CHAPTER ONE
INTRODUCTION
1.1Â Â Background of the Study
As the majority of the world accepts IFRS, Nigeria is one of the last countries to adopt IFRS. Not conforming to these new rules could result in the Nigeria losing its place as a major economic player in the global economy (Obazee, 2009). The IASB has prepared a less complex version of IFRS called IFRS for SMEs. This set of standards is less complex, easier to apply and are designed to be less stringent than national GAAPs and full IFRS which can be adopted by small and medium scale companies. IFRS have significant impact on company’s loan covenants due to differences in the recognition of revenue and financial reporting. There is need for the government of Nigeria to educate managers of companies on how IFRS will impact their client relationships. When entering new agreements or restructuring the old ones, it will be important to reflect the new standards or place wording into pre-existing loan agreements that stipulate compliance with standards as they are written today (Juan, 2005). According to Callao et al (2009), IFRS also allows for variances in the way revenue is recognized across industries. IFRS applies a more broad approach to recognizing revenue which may be beneficial for certain situations. This can help companies across Nigeria assess which reporting methods benefit the company now and what will be required of the firm in the future. In certain cases reporting under IFRS now can be beneficial. Lease Accounting is also one area where IFRS has significant differences and stands to impact a wide range of organizations. This will impact all organizations that lease everything from real estate to office equipment. One of the major changes will be the requirement to recognize all lease obligations on the firm’s balance sheet. If the companies do any kind of leasing,IFRS can work with the firm and their accounting team to get up to speed on the new requirements and help put in place the technology and processes to comply with the IFRS principles for leases (Ball, 2005). IFRS rules will not only have effect on company’s financial statements, it will also have an impact on tax accounting methods. It will be important for company’s tax team to understand the differences in reporting methods to ensure proper treatment for tax reporting (Ball, 2005). IFRS also makes mergers and acquisitions/business valuations easy form organizations across the world. Business valuations done using IFRS financial statements will likely change the valuation of a company (Oyedele, 2010). One major change will be the way the value and report of intangible assets is done. When a firm is entering a merger and acquisition transaction,they will need to understand the impact that IFRS may have on the agreement in the future or use IFRS to prepare the contract today. This could be advantageous for both parties and this can help firms decide as the seller or the buyer how to use IFRS to their advantage and create deal structures compliant with IFRS.
