The Adoption of International Financial Reporting Standards (IFRS) Issues, Challenges and Opportunities

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1 The Adoption of International Financial Reporting Standards (IFRS) Issues, Challenges and Opportunities Fasoranti M. M. (Ph.D) 1 Department of Economics, Adekunle Ajasin University, Akungba-Akoko, Ondo State, Nigeria. modupefasoranti@gmail.com Adelakun, Ojo Johnson and 2 Department of Economics, Joseph Ayo Babalola University, Ikeji-Arakeji, Osun State, Nigeria. joadelakun@yahoo.co.uk Joshua, Olusola Olalekan 3 Department of management and accounting Obafemi Awolowo University, Ile-Ife, Nigeria. solajoshua@yahoo.com ABSTRACT The study looked at the issues of IFRS s adoption in Nigeria, and its challenges. It also examined the attendant benefits of IFRS in term of high quality, transparent, reliable and comparable financial statement and how it will be of help to Nigeria financial reporting practice. The sample size which comprises of preparers and users of financial statements from reputable quoted public companies and big four accounting firms in Nigeria (i.e KPMG, Akintola William Deloitte, Pricewaterhousecoopers, and Enrst and Young) was drawn from the entire population which comprises of public companies, financial institutions, players in the capital market, government, e.t.c.. Lagos State, the south-west Nigeria, was also picked as the sampling area because this state has the highest concentration of the study s sample size. Descriptive Statistics were used to analyse data collected from both primary and secondary sources. 100 questionnaires containing 28 relevant questions relating to IFRS adoption in Nigeria, its benefits and challenges, were used to collect data from respondents from both users and preparers of financial statement perspectives. However, after the analysis of the data that was empirically gathered, the findings of this study revealed that full disclosure requirements of IFRS and its emphasis on fair value accounting for the measurement of some items of financial statements (e.g item of property, plant and equipments) will lead to high quality, transparent, and reliable financial statements. The findings also concluded that elimination of reporting language barriers will encourage cross border investment and thus more inflows of foreign direct investments. KEYWORDS: Fear value, Full disclosure requirement, Financial Statements Comparability, Cross border Investments 1.0 INTRODUCTION International Financial Reporting Standards (IFRSs) are set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standards for the preparation of public company s financial statements. Zakari, (2010). Oyedele, (2011) also described International Financial Reporting Standards (IFRSs) as global Generally Accepted Accounting Principles (GAAPs) seeking to unify accounting and financial reporting world-wide. However, from the above definitions, it could be seen clearly that IFRSs are set of accounting pronouncements and rules developed by International Accounting Standards Board (IASB), which are required to be complied with globally by preparer of financial statements so that financial statements prepared in any country of the world could gain global acceptability and comparability. On April 1st, 2001, International Accounting Standards Board (IASB) was founded as a successor to the International Accounting Standards Committee (IASC). The IASB describes its rules under the new labeled IFRSs, though it continues to recognize (accept as legitimate) the prior rules i.e International Accounting Standards (IAS) issued by the old Standards setter (IASC). The IASB began operations in the same year 2001 when it was founded to succeed the old IASC. The Board is > RJSSM: Volume: 03, Number: 11, March-2014 Page 1

2 responsible for developing International Financial Reporting Standards (IFRSs) and promoting the use and application of these standards. Meanwhile, since 2001, approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies. Also approximately 90 countries have fully conformed to IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports. Countries such as South Africa and those in European Union have required all the listed companies in their various stock exchange markets to use IFRS in the preparation and presentation of their financial statements since Problems Necessitate IFRS adoption in Nigeria---- Presently, GAAPs are significantly wearing out and becoming obsolete therefore making financial reports difficult to be compared with those countries that have adopted IFRS, Fowokan (2011). The reasons for this include: Difficulties in comparing financial statements globally. Difficulties in consolidating financial statement of a group companies. High cost of preparing and presenting group financial statements. High cost of accessing capital in the foreign capital market Inability of the users of financial statements to comprehend very well, the information in multinational company s financial reports. Decline in the inflow of the foreign direct investment in