1.0 INTRODUCTION
This is the introductory part of the research work. The introductory part of this research material consists of the background of the study, it will also give a view of the objective of this study, it also includes the research problem, definition and limitation of study and an overall structure of the research work.
1.1 BACKGROUND INFORMATION
Globalization of capital market and internationalization has come to stay. The need for harmonization of financial statements and single set of consistent high quality financial reporting standard gained wide spread acceptance amongst policies makers, standard setters and preparers. The need for quality and uniformity in the preparation and presentation of financial statements gave birth to International Financial Reporting Standards (IFRS). Before the adoption in Nigeria, there was legal and regulatory framework of accounting in respect to preparation of financial report in Nigeria. The Company and Allied Matter Act (CAMA’90) prescribe some format and content of company financial statement disclosure requirements and auditing. It requires that the financial statement of all corporate organizations comply and adhere with the Statement of Accounting Standards (SAS) issued from time to time by the Nigerian Accounting Standard Board (NASB). This also requires that audit be carried out in accordance to with the General Auditing Standards. Therefore, the adoption of IFRS in Nigeria was launched in September, 2010 by the then Minister of Commerce and Industry. The adoption was organized in such that the entire stakeholders that prepare and present financial statement use it by the beginning of 2014. the adoption was made in such a way that all the first tier companies listed on the stock exchange and are of public interest use it by 2012, all other company of public interest but not first tier are to adopt in 2013 and all small and medium scale entity use it by January, 2014. Financial reporting standard exists because it serves as stewards to the owner of firms as ownership is divorced from controlling the activities of the business
1.2 STATEMENT OF THE PROBLEM
Although many countries have faced challenges in their decision to adopt IFRS, its widespread adoption has been promoted by the argument that the benefit outweigh the costs. Recently there has been a push toward the adoption of IFRS developed and issued by the international accounting standard board (IASB) the organization should enable regulators and other key player to gauge the effectiveness of the financial reporting system in place such as training and development for practitioners and new members, due diligence for accounting standard and overall institutional and professional organization conducive for effective standard application.
Therefore, implementation of IFRS wound reduces information irregularity and strengthens the communication like between all stakeholders and also reduce the cost of preparing difference version of financial statements where an organization is a multinational
1.3 OBJECTIVES OF THE STUDY
The main focus of this investigation is to consider the impact of IFRS Adoption on Performance of Manufacturing Companies in Nigeria. Other specific objectives include to:
Determine the difference in the impact of Pre/Post IFRS Adoption on Earnings Per Share (EPS) in Nigerian Bottling Company Plc.
Evaluate the difference in the impact of Pre/Post IFRS Adoption on Return on Equity (ROE) in Nigerian Bottling Company Plc.
Determine the difference in the impact of Pre/Post IFRS Adoption on Return on Assets (ROA) in Nigerian Bottling Company Plc.
1.4 RESEARCH QUESTIONS
To what extent does the difference of Pre/Post IFRS Adoption impact Earnings Per Share (EPS) in Nigerian Bottling Company Plc.
To what extent does the difference of Pre/Post IFRS Adoption impact Return on Equity (ROE) in Nigerian Bottling Company Plc.
To what extent does the difference of Pre/Post IFRS Adoption impact Return on Assets (ROA) in Nigerian Bottling Company Plc
1.4 RESEARCH HYPOTHESES
The following Null Hypotheses will be tested:
Ho1: There is no significant difference on the impact of Pre/Post IFRS Adoption on Earnings Per Share EPS Nigerian Bottling Company Plc
H02: There is no significant difference on the impact of Pre/Post IFRS Adoption on Return on Equity (ROE) in Nigerian Bottling Company Plc.
Ho3: There is no significant difference on the impact of Pre/Post IFRS Adoption on Return on Assets (ROA) in Nigerian Bottling Company Plc.
1.5 Signification of the study
The ultimate goal of every industry or organization including to quality financial performance (statement) information is issued to the public. This is goal can be achieved manufacturing company adopting IFRS for effective financial reporting. This study necessary because would enable the managers of the Nigeria bottling company Plc. adopt and improve on their on their implementation of the standard, it would also help the employers, employee and potential investors who may to invest on the company.
Finally, it would serve as a reference source to student or other researcher who might want to carry out their research on similar topic
1.6 SCOPE OF THE STUDY
The study concerns about the impact of IFRS reporting and performance in manufacturing company reference to Nigeria bottling company Plc.
1.7 LIMITATION TO THE STUDY
The limitation of this study inability of management to divulge certain information which they may consider as sensitive and fear of publication which might be detrimental of their operation. Another limitation to the study is time constraint, the period which the study is conducted is short for a through the work, hence gathering adequate information becomes very difficult. Also, finance is one of the limitations of the study. The researcher is facing financial constraint to meet the all needed education requirement including this study. This caused the researcher to one company for possible completion of the study. Finally, lack of material on this topic, this new in the area of quality of financial statement in Nigeria.
