CHAPTER ONE
INTRODUCTION
1.1. Background to the Study
Financial statements, apart from stating the financial position of an organization, provides other information such as value added, changes in equity, if any, and cash flows of the enterprise within a defined period time to which it relates (Iyoha and Faboyede, 2011). This information is useful to a wide range of users making informed economic decisions. The quality of financial reporting is indispensable to the need of users who require them for investment and other decision making purposes. Financial reports can only be regarded as useful if it represents the “economic substance” of an organization in terms of relevance, reliability, comparability and aids interpretation simplicity (Okpala, 2012); to prepare and audit financial statements, some accounting conventions and principles known as standards have been put in place by appropriate bodies set up for the purpose of encouraging uniformity and reliability.
The implementation and adoption of IFRS would therefore reduce information irregularity and strengthens the communication link between all stakeholders. It also reduces the cost of preparing different version of financial statements where an organization is a multi-national (Healy and Palepum, 2001). Globalization of business requires a unified global accounting, reporting and disclosure set of standards. As a result of increasing volume of cross border capital flows and the growing number of foreign direct investments via mergers and acquisitions in the globalization era, the need for the harmonization of different practices in accounting and the acceptance of worldwide standards has arisen (Akindele, 2012). This worldwide standard is called International Financial Reporting Standards (IFRS). Before IFRS adoption era, most countries had their own standards with local bodies responsible for developing and issuance. The Nigerian Accounting Standards Board (NASB) was responsible for developing and issuing standards known as Statements of Accounting Standards (SAS) and in the new dispensation, the body was renamed Financial Reporting Council (FRC) of Nigeria as the regulatory body overseeing the adoption and implementation of IFRS.
The International Accounting Standards Board (IASB) adopted the IFRS framework on 1st April, 2001; the standards were adopted by over 90 countries around the world. IFRS was established and approved by the IASB. Accounting Framework has been shaped by International Financial Reporting Standards (IFRS) to provide for recognition, measurement, presentation and disclosure requirements relating to transactions and events that are reflected in the financial statements. IFRS was developed in the year 2001 by the International Accounting Standard Board (IASB) in the public interest to provide a single set of high quality, understandable and uniform accounting standards. Users of financial statement worldwide require sound understanding of financial statement but this can only be made possible based on Generally Accepted Accounting Practice (GAAP).
With globalization of finance gaining ground, convergence with IFRS will enable the world to exchange financial information in a meaningful and trustworthy manner (Ikpefan and Akande, 2012). Realization of the anticipated benefits to be derived as a result of the change from national Generally Accepted Accounting Principles (GAAP) to IFRS in terms of improved quality of financial reporting is the core motive of the proponents of general adoption of IFRS. Supporters of IFRS adoption argue that benefits will flow from expanded financial statement disclosures, differences in company reporting arising when a variety of national GAAP is used (Schipper,2005; Whittington, 2005). As a result of the global acceptance of IFRS, some developing nations who considered the global impact would have on their economies either through foreign aids, Foreign Direct Investments (FDI) or the development of the capital market in terms of capital inflow decided to go for IFRS (Irvine and Lucas, 2006).