Nigeria. Unattractive and Uncompetitive capital market because of lack of quality financial information due to poor local standards in reporting financial statement. The adoption of IFRS in Nigeria therefore necessitates answers to the following questions: Would the adoption of IFRS lead to high quality, reliable, transparent and comparable financial statements? How would the IFRS s adoption affect the cost of preparing and presenting group financial statements? How would the adoption of IFRS affect the inflow of foreign direct investment in Nigeria? Objectives and Significance of this Study---- This study is however set to examine followings: The effect of IFRS on the quality, transparency, reliability and comparability of financial statement. The effect of IFRS on the cost of preparing and presenting group financial statement. The effect of IFRS s adoption on the inflow of foreign direct investment into the country. However, this study is of policy relevance to stakeholders in the following areas: Identification of the issues, challenges and opportunities of IFRS adoption in Nigeria. Enlightenment of the users of financial statements about the implications of IFRS s adoption in Nigeria. Provision of addition to existing academic literatures. Creation of awareness among students of tertiary institutions about the trends in IFRS and thus widen their horizon about IFRS. 2.0 LITERATURE REVIEW Overview of IFRS adoption in Nigeria---- Oyedele (2011) posits that accounting is the language of business while financial reporting is the medium through which the language is communicated. Accounting and financial reporting are regulated by Generally Accepted Accounting Principles (GAAP) comprising of accounting standards, > RJSSM: Volume: 03, Number: 11, March-2014 Page 2

3 company law, stock market regulations, and so on. As one would expect, different countries have different GAAPs which makes business communication with other countries difficult. To solve this problem, some decades ago the world started a gradual movement towards adopting a uniform GAAP for accounting and financial reporting which in no small measure is a good thing. But to every good thing in life there is always a side effect and sometimes a good thing can have a negative impact depending on how it is handled. The global GAAP that is seeking to unify accounting and financial reporting worldwide is the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Essentially, IFRS comprises of the following four types of documents viz: (1) International Accounting Standards (IASs); (2) International Financial Reporting Standards (IFRSs); (3) Standing Interpretations Committee (SICs) pronouncements; and (4) International Financial Reporting Interpretations Committee (IFRICs) guidelines. However, the major difference between IFRS and the local Statement of Accounting Standards (SAS) is that the former is a more robust and principle based set of accounting standards with detailed disclosure requirements (Oyedele, 2011). For instance, the IASB Framework states that 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 decisions. In order to meet the objective, the Framework requires financial statements to possess certain qualities which are understandability, relevance, reliability, and comparability. Iyoha and Faboyede (2011) carried out a research on the issue of IFRS adoption with focus on Nigeria. The research extensively evaluates the benefits, challenges and network effect of IFRS adoption in Nigeria and among other nations. The study employed the use of questionnaires to determine the perceptions of two main groups of stakeholders in financial reporting, one representing the preparers of annual reports (represented by finance managers of quoted firms in Nigeria) and the users of annual reports (that is investors represented by financial analysts). The result of the study revealed that the company will benefit from IFRS adoption with both preparers and users agreed that ease of using one consistent reporting in subsidiaries from different countries is the most useful benefit of IFRS which ranked first among the nine variables with mean score of 4.35 and 4.45 respectively for preparers and users. They also agree on the benefits of better access to capital and lower cost of audit fees which ranked fifth and sixth among the nine variables respectively with mean scores of 3.20; 3.15 and 3.58; 3.45 for preparers and users respectively. They however differ in their ranking of the other factors. The study also showed that both preparers and users are unanimous in their views about the IFRS challenges that the ethical environment is the most important challenge for the successful adoption of IFRS which ranked first among the six variables empirically tested with the mean scores of 4.76 and 4.65 for both preparers and users respectively. This should not be surprising because corporate transparency is particularly important component of good governance as it ensures the protection of parties (both individual and institutional) who have operational interest in financial reporting in terms of