1.1 GENERAL DESCRIPTION OF THE STUDY.
International financial reporting standard (IFRS) is a set of international accounting standards that states how certain transaction and events should be reported in financial statement. It is based on principles rather than hard set rules, which is in contrast to U. S. GAAP, a rules-based accounting standard. As a result of this fundamental differences or difference IFRS allows management to use greater discretion and flexibility when preparing a company’s financials.
In Nigeria, the banking sector forms one of the pillars of economic development. It intermediates funds between the surplus and the deficit economic units, thus stimulating and promoting investments and increase of investment in the banking sectors will lead to improved performance of the economy. However, for any meaningful investment to occur in the banking sector quality accounting information regarding share price and other performance indicators are essentials. Investors, who are usually different from the management of the investments, only rely on the information supplied by accountants or/and management in the financial statements of IFRS (International Financial Reporting Standards) adoption on labour mobility of private accountants in Nigerian Banks, n assessing the risk and value of a firm before deciding either to invest or to disinvest. The ability of the financial statements on labour mobility of private accountants to effectively and satisfactorily guide investors on their information in the financial statements.
According to (1) “value relevance” implies the ability of the financial information contained in the impact of IFRS adoption to explain the stock and labour mobility of the market measures. A value relevant variable is that data or amount in the financial statement of IFRS adoption on labour mobility of private Accountants that guide investors in their pricing of share. Investment decision therefore, centres on the association between stock or inventory returns or share price and accounting related information such as earnings, cash flows, book value of equity, firm’s size, etc.
Before the global convergence of International Financial Reporting Standards (IFRS), different countries of the world has had their respective accounting standards developed, issued and regulated by their respective local bodies. In Nigeria for instance the Nigerian Accounting Standards Board (NASB) was responsible for developing, issuing and regulating of accounting standards since 2010 till July 20th, 2012 when the Financial Reporting Council Bill was signed into law. Recently, globalization and internationalization of the capital market have popularized IFRS. The standards which have now become a world standard is a set of principles-based accounting developed and issued by the international accounting standards board (IASB) for the preparation of private company (Banks) financial statements. Every country is expected to converge to IFRS. As at December, 2013, over 150 countries had converged to IFRS.
All European Union countries were mandatorily required to converge to IFRS since 2010. In china, all listed firms are compulsorily reporting under IFRS since 2009. Nigeria formally adopted the new standard in 2010. The implementation in Nigeria was organized such that all companies/Banks use IFRS by January 2014. Following this adoption, all First Banks operating in Nigeria were mandatorily required to adopt and report under IFRS by January 2012. From all indications, expectations are high that IFRS will improve the quality of reported accounting information, quality of labour mobility of private Accountants and enhance the overall reporting standards in Nigeria. However, with the few years of implementation, what are the realities on ground, in terms of its overall impact? This important question about IFRS attracts the attention of academics, regulators and practitioners.
In view of the strategic importance of the banking sector to economic development in Nigeria,, as it accounts for almost 31% of the total market capitalization, that is N3.91tn out of N18.95tn (2), and the fact that banking sector was the first among the listed private entities in Nigeria to fully adopt IFRS, a study on the Labour Mobility of Private Accountants of First Banks in Nigeria becomes important in order to examine the effects of the mandatory adoption of IFRS on Labour Mobility (quality) of Private Accountants of First banks in Nigeria. Besides, a set of financial statements of private accountants are meant to diverse users: ranging from management, owners, creditors, employees, government agencies, regulatory authorities, investors, analysts, etc. Particularly, investors wish to know which items in the financial statements are Labour Mobility of Private Accountants for investment decisions. Specifically, our findings contribute to the argument that shareholder-focused accounting principles such as IFRS are more Labour Mobility for investment decisions than the Nigerian statements of Accounting standards. Our findings are particularly relevant of Financial Reporting Council (FRC) of Nigeria and other standard setters. The research findings provided feedback on whether the change to IFRS has improved accounting quality of Private Accountants on Labour Mobility. This study aspires to contributes to the environment of both Nigerian and International Literature that relates to the adoption and implementation of IFRS and Labour Mobility of Private Accountants. This research will be of vital interest to standard setters’ regulators, researchers, policy-makers and other stakeholders.
