THE IMPACT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ON THE QUALITY OF FINANCIAL STATEMENTS (A CASE STUDY OF FIRST BANK NIG. PLC)

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

            For all parties involved in bank financial reporting—bankers, accountants, auditors, corporate management, investors, lenders, financial analysts, and regulators—understanding the possible effects of IFRS on the accounting process is essential (Lawal, Oseni, Babajide, Lawal-Adedoyin, & Bonetipin, 2020). Nonetheless, accounting has been referred to as the business language on multiple occasions. This is due to the fact that accounting is concerned with locating, categorising, condensing, and interpreting economic and other pertinent data about reporting entities so that those who are intended to use it can do so with knowledge. Financial statements are used to inform stakeholders of all stripes about an organization's overall health and current situation (Edirin & Edesiri 2016).

            The expectation that the International Financial Reporting Standard (IFRS) will enhance the quality and applicability of financial statements is the foundation for its adoption. Because it establishes both specific and universal accounting standards, the International Financial Reporting Standard is a single set of global accounting standards "based on principles"(Ayopo et al, 2015, Ayopo et al 2016a, Ayopo et al. 2016b; Adetiloye et al, 2016; Aboud & Roberts, 2018). The International Accounting Standards Committee (IASC), which oversees the standards for the International Accounting Standards (IAS), organised the standards' establishment in 1973. The primary goals of the IASC are to guarantee that financial statements can be compared with those of other foreign companies and to regulate, if not completely eliminate, the differences in domestic accounting regulations. Financial statements from companies listed on international stock exchanges can be compared, enabling creditors, shareholders, and investors to make decisions. In April 2001, IASB took the place of IASC, and IASB accepted and proceeded to create all IASs. Even though IAS is no longer being developed, the current standards remain in force until they are adopted or modified by IASB, and the creation of new standards is known as IFRS (DeFond, Gao, Li and Xia (2019).

            One of the main pillars of economic development in Nigeria is the banking industry, which acts as a middleman between the economy's surplus and deficit sectors, promoting investment, growth, and development (Umoren and Enang 2015). The country's performance will improve with increased investment in the banking sector, but quality accounting data about the banks' performance is necessary before any significant investment can be made in the sector.  When making decisions based on a firm's risk and value assessment, stakeholders who are not part of the management team rely on the information provided by the management in the financial statements. The usefulness and applicability of the information in the financial statement determines its capacity to assist users in making decisions in an efficient and fulfilling manner (Vishnani & Shab 2008).

            International accounting systems offer an interesting framework for examining the economic effects of financial reporting because there is significant variation in accounting quality and economic efficiency across nations. For those who use financial statements, comparing pre-transition Nigerian Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standard (IFRS) and identifying the distinctions between the two regimes is crucial (Muhammed, 2014). A shift to IFRS will improve cross-national comparability, spur international business growth, encourage internal investment and increase capital flows into the nation, and provide investors with better information about investment opportunities than financial statements prepared under a different set of national accounting standards. Furthermore, IFRS is based on principles rather than rules.

            Stakeholders have questioned the adoption of International Financial Reporting Standards (IFRS) in Nigerian banks' financial statement preparation, citing challenges and disadvantages associated with implementing such a widely accepted global standard in a developing nation like Nigeria. They think it will be challenging for Nigeria to adopt IFRS in the preparation of financial statements because it is a developing nation. In particular, the relevance principle is still absent from Nigerian banks, and lack of clarity is still a major issue affecting Nigerian banks despite the adoption of IFRS. The majority of Nigerian banks still lack the comparability quality of financial reports despite having adopted IFRS. Nigeria, a developing nation, might not have the resources to address the aforementioned issues, and since they prepare their financial statements using generally accepted accounting principles (GAAP), they don't think IFRS are necessary. It is based on this background that the present study seeks to determine the impact of international financial reporting standards on the quality of financial statements (a case study of First Bank Nig. Plc).