accurate and reliable information which are needed in order to take well considered economic decisions. Interestingly, preparers and users are both unanimous that training will be the least challenge among the six variables which ranked fifth with the mean score of 3.59 and 3.45 respectively. Iyoha and Jafaru (2011) also showed that the education and training of accountants by the professional accounting bodies will have strong implications for IFRS. This is closely followed by the yearly production of professional accountants with a mean of 3.59 from the compilers point of view and professional ethics from the view point of users. The result also showed that the Nigerian Accounting Standards Board lacks the necessary resources to fulfill its mandate. This was ranked seventh among the seven empirical variables with a mean score of 2.45 from compiler of financial statement point of view. This was extended to another result which shows that the Board will lack the capacity to enforce the use of IFRS from users perspective. This was ranked seventh with a mean score of Thus, NASB has a lot of areas where improvements are needed for IFRS adoption to be meaningful in Nigeria. These areas include improved regulatory oversight and enforcement, > RJSSM: Volume: 03, Number: 11, March-2014 Page 3

4 relationship with other accounting bodies and institutions and better supply of information to market participants. The usefulness of accounting information in cross-border investment decision-making is already recognized by the literatures. For example, Rossi and Volpin (2004) showed that the volume of cross country mergers and acquisitions are significantly larger in countries with better accounting standards, while Black et al. (2007) revealed that international acquirers pay lower premiums for target firms based in countries where accounting data are less value-relevant. Other studies showed that firms with good accounting attributes are often more likely to be held by foreign investors (Kang and Stulz, 1997). Though adoption of IFRS is expected to facilitate growth in bilateral economic activities, the benefit may not be evenly distributed across all bilateral relations. The pre-adoption conformity of national GAAP to IFRS determines the significance, and therefore the benefit, of IFRS adoption. Institutional differences between partner countries can impact the effect of convergence to a set of uniform financial reporting standards, as they can affect the degree to which the new accounting standards are actually enforced and influence the interpretation of accounting information prepared under IFRS. Ball, (2006) opined that despite the uniformity characteristic of IFRS, it can never be evenly implemented by countries who intend to do so because substantial international differences in financial reporting practice and financial reporting quality are inevitable, international standards or no international standards. Ball also believed that despite increased globalisation most political and economic influences on financial reporting practice remain local. It is reinforced by a brief review of the comparatively toothless body of international enforcement agencies currently in place. His conclusion was also supported by a fledgling academic literature on the relative roles of accounting standards and the incentives of financial-statement preparers in determining actual financial reporting practice. This study has also identified that many past theoretical literature and empirical evidence have failed to recognize the fact that successful adoption and implementation of IFRS in any given country depend on the level of enforcement and compliance with the local GAAPs of such country. Meanwhile, as widely spread by some theoretical literatures that uniformity in accounting standards as a result of IFRS will bring about reduced financial information cost and information risk, Ball, strongly argued this position that uneven implementation will curtail the ability of IFRS to achieve that objective. This is because of what Ball described as international differences in reporting quality which could be hidden under the rug of seemingly uniform standards. In summary, despite various benefits attached to IFRS as standards in some of the theoretical literatures reviewed in this study, it was however believed that these benefits in relation to IFRS adoption are not the major determinants for IFRS adoption for some countries of the world. This suggests that the decision for IFRS adoption by some countries in the world is not costs-benefits driven. For example, countries like USA, UK, etc with high quality of governance institutions coupled with GAAPs that have almost the same quality with IFRS will never based their decision of adopting IFRS on its benefits because their own GAAPs also have qualities of offering those benefits. However, developing countries like Nigeria will still favour IFRS adoption based on its benefits because the country does not have high quality local GAAPs that could provide those benefits IFRS will offer. Thus, this study will also empirically investigate the degree of diversity in the decisions of many IFRS adopters (i.e countries adopting IFRS) to adopt IFRS contrary to some of the views raised by many theoretical and empirical literatures that countries of the world do make decision to adopt IFRS as a result of its benefits. 3.0 METHODOLOGY Data Collection: The study covered the activities of both preparers and users of financial statements in Nigeria. Data was obtained from both primary and secondary sources. Data was obtained from a total number of 100 respondents which were randomly selected with the aid of well structured questionnaires. The respondents were of two categories: > RJSSM: Volume: 03, Number: 11, March-2014 Page 4