1.2 HISTORY OF CASE STUDY ORGANIZATION(S)
FIRST BANK OF NIGERIA PLC.
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 2010 through a resolution by the council of the Institute of Certified Public or/and Private Accountants in Nigeria (ICPAN), the legally mandated accounting institute in Nigeria. The study of accounting between the pre-adoption period from 2010 to 2011 and the post adoption period from 2012 to 2013. The study specifically tests whether there is less earnings management, more timely loss recognition and high 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 (2) bodies.
The first, the International Accounting Standards Committee (IASC) came up with 41 accounting standards between 2009 and 2011. The IASC was replaced by the International Accounting Standards Board (IASB) in the year 2011. The new Bard 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 2011. By 2011, 13 standards had been issued by the board as International Financial Reporting Standards (IFRS). According to IAS plies (2010), IFRS refers to the entire body of IASB pronouncements including standards and interpretations approved by IASB, IASC and their Interpretation produced by the Accounting Standards Interpretation Committee (IASIC). IFRS or IAS 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 (ACA 2012:41). The primary objectives of the accounting standards is to enable corporations to provide investors and creditors with relevant, reliable and timely information which s in line with the IASB accounting framework for the preparation and presentation of financial statements. Such information, it is argued, contributes towards the achievement of orderly capital and labour markets around the world Imhoff (2013:177). The concept of accounting quality is based on the IASB framework where relevance, reliability, understandability and comparability (IFRS 2010:38) 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 thee arguments, many countries and companies have adopted IFRS and the need to evaluate their impact has been overwhelming. Barth et.al (2010:2) indicate that accounting amount results from nitration 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 (2010) by extension argue that high quality standards like IFRS ma also lead to low quality accounting information depending on the incentives of the preparers. It is these contradictions that led Ball et.al (2010) and others to conclude the 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 standard and strong corporate governance.
First Bank of Nigeria Plc has adopted the International Financial Reporting Standards (IFRS) as certified by the International Accounting Standards Board to further strengthen its corporate governance standards and enhance transparency in the disclosure of its financial reports. The adoption of IFRS by First Bank takes immediate effect, and will apply the bank’s financial report for the year ended March 31, 2009; by so doing First Bank aligns with the strongest global standards of transparency in financial reporting. The need for financial statements to be comparable on the same basis across territories is an imperative in today’s global market where investors seek opportunities in market outside their home economics. The adoption of IFRS by First Bank will enhance shareholder value and bring added benefits to its business relationships with numerous overseas correspondent banks multilateral organizations and international investors that require financial statements to make informed decisions about the bank.
At the moment, IFRS is not reportedly requirement in Nigeria although efforts are reportedly underway to promote a convergence between IFRS and Local Accounting Standards. The IFRS regime required some detailed disclosure on risk management, insider related transactions and changes in accounting polices than obtains under the local Statements of Accounting Standards (SAS). The bank will continue to produce financial reports in compliance with both IFRS and SAS until local regulatory. Mr. Sanusi Lamido Sanusi, group managing director/CEO of First Bank, asserted that the “adoption of the IFRS is a significant milestone which further cements First Bank’s leadership in corporate governance”. Hoping that other institutions will follow suit in order and upgrade the nation’s sovereign rating. Sanusi added that “First Bank can now benchmark its performance against international financial institutions and thus spur the drive for better performance not just for us but for the industry as a whole. Mr. Oladele Ouelola, Chief Financial Officer (CFO) of the bank said that “as First Bank becomes a global player, our financial statements prepared in line with IFRS will be easily comparable with other financial statements worldwide, thus eliminating the need to translate statement prepared under the local SAS for international use”.
First Bank continued commitment to corporate governance and improved disclosure levels in the reporting of its financials has been recognized the reporting of its financials has been recognized severally especially by the regulatory authorities. In November 2010, First Bank won the Nigerian Stock Exchanges (NSE) 2011, Quoted Company of the year Award. Firs Bank’s “position as one of Nigeria’s leading financial services providers is largely due to its extensive branch network and a robust funding and liquidity profile”.
