CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
International Financial Reporting Standard (IFRS) is the blueprint, pivot and cornerstone for the preparation and presentation of financial statements for corporate entities to ensure standardization, globalization and credibility of financial reports across international borders. Financial statements are vital in showing the financial status and performance of corporate entities. Statements of Accounting Standards (SAS) were hitherto used as guide in the preparation and presentation of financial statements in Nigeria prior to the adoption of International Financial Reporting Standards (IFRS) in 2012. Thus IFRS represents a benchmark for the preparation and presentation of financial statements for business entities in Nigeria post 2011.Â
IFRS which are issued by the International Accounting Standards Board (IASB) ensures standardisation and globalization of financial statements by corporate bodies. Osisioma (2012) surmises that accounting profession was terribly rocked by a series of professional misadventures that tore at the heart of the discipline with financial scandal in Enron,
World down, Global Crossing, Xerox, Deutsche, Telekon, Qwest, Waste management, Viuendi, Centrica, Royal Dutch/Shell and Tyco all through the United States, Europe, Asia and the Caribbean while in Nigeria we had African petroleum, Cadbury among others. Nobes (2011) affirms that international differences in financial reporting create problems because many users assess companies on a comparative basis internationally. Reconciliation from one set of generally accepted accounting principles (GAAP) to another (especially to US GAAP) were common until 2007, and they revealed significant difference between countries. A standard reporting system for listed companies would address these problems. There would be disadvantage if the whole world had to adopt US GAAP. Therefore, IFRS have been developed instead. Chukwu & Okoye (2016) affirm that the IFRS, issued by the International Accounting Standards Board (IASB), is increasingly becoming the preferred accounting regime among companies in African countries. Zeff (2007) in Odia (2015) surmises that the accelerated trend of globalization, internationalization of capital market, increasing cross boarder listing and the need for comparability of financial reports accelerated the elimination of international diversity in accounting standards and promoted the quest for single accounting standards. Fowokan
(2012) highlights that IFRS will bring about the convergence of national accounting standards. Herbert, Loraver, Tsegba, Ohanele & Anyahara (2013) assert that the fast pace of globalization with integration of national financial markets has stimulated the need for a common financial language, otherwise called IFRS because good financial reporting makes investment and financial decisions more efficient. Armstrong, Mary, Alan & Edward (2010) highlight that the increasing growth in international trade, cross border financial transactions and investments which unavoidably involve the preparation and presentation of accounting reports that are useful across various borders have brought about the adoption of IFRS by both the developed and developing countries. Also Okpala (2012) posits that IFRS adoption is already an issue of global relevance among various countries of the world due to the quest for uniformity, reliability and comparability of financial statements of companies. Hung (2001) asserts that financial reporting is thus not an end in itself , but is intended to provide information that is iced in making reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities. The premise of the IFRS is to make financial reports more transparent, comparable, harmonious and reliable. The IFRS represents a global or world GAAP and was first adopted by EU in 2005. Thus Institute of Chartered Accountants England and Wales
(ICAEW) (2014) emphasizes that increased comparability produces benefits in two ways. Understanding financial reporting imposes a cost on investors, and they may therefore be deterred from investing in companies that employ financial reporting systems which they are not already familiar with. If firms in different countries adopt a common system, investors are more likely to understand the financial statements of firms in these countries and therefore be willing to invest in them. Therefore increasing international comparability is expected to lower barriers to cross – border investments.