5 1. Preparers of financial statements represented by finance managers of the quoted public companies and auditing firms. 2. Users of financial statements represented by investment analysts Fourty and Sixty copies of the questionnaires were administered on the preparers and users respectively while only Thirty-five and Thirty were returned respectively. Method of Analysis: The study employed the use of descriptive statistics such as frequency distribution, percentages, means, charts and histograms to analyse the data collected. 4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1 Demographic Characteristics of Respondents DISTRIBUTION OF RESPONDENTS BY: 1 Sex Frequency Percentage (%) Male Female Age Bracket yrs yrs yrs yrs Marital Status Single Married Educational Qualification OND/NCE HND/BSC PGD/MSC PHD Professional Qualification ACA ACCA ACIT CIBN Years of Work Experience 0-4 yrs yrs yrs yrs Department Accounting Audit Taxation Job Title Investment Analyst Finance Manager Source: Field Survey (2012) > RJSSM: Volume: 03, Number: 11, March-2014 Page 5

6 From table 4.1 above, it was revealed that out of the total respondents, 40 are male representing 61.5% while 25 are female representing 38.5%. 42 (64.6%) respondents fell between the age of years, 18 (27.7%) fell between years, 4 (6.2%) is for years while 50 years and above took just 1 (1.5%). The implication of this is that greater percentages of the respondents fell in the active age bracket. Also, 36 (55.4%) respondents were single while 29 (44.6%) have married. Meanwhile, none of the respondents is a Phd holder, 1 (1.5%) held OND/NCE, 59 (90.8%) were HND/BSc holder while PGD/MSc occupied 7.7 percent representing just 5 respondents. Distribution of respondents by professional qualification however, showed that 29 respondents were member of ICAN and ACCA respectively, representing 44.6%, 5 (7.7%) were member of CITN while 2 respondents belong to CIBN representing 3.1%. The implication of this is that every respondent belongs to one professional body or the other. Frequency distribution of respondents years of work experience revealed that 46 (70.8%) have worked between 0-4 years, 17 (26.2%) between 5-10 years while just only 1 respondent have worked between years and 15 years and above respectively, representing 1.5%. Distribution of respondents by department showed that 28 (43.1%) respondents were in Accounting department, 27 (41.5%) in Audit while 10 (15.4%) were in tax department. While distribution by job title revealed that 30 (46.2%) respondents are investment analysts representing the users of financial statements for the purpose of this study while 35 (53.8%) respondents are finance managers representing the preparers of financial statements. 4.2 Respondents Perspectives on the Benefits of IFRS adoption Table 4.2 s/n Probable Statements/Respondents SA A U D SD Total 9 Elimination of reporting language barriers by IFRS will lead to global comparability of financial statement (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (28)(80%) (6)(17.1%) (0)(0) (1)(2.9%) (0)(0) (35)(100%) Users (Investment Analysts) (21)(70%) (8)(26.7%) (1)(3.3%) (0)(0) (0)(0) (30)(100%) 10 IFRS reduces information risk of financial statements and therefore ensuring low cost of obtaining capital (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (10)(28.6%) (12)(34.2%) (10)(28.6%) (3)(8.6%) (0)(0) (35)(100%) Users (Investment Analysts) (10)(33.3%) (14)(46.7%) (5)(16.7)%) (1)(3.3%) (0)(0) (30)(100%) Source: Field Survey (2012) > RJSSM: Volume: 03, Number: 11, March-2014 Page 6

7 s/n Probable Statements/Respondents SA A U D SD Total Full disclosure requirement of IFRS will ensure high quality, reliable & transparent financial statements (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (23)(65.7%) (12)(34.3%) (0)(0) (0)(0) (0)(0) (35)(100%) 11 Users (Investment Analysts) (23)(76.7%) (7)(23.3%) (1)(3.3%) (0)(0) (0)(0) (30)(100%) IFRS will ensure that companies have easy access to global capital market (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (8)(22.8%) (14)(40%) (11)(31.4%) (2)(5.8%) (0)(0) (35)(100%) Users (Investment Analysts) (6)(20%) (12)(40%) (10)(33.4%) (1)(3.3%) (1)(3.3%) (30)(100%) IFRS will reduce cost of preparing and presenting group financial statement (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (5)(14.3%) (9)(25.7%) (9)(25.7%) (10)(28.6%) (2)(5.7%) (35)(100%) Users (Investment Analysts) (1)(3.4%) (6)(20%) (9)(30%) (7)(23.3%) (7)(23.3%) (30)(100%) IFRS will facilitate easy merger & acquisition scheme among multinational companies (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (7)(20%) (23)(65.7%) (3)(8.6%) (2)(5.7%) (0)(0) (35)(100%) Users (Investment Analysts) (5)(16.7%) (16)(53.3%) (6)(20%) (3)(10%) (0)(0) (30)(100%) IFRS emphases on fair value accounting will ensure that investors have better understanding of risks and returns on their investments (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (7)(20%) (19)(54.3%) (9)(25.7%) (0)(0) (0)(0) (35)(100%) Users (Investment Analysts) (4)(13.3%) (20)(66.7%) (6)(20%) (0)(0) (0)(0) (30)(100%) As a uniform standard, IFRS will promote cross border investment by encouraging moreinflows of foreign direct investments (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (21)(60%) (12)(34.4%) (1)(2.8%) (1)(2.8%) (0)(0) (35)(100%) Users (Investment Analysts) (15)(50%) (12)(40%) (3)(10%) (0)(0) (0)(0) (30)(100%) IFRS full disclosure requirement will increase investor's level of reliance on company's financial statements for investment purpose (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (21)(60%) (14)(40%) (0)(0) (0)(0) (0)(0) (35)(100%) Users (Investment Analysts) (21)(70%) (9)(30%) (0)(0) (0)(0) (0)(0) (30)(100%) IFRS require market participants to fully disclose their financial statements and thus create an effient capital market for investors (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (20)(57.1%) (11)(31.4%) (4)(11.5%) (0)(0) (0)(0) (35)(100%) Users (Investment Analysts) (15)(50%) (11)(36.7%) (4)(13.3%) (0)(0) (0)(0) (30)(100%) Investors could compare globally, investment opportunities using IFRS based financial statements (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (13)(37.1%) (18)(51.4%) (4)(11.4%) (0)(0) (0)(0) (35)(100%) Users (Investment Analysts) (7)(23.4%) (19)(63.3%) (4)(13.3%) (0)(0) (0)(0) (30)(100%) IFRS financial statement could be easily understood by investors (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Preparers (Finance Managers) (5)(14.3%) (7)(20%) (20)(57.1%) (3)(8.6%) (0)(0) (35)(100%) Users (Investment Analysts) (2)(6.7%) (4)(13.3%) (17)(56.7%) (3)(10%) (4)(13.3%) (30)(100%) Source: Field survey (2012) > RJSSM: Volume: 03, Number: 11, March-2014 Page 7

8 Analysis of table (80%) and 21 (70%) of both preparers and users respectively strongly agree that elimination of reporting language barriers by IFRS will lead to global comparability of financial statements, 6 (17.1%) and 8 (26.7%) of both respectively agree, 1 (3.3%) of the users failed to revealed their opinion while just only 1 (2.9%) and none of the preparers disagree and strongly disagree respectively. 10 (28.6%) (33.3%) of both preparers and users unanimously strongly agree that IFRS will reduce information risk of financial statement and thus ensuring low cost of obtaining capital. 12 (34.2%) and 14 (46.7%) of both respectively also agree, 10 (28.6%) and 5 (16.7%) of both respectively could not decide, 3 (8.6%) and 1 (3.3%) of both respectively disagree while none of them strongly disagree. 23 of both preparers and users of financial statements, representing 65.7% and respectively strongly agreed that the full disclosure requirements of IFRS will ensure high quality, reliable and transparent financial statements. 23 (34.3%) and 7 (23.3%) of both respectively also agree while none of them neither disagree nor strongly disagree. Therefore, this confirmed that IFRS will improve the quality, reliability, and transparency of financial statements. Hence the first objective of this study established. This can also be confirmed from the diagram below: 8 preparers (22.8%) and 6 users (20%) strongly agreed that IFRS will ensure that companies have easy access to global capital market, 14 (40%) preparers and 12 (40%) users also agree, 11 (31.4%) and 10 (33.4%) of both respectively could not decide, 2 (5.8%) and 1 (3.3%) of both respectively disagree, while none of the preparers strongly disagree as only 1 (3.3%) of the users strongly disagree. 9 (25.7%) and 9 (30%) of both preparers and users respectively were unable to decide on whether or not IFRS will reduce cost of preparing and presenting group financial statements. 10 (28.6%) and 7 (23.3%) of both respectively disagree that IFRS will reduce the cost, also 2 preparers and 7 users strongly disagree. Only 5 preparers and just 1 user strongly agreed while 9 (25.7%) preparers and 6 (20%) users agreed. Hence, objective 2 of this study was achieved by concluding that IFRS will not reduce the cost of preparing and presenting group financial statements. This is represented in the diagram below: > RJSSM: Volume: 03, Number: 11, March-2014 Page 8