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 2009 by ensuring that all listed companies in the report (Oda and Ogiedu, 2013). The development of a globally acceptable standard originally commenced in 2010 as a result of the coming together of a group of qualified accounting professionals of major countries to form IASC (International Accounting Standard Committee). These countries are UK, Ireland, United States, Australia, Canada, France, Germany, Japan, Mexico and Netherlands. They focused on developing a global accounting standards which all replace local standards, harmonize the differences in financial report due to diversities in legal systems, business structures, tax systems etc. all, foster cross border transactions and enhance comparability of information. Hence, the users of financial information can adequately compare the financial statements of different companies to evaluate their financial statements of different companies to evaluate their financial performance and position.
In 2010, the international Accounting standards committee (IASC) was reorganized into the International Accounting Standards Board (IASB). The IASB was responsible for developing accounting standard and associated interpretations that are jointly known as International Financial Reporting Standards (IFRS) (Garba, 2013). In Nigeria, the adoption of IFRS was inaugurated in September 2010 by the Honorable Minister responsible for the Ministry 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 private interest entities are required to adopt IFRS by January 2013 while SME’s (Small and Medium Sized entities) are expected to adopt IFRS by January 2014. However, before the adoption of IFRS in Nigeria the Generally Accepted Accounting principles were the National Accounting standards. According to a paper published by PWC (2010) the adoption of IFRS will have an effect on the Banks and Capital or Labour market’s earnings, credit evaluation, communication between market and stakeholders, long term financial planning, capital management, training, performance measurement product offering and debt covenants.
It is also believed that Nigerian Banks that prepare IFRS complaint financial statements have more advantage over others in their business dealings with other related banks, multinational firms and international investors. Standard and poor’s (S & P) revealed that companies that adopt IFRS tend to experience a rise in their rating as a result of consistency in their data (Adam, 2011). 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 (2011) 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. The research therefore will focus on comparing the 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 (First Banks) would be used to measure the impact of the pre and post adoption of IFRS. Secondary data related to NGAAP for the last two year before and after the adoption would be used. The significance of IFRS in enhancing corporate government would be examined looking at past literature.
1.3 STATEMENT OF THE PROBLEM
First Bank of Nigeria Plc. over the years have been observed to exhibit weak disclosure in financial statements, 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 Nigeria banking sectors 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 2 billion Nigerian Naira (US$14m) to 25 billion Nigerian 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 and improve transparency and comparability of financial results, the creation of AMCOM (Asset Management).
In addition the First Banks of Nigeria issued a circular on the format banks were expected to show in their annual financial statements, the maximum number of years that a CEO could work was restricted to ten years. Also, the cashless policy was introduced and the convergence to IFRS by the end of 2012 to mention a few. It was revealed that four months after the First Bank of Nigeria’s time limit banks were still experiencing difficulties in understanding the value IFRS offers to their business and the trust from their banking partner in other countries. It was discovered in a paper published by Price Water Coopers (2010), that even some big organizations have taken more time to present their response to IFRS.
According to Akpan-Essien (2011), the convergence from NGAAP to IFRS will improve comparability, accountability, integrity and transparency in financial reporting. This is pertinent to deal with the crisis in the financial sector with added to the decline in the country’s foreign direct investment (FDI) in the oil and gas sector to a nation such as Ghana who is believed to have an improved financial reporting. Beke (2011) also stressed the fact that a global/labour liquidity, fall in transaction costs for investors, and cost of capital reduction.
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 financial reporting system in place such as training and developments of practitioners and new members, due diligence for Accounting Standards and the overall institutional and professional organization conducive for effective standards application. Therefore, impact and implementation of IFRS would reduce information irregularity and strengthens and also reduces the costs of preparing different version of financial statements where an organization is a multi-national.
From all this, it is evident that to function in this present world economy and to achieve the maximum gains of international listing, no nation can operate alone in its financial reporting (Garba, 2013). It is therefore paramount to carry out a research to compare the performance of Nigerian banks before the adoption and after the adoption of IFRS and investigates the impact of adopting a global financial reporting standard and Labour Mobility of Private Accountants Standards in the banking sector.
1.4 OBJECTIVE OF THE STUDY
The purpose of this study is to empirically examine whether the mandatory adoption of IFRS has improved the value relevance of financial information in the financial statements of First Banks in Nigeria. Specifically, the objectives of the study are to compare the value relevance of book value of equity and earnings in determining the share price of First Bank in Nigeria before and after the mandatory adoption of IFRS. However, the objectives of the study are to find out the following:
- To examine the impact of IFRS on quality and labour mobility of private Accountants in First Bank of Nigeria Plc.