1.2 Statement of the Problem

            Divergent findings from earlier studies on the topic regarding IFRS's effect on the calibre of financial reporting have been reported. Many financial and non-financial benefits of adopting IFRS have been argued in recent literature. This is the reason why Daske et al. (2008) argued that IFRS impose a more comprehensive and detailed set of disclosure requirements than domestic accounting standards, while Barth et al. (2008) contended that IFRS (and their predecessor IAS) constrain managerial discretion. One could argue that IFRS will enhance accounting quality and lead to better financial reporting practises when disclosure is increased and managerial discretion regarding the treatment of accounting transactions is limited. Crucially, proponents of IFRS contend that enhanced comparability is just one of its value-adding features. Nigeria is among the many nations worldwide that have migrated to IFRS compliance. Consequently, investors can now compare and assess companies both inside and outside of industries and nations at a lower cost (Covrig, DeFond, and Hung, 2007). Nigeria was presumably convinced by the benefits of adopting IFRS to join the League of nations that did so in 2012, but it is still unclear how much Nigerian financial reporting practises have been impacted by this set of accounting standards. This study therefore is an attempt to provide evidence on the impact of IFRS on quality financial reporting practices in the Nigerian banking sector, specifically First Bank.

1.3 Objectives of the Study

            The main objective of this study is to examine the impact of international financial reporting standards on the quality of financial statements (a case study of First Bank Nig. Plc). Specific objectives of the study include;

1. Determine the extent to which IFRS adoption has impacted on the comparability quality of financial report of First Bank in Nigeria
2. Evaluate how IFRS adoption has affected relevance principle of making decision by users of financial report of First Bank in Nigeria
3. Examine the impact of IFRS adoption on the clarity quality through effective communication in First Bank in Nigeria

1.4 Research Questions

            In relation to the objectives of the study and research the following questions were answered in this study;

1. To what extent has IFRS adoption impacted on the comparability objective in First Bank in Nigeria?
2. In what way does adoption of IFRS has affected relevance principle of making useful decision in First banks in Nigeria?      
3. Does IFRS adoption have any effect on the clarity quality through effective communication in First banks in Nigeria?

1.5 Research Hypotheses

            The following research hypotheses were tested in this study in relation to the objectives and research questions:

H01: There is no significant relationship between IFRS adoption and comparability objective of First banks in Nigeria

H02: There is no significant relationship between IFRS adoption and relevance principle of First banks in Nigeria

H03: There is no significant relationship between IFRS adoption and clarity quality requirements of First banks in Nigeria.

1.6 Significance of the Study

This study will provide a comprehensive document that examines the impact of International Financial Reporting standards on the quality of financial statements.

This study will help the Banking sector to appreciate the need for the adoption of IFRS in the preparation and presentation of financial statements based on the quality to achieve an optimum result and to be used by decision-makers in terms of performance and relevance.

This study will serve as an available knowledge to researchers to aid further research and expand the knowledge of Accountants in the quality of IFRS on Financial accounts.

CHAPTER TWO

2.0 Literature Review

2.1 Conceptual Review

2.1.1 International Financial Reporting Standard (IFRS)

            The International Financial Reporting Standards (IFRS) are a set of globally applicable prescriptive rules and guidelines that offer direction and guidance to businesses on how to comply with the requirements of maintaining accurate records, being transparent, consistent, and comparable, as well as building public trust in financial reporting in an increasingly globalised world (Tendeloo and Vanstraelen, 2005). These are a set of global accounting guidelines that specify the manner in which specific kinds of transactions and other occurrences have to be detailed in financial accounts. The International Accounting Standard Board publishes IFRS, which provide detailed guidelines for accountants on how to keep and submit their financial statements. The purpose of establishing IFRS was to provide a common language for business and accounting practises across nations and between companies. Therefore, if the company did not follow IFRS, financial reports would be distorted, there would be a lack of accountability and transparency, and inconsistent results would arise. These factors would then lead to poor financial reporting practises and the distribution of accounting information that is less useful to any given user group. This is due to the fact that the preparation and presentation of financial statements will lack objectivity, reliability, credibility, and comparability, which will lead to fraudulent business practises that will ultimately cause businesses to fail and have a disastrous effect on the economy of the country (Atu et al., 2014).