9 23 (65.7%) preparers and 16 (53.3%) users agreed that IFRS will facilitates easy merger and acquisition scheme among multinational companies, 7 (20%) preparers and 5 (16.7%) users strongly agreed, 3 (8.6%) preparers and 6 (20%) users could not decide, 2 preparers and 3 users disagree while none of them were strongly disagree. 19 (54.3%) preparers and 20 (66.7%) users agreed that IFRS emphases on fair value accounting will ensure investors to have better understanding of risks and returns on their investments, 7 (20%) preparers and 4 (13.3%) users strongly agreed, 9 (25.7%) preparers and 6 (20%) users could not decide while none of them neither disagree nor strongly disagree. 21 (60%) preparers and 15 (50%) users strongly agreed that IFRS as a uniform standard will promote cross border investment by encouraging more inflows of foreign direct investment. 12 (34.4%) preparers and 12 (40%) users also agreed, 1 (2.8%) preparers and 3 (10%) users could not decide, only 1 (2.8%) preparer disagree and none for users while none of them strongly disagree. Hence, objective 3 of this study achieved. This can also be inferred from the diagram below: > RJSSM: Volume: 03, Number: 11, March-2014 Page 9

10 21 (60%) preparers and 21 (70%) users strongly agreed that IFRS full disclosure requirement will increase investor s level of reliance and confidence on financial statements. 14 (40%) preparers and 9 (30%) users also agreed while none of them neither disagree nor strongly disagree. 20 (57.1%) and 15 (50%) of preparers and users respectively strongly agreed that IFRS financial statement will create an efficient market for investors, 11(31.4%) preparers and 11 (36.7%) users also agreed while 4 of them could not decide and none of them neither disagree nor strongly disagree. 13 (37.7%) and 7 (23.4%) of preparers and users were strongly agreed that Investors could compare globally, investment opportunities using IFRS based financial statements. 18 (51.4%) preparers and 19 (63.3%) users also agreed, 4 (11.4%) preparers and 4 (13.3%) users could not decide while none them could either disagree or strongly disagree. 20 (57.1%) preparers and 17 (56.7%) users could not decide on whether or not IFRS financial statement could be easily understood by investors, 5 (14.3%) and 2 (6.7%) of preparers and users respectively were strongly agreed, 7 (20%) and 4 (13.3%) of preparers and users also agreed, 3 (8.6%) and 3 (10%) of preparers and users disagree while none of the preparers strongly disagree and 4 (13.3%) users strongly disagree. 4.3 Respondents Perspectives on the Challenges of IFRS adoption Table 4.3 S/N Probable Statements/Respondents SA A U D SD Total (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) Shortage of Accountants & Auditors who are technically competent in IFRS will affect practical implementation 21 of IFRS Preparers (Finance Managers) (16)(45.7%) (16)(45.7%) (0)(0) (3)(8.6%) (0)(0) (35)(100%) Users (Investment Analysts) (20)(66.7%) (10)(33.3%) (0)(0) (0)(0) (0)(0) (30)(100%) S/N Probable Statements/Respondents SA A U D SD Total (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) (F)(%) 22 Differences in political & ethical environment of financial reporting practice among countries will cause uneven implementation of IFRS Preparers (Finance Managers) (13)(37.1%) (19)(54.3%) (1)(2.9%) (0)(0) (2)(5.7%) (35)(100%) Users (Investment Analysts) (19)(63.4%) (10)(33.3%) (1)(3.3%) (0)(0) (0)(0) (30)(100%) 23 Uneven implementation of IFRS among countries could sabotage the uniformity objective of the standard Preparers (Finance Managers) (8)(22.9%) (20)(57.1%) (4)(11.4%) (0)(0) (3)(8.6%) (35)(100%) Users (Investment Analysts) (11)(36.7%) (10)(33.3%) (9)(30%) (0)(0) (0)(0) (30)(100%) 24 Tight deadline within which companies are required to adopt IFRS and mandatory adoption could result to non-compliance syndrome Preparers (Finance Managers) (8)(22.9%) (18)(51.4%) (5)(14.3%) (4)(11.4%) (0)(0) (35)(100%) Users (Investment Analysts) (13)(43.3%) (17)(56.7%) (0)(0) (0)(0) (0)(0) (30)(100%) Source: Field survey (2012) > RJSSM: Volume: 03, Number: 11, March-2014 Page 10

11 Analysis of Table (45.7%) and 20 (66.7%) of preparers and users strongly agreed that shortage of accountants and auditors who are technically competent in IFRS will affect practical implementation of IFRS, 16 (45.7%) and 10 (33.3%) of both preparers and users also agreed, none of them could not decide, 3 (8.6%) preparers disagree and none of the users disagree while none of them strongly disagree. 13 (13.1%) preparers and 19 (63.4%) users strongly agreed that political and ethical differences among the countries of the world will cause uneven implementation of IFRS, 19 (54.3%) preparers and 10 (33.3%) users also agreed, 1 (2.9%) preparer and 1 (3.3%) user could not decide while none of them disagree, 2 (5.7%) preparers strongly disagree and none of the users strongly disagree. 8 (22.9%) preparers and 11 (36.7%) users strongly agreed that uneven implementation of IFRS among countries could sabotage the uniformity objective of the standards, 20 (57.1%) preparers and 10 (33.3%) users also agreed, 4 (11.4%) preparers and 9 (30%) users could not decide, none of them disagree while 3 (8.6%) preparers and none of users strongly disagree. 