- To examine whether the International Financial Reporting Standards (IFRS) in Nigeria has improved the quality of financial reporting in First Bank of Nigeria Plc.
- To find out the role of IFRS play in banking institutions in Nigeria.
- To determine whether IFRS adopted implementation has been made positive impact in Nigeria.
- To find out the problems confronting the staff of First Bank of Nigeria Plc in adopting IFRS into system.
- To make useful recommendation based on the findings of the study.
The research also aims to empirically investigate the impact of international financial reporting standards on key performance indicators that is, liquidity, profitability, leverage, and asset quality of Nigerian Banks.
Other objectives include to:
- Examine whether a significant difference exists in banks performance in the pre and post adoption of IFRS.
- Investigate the benefits and challenges of implementing IFRS in Nigerian Banks.
- Investigate the role of IFRS in improving corporate governance.
1.5 RESEARCH QUESTIONS
- Does IFRS aid quality and labour mobility of private accountants in First Bank in Nigeria Plc?
- Does International Financial Reporting Standards (IFRS) in Nigeria improve the quality of financial reporting in First Bank of Nigeria Plc?
- Does IFRS play any significant role in banking institutions of Nigeria?
- Has there been effective implementation and adoption of IFRS in First Bank of Nigeria Plc?
- Is there any problem confronting the staff of First Bank of Nigeria Plc., Aba in enhancing quality on labour mobility of private accountants of financial statements?
- Is there any significant difference existing in banks performance in the pre and post adoption of IFRS?
- To what extent do IFRS implementing the benefits and Challenges in Nigerian Banks?
- To what extent do Nigerian Banks significantly comply with the provisions of IFRS Number one or not?
1.6 STATEMENT OF HYPOTHESIS
Taking into consideration the nature and extend of the problems and purpose of this study started so far, the researcher sees it necessary to formulate the following hypotheses which are used:
H0: IFRS does not aid quality and labour mobility of private Accountants in First Bank of Nigeria Plc.
H1: IFRS does aid quality and labour mobility of private accountants in First Bank of Nigeria.
H0: IFRS does not play any significant role in banking institutions in Nigeria.
H1: IFRS does play 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.
H0: IFRS does not implementing the benefits and challenges in Nigerian Banks.
H1: IFRS does implementing the benefits and challenges in Nigerian Banks.
1.7 SCOPE OF THE STUDY
The study concerns about the impact of IFRS quality and labour mobility of private accountants of financial statements with a particular reference to First Bank of Nigeria Plc.
The reasons for this is because, International Financial Reporting Standards (IFRS) is living study thus a contemporary issue in accounting development and as such, entities in the Nigeria are ongoing in the processes.
For the concept discuss above the logical and accepted framework, the accountant has to make certain assumption order to limit the possible range of interpretations.
The concept of accounting quality is based on the IASB framework where relevance, reliability, understandability and comparability (IFRS, 2012:38) are key components and therefore, assumed that financial statement on labour mobility of the Accountants with the four qualitative characteristics have better quality.
Chen et.al (2010:222) has dimple describe 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 Banks, where such improvement would be regarded as improvement in quality.
1.9 SIGNIFICANCE OF THE STUDY.
The ultimate goal of the every industry or organization including banks is to quality financial reporting (statements) information is issued to private. This goal can be achieved in the banking sector adopting IFRS for effective financial reporting.
This study necessary because would enable the managers and the Accountants 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. This study necessary is that adoption of IFRS has significant influence on the gravity report of financial statement. The study recommends that uniformity in accounting standards on a global/labour mobility and scale will further enhance greater confidence of the users on financial statements this will help them in comparing activities of their company with those situated outside the country. The issue of training is important in the adoption of IFRS. Adequate training is required by the Accountants and professional members who are connected with the use of IFRS in effective adoption of the standards, adoption of IFRS will also helps in minimizing fraud and irregularities.
Finally, it would serve as a reference sources to students or other researchers who might want to carry out their research on the similar topic.
1.10 DEFINITIONS OF UNFAMILIAR TERMS.
- IFRS: International Financial Reporting Standards which are applied stating how particular type of transactions and other events should be reported in financial statements i.e. principle based standards other than the rule based standards.
