ABSTRACT
This study arose out of the need to justify the adoption of International Financial Reporting Standards (IFRS) in Nigeria. The thesis is that the adoption of IFRS should improve accounting quality and hence, investors should make qualitative decisions. Financial ratios that addressed profitability, liquidity, solvency and growth in investments were calculated from the financial statements of companies that were into the production of consumption and industrial goods. The structural hypothesis under confirmation is that financial ratios under Nigerian Statements of Accounting Standards (SAS) and IFRS do not differ on grounds that Nigeria has long adapted accounting standards issued by the International Accounting Standards Boards. Each participatory financial ratio was calculated from financial statements prepared under IFRS and SAS regimes in the same year. Exploratory analysis and Wilcoxon tests for differences in the distribution of each financial ratio was conducted using SPSS facilities Version 20 to detect whether a financial ratio increased or decreased under IFRS regime. The study finds no significant increase/decrease in the participatory financial ratio under the IFRS regime. It was recommended that a further study be conducted to address other metrics of accounting quality.
TABLE OF CONTENTS
Title Page ……………………………………………………………………………….i
Declaration …………………………………………………………………………… ii
Approval Page ………………………………………………………………………iii
Dedication …………………………………………………………………………….iii
Acknowledgements …………………………………………………………………….iv
Abstract ………….……………………………………………………………………..v
Table of Content..……………………………………………………………………..vi
List of Tables and Figures……………………………………………………………..vii
List of Appendices …………………………………………………………………….viii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study ……………………………………………………….1
1.2 Statement of the Problem …………………………………………………………..3
1.3 Objectives of the Study …………………………………………………….….4
1.4 Research Questions…………………………………………………………………………..4
1.5 Hypotheses of the Study ………………………………….4
1.6 Scope of the Study ……………………………………………………………….5
1.7 Significance of the Study …..………………………………..……………………….5
1.8 Operational Definition of Terms …………………………………….6
References ……………………………………………………………………………..8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework…………………………………..……………………….10
2.2 Theoretical Framework……………………………………………………….…..14
2.3 Review of other Studies………………………………………………………….15
2.4 Summary of Literature Review …………………………………………………..18
References …………………………………………………………………………20
CHAPTER THREE: METHODOLOGY
3.1 Design of the Study……………………………………………………………….23
3.2 Population and Sample Size…………………………………………..……………24
3.3 Measurement of Variables…………………………………………………….……24
3.3.1 Profitability …………………………………………………………………24
3.3.2 Short-Term Solvency (Liquidity)…………………………………..25
3.3.3 Long-Term Solvency…………………………………………………….…..25
3.3.4 Growth in Investment……………………………………………. …26
3.4 Method of Data Collection…………………………………………………………..26
3.5 Method of Data Analysis……………………………………………………………28
References …………………………………………………………………………..30
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction…………………………………………………………………….31
4.2 Data Presentation ……………………………………………………………..31
4.3 Fieldwork Report ………………………………………………………………….…31
4.4 Data Analyses…………………………………………………………………………….31
4.5 Answers to Research Questions and Test of Hypotheses ……………32
4.5.1 Research Question 1 and Test of Hypothesis 1 …………………32
4.5.2 Research Question 2 and Test of Hypothesis 2 …………….34
4.5.3 Research Question 3 and Test of Hypothesis 3 ………………..35
4.5.4 Research Question 4 and Test of Hypothesis 4 ………….…….37
4.6 Discussion of Findings ……………………………………………………..38
References ……………………………………………………………………………39
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings …………………………………………………………40
5.2 Conclusion ………………………………………………………………………….…..40
5.3 Recommendations ……………………………………………………………41
5.4 Suggestions for Further Studies ………………………………………………42
Bibliography …………………………………………………………………………………..44
Appendix………………………………………………………………………………………48
LIST OF TABLES AND FIGURES
Figure 2.1 Conceptual Model of the Study…………………………………7
Figure 3.1 Design Ideograph of the Study……………………………….17
Table 3.1 Companies in the Stock Exchange Market by Industrial Sectors …………18
Table 3.2 Financial Elements for Computation of Financial Ratios ….21
Table 3.3 Financial Ratios Computation ……………………………..21
Table 4.1 Shapiro-Wilk Test Result ………………………………………….24
Table 4.2 Impact of IFRS on Profitability Assessment: Return on Capital Employed ….26
Table 4.3 Impact of IFRS on Liquidity Assessment: Current Ratio…………27
Table 4.4 Impact of IFRS on Long-Term Solvency Assessment……………28
Table 4.5 Impact of IFRS on Growth in Investment: Earning Per Share 30
LIST OF APENDICES
Appendix A Raw Datasheet……………………………………………40
Appendix B List of Companies in the Sample Design…………………41
Appendix C Comparison between IFRS and SAS……………………..42
Appendix D Roadmap to the adoption of IFRS in Nigeria………..45
CHAPTER ONE
INTRODUCTION
- BACKGROUND TO THE STUDY
In the last quarter of the previous century, the world economies moved speedily towards globalisation. Multinational companies are manufacturing and selling across the world and many of these firms are listed at foreign stock exchanges. Globalisation of markets and establishment of multinationals led to increased desire and awareness about international markets. This was soon followed by globalisation of financial markets which increased the value of understanding of international financial results and reporting formats. Rapid improvement in communication technologies and easy access through internet has further spread the profile of international investor. Nowadays international investors are not limited to some portfolio managers in big banks. International investors are now as diverse as sophisticated equity manager to a small investor in a remote town. Investors too have diversified their portfolio by international equities and bonds. This rapid globalisationfuelled the desire to have common global standards that could be understood, applied and followed across nations.
Nigeria’s Statements of Accounting Standards (SAS) align substantially with the pronouncements of the International Accounting Standards Board (IASB) but maintained its own unique structure and peculiarities until January 1, 2012. The International Accounting Standards (IASs) are principles based, and the Nigerian Accounting Standard Board (NASB) implementsthe (IASs) in specific contextsin the formulation of its standards. When there is no NASB SAS on the treatment and disclosure of information, the relevant IAS is invoked. This suggests thatNigeria adopted IFRS since its inception. On the premise that the International Financial Reporting Standards (IFRSs)are off shoot of IAS, it becomes an issue whether the formal move of Nigeria to adopt IFRSs in January 1, 2012 is anything extraordinary.
IFRS permits considerable discretion or flexibility in disclosure of financial information regarding certain transactions. They also debar certain alternatives which eliminates accounting information distortions. In a sense, the availability of alternatives guided by principles can lower the quality of accounting information. IASB provides broad guidelines as principles for member countries to adopt or adapt and, in consonance, Nigeria adapted the IFRS by making them specific for reporting entities. This approach permits generalisation of uniformities of accounting information within the Nigeria context. The adoption of IFRS, then, suggests that reporting entities are accorded freedom of discretion to choose from options allowed by a standard which hitherto was not available in a rule-based jurisdiction like Nigeria.If this is correct, then, the adoption of IFRSs should lower quality of accounting information.The adoption of IFRS suggests that where alternative treatments of transactions are permitted, all reporting entities would exercise discretions and disclose the choice of alternative for users of accounting information. In blunter terms, this increases information asymmetry and, hence, lowers quality of accounting information. Leuz, C., Nanda, D and Wysocki, P. D (2003), and Langmead and Soroosh (2009) also subscribe to this argument when they assert that IFRSs lack detailed implementation guidance which affords managers greater flexibility to exploit accounting discretion to their advantage.