18 (51.4%) preparers and 17 (56.7%) users agreed that tight deadline within which companies are required to adopt IFRS and mandatory adoption could result to non-compliance syndrome, 8 (22.9%) preparers and 13 (43.3%) users strongly agreed, 5 (14.3%) preparers and none of the users could not decide, 4 (11.4%) preparers and none of the users disagree while none of them strongly disagree. 4.4 Respondents Perspectives on the most key success factors of IFRS adoption in Nigeria ranked by average mean scores Table 4.4 Preparers (Finance Managers) n= 35 Mean Scores Average Ranks Users (Investment Analysts) n= 30 Mean Scores Average Ranks Ranks 1st 2nd 3rd 4th 1st 2nd 3rd 4th Scores Self enforcement by companies nd st Executive and Board Support rd rd Sound System of Corporate governance rd th Professional Support with IFRS experience st nd Source: Field Survey, 2012 The table above revealed that both preparers and users were unanimous in their opinion by ranking executive and board support as 3rd most key success factor for IFRS adoption, Self enforcement by companies was ranked 2 nd and 1 st by preparers and users respectively while professional support with IFRS experience was ranked 1 st and 2 nd by preparers and users respectively. Hence, both preparers and users opinion indicate that self enforcement by companies and professional support with IFRS experience will serve as the most key success factors for IFRS adoption. 4.5 Respondents perspectives on which Professional Body to play most important role in the implementation of IFRS in Nigeria ranked by average mean scores > RJSSM: Volume: 03, Number: 11, March-2014 Page 11

12 Preparers (Finance Managers) n= 35 Mean Scores Table 4.5 Average Ranks Users (Investment Analysts) n= 30 Mean Scores Average Ranks Ranks 1st 2nd 3rd 4th 1st 2nd 3rd 4th Scores ICAN st st CITN rd rd CIBN th th CIS nd nd Source: Field Survey, 2012 The table above indicates that both preparers and users were of the same opinion in their ranking on which professional body to play most important role in the implementation of IFRS in Nigeria but with different mean scores. However, both of them considered ICAN and CIS as professional bodies that have most important roles to play in the implementation of IFRS in Nigeria. 4.6 Respondents perspectives on which Legal/Regulatory authority to play most important role during and after the implementation IFRS in Nigeria Table 4.6 Preparers (Finance Managers) n= 35 Mean Scores Average Ranks Users (Investment Analysts) n= 30 Mean Scores Average Ranks Ranks 1st 2nd 3rd 4th 1st 2nd 3rd 4th Scores CBN rd rd NASB (FRC) st st SEC nd nd NAICOM th th Source: Field Survey, 2012 The table above reveals that both preparers and users were of the same opinion in their ranking on which legal/regulatory authority to play most important role during and after the implementation of IFRS in Nigeria but with different mean scores. However, both of them considered NASB now (Financial Reporting Council- FRC) and SEC as legal/regulatory authorities that have most important roles to play in the implementation of IFRS in Nigeria. 4.7 Respondents perspectives on whether it will be practicable for all the public quoted companies in the world to report their financial statements using a single set of standards? Table 4.7 Variables Preparers (Finance Managers) Users (Investment Analysts) F % F % YES NO TOTAL Source: Field Survey, 2012 The table above shows that, 23 (65.7%) preparers and 10 (33.3%) users agreed that a single set of standard is practicable for financial statement reporting in the world while 12 (34.3%) preparers and 20 (66.7%) users do not agree. This means both of them were not unanimous in their opinion. > RJSSM: Volume: 03, Number: 11, March-2014 Page 12

13 4.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS 4.1 Summary This study looked at the issues of International Financial Reporting Standards i.e the roadmap for its adoption in Nigeria, the tax implications and general challenges of its adoption, as well as the opportunities the said standards will offer. The objectives behind the study are to empirically investigate from the perspective of both preparers and users of financial statements, on how IFRS adoption could lead to high quality, transparent, reliable and comparable financial statements; on how IFRS adoption will affect cost of preparing and presenting group financial statements; and to know the extent to which IFRS adoption will affect the inflow of foreign direct investments into the country. The study revealed that there are a lot of problems in the Nigeria financial reporting practice such as weak corporate governance, outdating local GAAP for financial reporting, etc which have necessitated the use of high quality and principle based standard like IFRS. Also revealed in this study are some of the challenges that may militate against the successful adoption and implementation of the standard. Such challenges include shortage of accountants and auditors competent in IFRS, political and ethical environment, tight deadline and non-compliance syndrome e.t.c. The key factors for a successful IFRS adoption were also revealed in this study. These include self enforcement by companies, executive and board support, sound system of corporate governance and support of professionals with IFRS experience. The regulatory body and authority that have most important role to play in the implementation of IFRS were also revealed by this study It was also revealed that the IFRS s adoption will offer benefits such as high quality and transparent financial statements, more efficient capital market, more comparable financial statements, more inflows of foreign direct investments, improved oversight functions of the regulatory authorities among others. 