It represent a unified global commitment to developing a single set of high quality, globally accepted accounting standards whose aim is to provide transparent and comparable information that is in the private interest through general purpose financial statement (Herbert, 2010).
- FINANCIAL STATEMENTS: Financial statements are a collection of reports about an organizations financial results, conditions and cash flows. It is also a financial report, is a formal record of the financial activities of a business, person or other entity. It also provide information regarding the position and financial statement for businesses usually include income statements, balance sheets, statements that adhere to Generally Accepted Accounting principles (GAAP) to maintain continuity of information and presentation across international boarders. (cited by investopedia.com.terms/f/financialstatements ).
- INCOME STATEMENT: Income Statement is a financial statement that measures or repots a company’s financial performance over a specific accounting period. Income statement is one of the three financial statements that stock investors need to become familiar with (the other two are balance sheet and cash flow statement). (investopedia.com/terms/i/incomestatement (5 May, 2017)).
- STATEMENT 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 J. 2009).
- ACCOUNTIING: This is defined as the process of identifying, measuring, and communicating economic information to permit judgements and decisions by users of the information (Frank Wood and A. Sangster, 2010). Accounting is also the composite activity of collecting, analyzing, recording, summarizing, reporting and interpreting the through financial position or transaction of any organizations or government units (grossarchive.com).
- 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 alternatives in accounting for economic transactions and events (Odia and Ogiedu, 2013).
- ADOPTION: Adoption implies that national rules are set aside and replaced by IFRS requirement. Adoption of IFRS means full scale implementation or usage of IFRS without any variation.
- IAS: International Accounting Standards.
- GAAP: Generally Accepted Accounting Principles are common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. (investopedea.com/terms/g/gaap.asp)
- ACCOUNTANT: An accountant is any person who possesses a professional license to practice accountancy from a recognized professional body and has legal capacity and authority to carry out the duties of accountants in taxation and audit practice.
- FRAUD: Fraud is refers to as wrongful or criminal deception intended to result in financial or personal gain i.e. it is an act or course of deception, omission or perversion of truth in order to gain unlawful or unfair advantage.
- FINANCIAL ACCOUNTANT: The role of a financial accountant is to record, summarize and report on the financial transactions of an organization in such a way that it is possible for someone outside of the organization to get an accurate picture of the organizations financial position and performance.
- ENTITY: A person partnership, organization or business that has a legal and separately identifiable existence.
- PRIVATE ACCOUNTANTS: An individual who provides a select and personalized set of accounting service exclusively to one client, typically a high-net-worth individual or corporation. A private accountant may be an employee of the client or may operate as an independent accountant. (businessdictionary.com/definition.privateaccountant). An Accountant deep track of financial data and records. They can work as public accountants for accounting firms or as private or management accountants in business or industry. The private accountant’s clients are usually internal, as she is part of an accounting department within the organization for which she works. (work.chron.com>careers>job in education).
- QUALITY: The standard of something as measured against other things of a similar kind the degree of excellence of something. (Vishnam and Shah 2009).
- STANDARDS: This is an idea or thing used as a measure, norm, or model in comparative evaluations. This can also be a level of quality or achievement, especially one that people generally consider normal or acceptable standard of (Macmillan Publishers Limited 2010 – 2017 Index).
- IMPACT: Is the action of one object coming forcibly into contract with another. Impact is a not-for-profit, non-governmental organization that adopts a rights-based approach to programming with the aim of bringing relief and empowerment in difficult circumstances (impacting.com/publications2012).
- PRIVATE: This is a belonging to or for the use of one particular person or group of people only. It is a conversation, activity, or gathering involving only a particular person or group, and often dealing with matters that are not to be disclosed to others. ‘This is a private conversation’ ‘a small private service in thee chapel’.
- LABOUR: This is simply means a work, especially physical work; the price of repair includes labour, parts, and VAT; manual labour. It is a government concerned with a nation’s workforce (The Oxford Dictionary 2016/2017 Oxford University Press).
- LABOUR MOBILITY: Is the degree to which people are able and willing to move from one job to another or from one read to another in orders to work (Cambridge Business English Dictionary, Cambridge University Press).