the country remain one of the best investment distribution in the Africa continents.
The relevance of the adoption of international accounting standard have always been a subject of intense controversy, yet a number of countries in Africa including Nigeria have adopted or plan to adopt IFRS. However, there are questions which may relate to whether the adoption will be beneficial to public listed entities and other significant public interest companies in Nigeria due to challenges faced by these companies in the adoption of IFRS in terms of enhancing transparency in financial reporting that required to be answered. IFRS is more principle based, does not provide issuers with the same degree of detailed guardians for preparation of financial statement, as it is for instance, under Nigeria GAAP or the U.S GAAP.
STATEMENT OF THE PROBLEMS
Nigeria been among the 120 countries which have adopted the IFRS, has been hailed as a step in a right direction and one capable of entrenching the culture of transparency and comparability in information and in general purpose financial statement in order to give true and fair view of financial health of companies. But despite the huge benefit IFRS adoption, companies in Nigeria still face with teething problem which must be addressed before they get it right. These problems gave room for this research study. According to Agbonifor and Yomere (1999), the focal point of every research investigation is a problem which is usually in knowledge gap which the researcher, wishes to fill by generating necessary information.
The statement of the problem are :
Shortage of accountants and auditors who are technically competent in implementing IFRS.
The tax consideration associated with the conversion of IFRS.
In Nigeria accounting practices are governed by CAMA 1990, and other existing laws. IFRS does not recognize the presence of this law.
RESEARCH QUESTION
(Igbinosun, 2002, Pg. 40) state that research problem can be done in question form or it can also be done by examining issues and concerns and stating them in a problem form. In order to amplify the research problem of the study, it is necessary to frame the problem in a more specific term of research questions. The research question of this study are as follows:
What are the key between the Nigeria GAAP and the IFRS?
What are the challenges faced by the public listed companies and other government business entities in the global shift of IFRS by Nigeria.
Is there any perceived benefit to these Nigeria public listed entities in the global shift of IFRS?
OBJECTIVE OF THE STUDY
The general objective of this study is to evaluate the challenges faced by the Nigerian companies in the global shift to IFRS.
However, the specific objective of this study can be amplified as follows:
To find out the key difference between Nigeria GAAP and IFRS.
To find out what are the significant challenges faced by the Nigerian public listed entities in the switch to IFRS.
To find out what are the perceived benefits in the adoption of IFRS by Nigeria Companies.
STATEMENT OF HYPOTHESIS
HO: Is a statement of no difference between two variable, a negative type of proposition.
HI: Is formulated for the purpose of applying a statistical test and generally in anticipation of being reject as false.