4.2 Conclusion Based on the findings of this research work, it is concluded that full disclosure requirements of IFRS and its emphasis on fair value accounting for the measurement of some items of financial statements (e.g item of property, plant and equipments) will lead to high quality, transparent, and reliable financial statements. The findings also concluded that elimination of reporting language barriers will encourage cross border investment and thus more inflows of foreign direct investments. The findings of this study also enable the researcher to conclude that Self enforcement by companies and support of professionals with IFRS experience are the most key factors for a successful IFRS implementation in Nigeria as the two factors were ranked 1 st and 2 nd respectively among the four variables tested as factors by both the preparers and users of financial statements in a pari passu manner. 4.3 Recommendations Now that the findings have revealed to us some benefits the nation s financial reporting system will derive by reporting with IFRS as well as the challenges that may arise, this study suggests some recommendations in order to achieve successful IFRS adoption. However, the following recommendations were made in the light of the above: There is need for professional bodies such as Institute of Chartered Accountants of Nigeria (ICAN), Chartered Institute of Taxation of Nigeria (CITN), Chartered Institute of Stockbrokers (CIS), e.t.c to organize mandatory professional continuing education programme that will embrace IFRS training for their members and this will allow them to be grounded and proficient in the use of IFRS. > RJSSM: Volume: 03, Number: 11, March-2014 Page 13

14 Also, many of our tertiary institutions running accounting programmes have not incorporated the teaching of IFRS as a course in their curriculum. Therefore, there is a need for Nigeria tertiary institutions running accounting programmes to have IFRS separately on their curriculum as a course so that Nigeria s accounting graduates will have adequate knowledge about IFRS. Regulatory bodies such as Security Exchange Commission (SEC), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC) will have to improve on their oversight functions and monitoring in order to ensure compliance of companies with the global reporting standards. The NASB (now Financial Reporting Council) should henceforth participate effectively in the activities of IFAC, National Standards Setters, and Twinning arrangements of the IASB on agenda projects and the work of the IFRIC. The FRC should also ensure that Nigeria is always properly represented in UNCTAD (United Nations Conference on Trade and Development) in order to influence emerging issues that are addressed by the body from time to time. References 1. Ball, R. (2006), International Financial Reporting Standards (IFRSs): Pros and Cons for Investors. A seminar paper delivered at the International Accounting Policy Forum. Accounting and Business Research Journal pp Barry, J.E. (2009), The Economic Effects of IFRS Adoption- Investigating the Expected Benefits. The CPA Journal. 3. David, D. (2006), Discussion of International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and Business Research Journal. Pp Folajimi, F. (2011), International Financial Reporting Standard Adoption, Implication on Management Accounting and Taxation in Nigerian Economy. International Journal of Research in Commerce & Management. 1 (2) Fowokan, T. (2011), IFRS adoption in Nigeria- Tax Implications. CITN seminar paper on IFRS adoption in Nigeria. 6. Iyoha, F.O. and Faboyede, S.O. (2011), Adopting International Financial Accounting Standards (IFRSs)- A Focus on Nigeria. International Journal of Research in Commerce & Management, 2 (1) Iyoha, F.O., Jimoh J. (2011), Institutional Infrastructure and the Adoption of International Financial Reporting Standards (IFRS) in Nigeria. Published Research 8. Nigerian Accounting Standards Board. 9. Oyedele, T. (2010), Taxation Implications for IFRS Conversion for Companies operating in Nigeria. Tax Matter Paper on IFRS adoption in Nigeria Oyedele, T. (2011), An Overview of IFRS and Challenges Posed to Professionals. CITN Seminar Paper on IFRS adoption in Nigeria. 11. Roadmap Reports, (2010), Report of the Committee on Road Map to the Adoption of International Financial Reporting Standards in Nigeria. 12. Zakari, M. I., (2010), IFRS as a Tool for Cross Boarder Financial Reporting. ICANseminar paper on IFRS adoption in Nigeria. > RJSSM: Volume: 03, Number: 11, March-2014 Page 14