1.8 HISTORICAL PROFILE OF NIGERIAN BOTTLING COMPANY (NBC)
The Nigerian Bottling Company PLC is one of the biggest companies in the non-alcoholic beverage industry in the country and is the sole franchise bottler of The Coca-Cola Company in Nigeria.
The company serves approximately 160 million people by producing and distributing a unique portfolio of quality brands, bringing passion to marketplace implementation, and demonstrating leadership in corporate social responsibility.
NBC Ltd started operations in Nigeria in 1951. Based in the city of Lagos, they operate 13 bottling plants across the country. In addition, they channel products through 59 warehouses and distribution centers.
The company employs about 4,800 people and indirectly supports the jobs of up to more than a million more in our value chain.
The company aims to be our customers’ most preferred supplier, and conduct program to support more than 450,000 customers who sell our products to consumers.
The company is part of the Coca-Cola Hellenic Group, one of the largest bottlers of the Coca-Cola Company’s products in the world, and the biggest in Europe. Coca-Cola Hellenic operations span 28 countries, serving more than 570 million people. The company is headquartered in Athens and listed on the Athens, New York, and London stock exchanges.
The company produces, sells and distributes a wide range of beverages, most of which are trademark products of the Coca-Cola Company. The company product’s portfolio consists of: leading brands Coca Cola, Coca-Cola light, Fanta and Sprite local brands such as Schweppes, Five Alive, Limca and Eva The company continuously reviews opportunities to expand our product portfolio in order to offer consumers in Nigeria an increasing range of choices. Every measure is taken to ensure that the company’s products are of the highest quality.
OPERATION DEFINITION TERM
IFRS- refers to International Financial Reporting Standards which are applied stating how particular type of transactions and other events should be reported in financial statements i.e. Principle based standards other than the rule based standards.
Entity: A person partnership, organization or business that has a legal and separately identifiable existence.
Convergence: In its usual sense means coming together.
Transition: The process or a period of changing from one state or condition to another.
Globalization: Is a process of interaction and integration among the people, companies and government of different nations.
Contagion: The spread of either economic booms or economic crises throughout a geographic region.
2.0 LITERATURE REVIEW
2.1 CONCEPTUAL FRAMEWORK
Internationalization and globalization of business has given reason for harmonized financial statement preparation and presentations. Companies compete globally for limited resources, shareholders, potential investor and creditors as well as multinational enterprises are required to bear the cost of adopting financial statement that are prepared using national standards. It is expected that the move towards IFRS convergence will enhance capital market performance and ginger global business expansion in Nigeria. In the view of this development all corporate organization are expected to adopt and comply with IFRS in preparation and presentation of their financial statement . There is wide spread adoption and compliance by other country of the world. In a survey conducted by on Spanish stock market, on how to hedge disclosures, today firms face several financial risks in their daily business activities due to global, international trading and transactions. One way to cope with this kind of risk is to use hedging because of its lower cost and good solution to solving risks in business entity Additionally, conducted a survey on reclassifications of financial instruments in Nigeria on the effect of reclassification amendments on Nigeria bottling company financial statement. Quantitative survey was conducted on these Nigeria bottling company and the results are as follows. 47% of sampled Nigeria bottling company reclassified financial instrument in 2008 and 12% in 2009. Increased their net profit as a result of reclassifying their financial instrument in 2008 and 2009. On the influence of IFRS implementation on business management, the finding of the study shows that there are positive effects from the adoption of the IFRS by Finnish companies. IFRS are seen as a comprehensive information package where the management gets improved financial information easier for their decision making and judgment. In another research conducted by Reference that mandatory IFRS contributes and improve business environment. The study was a survey report. He also found out that after mandatory IFRS adoption, the quality of information in accounting and business environment increased significantly more for mandatory adopters. The impact of inclusion of IFRS in schools and colleges curriculum, this will enable the potential accountants to be well trained before joining the accounting and auditing profession should increase and lead to better informed valuations in equity markets, thereby lowering investor’s risks.
2.2 THEORETICAL LITERATURE REVIEW
Accounting Research theories help to give insight into the empirical data that have been collected. A theory models the relationship between concepts and helps to put in perspective the subject matter of research that is being conducted.
2.2.1 Value Maximization Theory: this theory states that the primary objective and purpose of a firm being in existence is to get the most out of shareholders wealth, which is maximize shareholders wealth in the long run (Abdul-Baki et al 2014). According to him, this theory explains that all the activities of an organization whether charitable or otherwise, is basically seeking to make profit. This theory also states that at the long run, there will be maximization of other stakeholders and financial claimants like debt and warrant holders (Abdul- Baki, 2014) The Researcher therefore noted that the fundamental reason or essence of a firm’s Financial Statement being disclosure in compliance with IFRS is to maximize mangers’ and firm’s value at the long run.
2.2.2 Agency Theory: This theory is defined as the relationship that exist when one or more individual(s) known as the principal(s) employ the service of another party known as the agent to perform services on his/their behalf that involves entrusting some decision making right to the agent (Shehata, 2014). This give rise to the problem of information asymmetry that is managers may have access to most of the financial information than the shareholders. Adoption of IFRS provides a basis for adequate information to be accessible by investors (owners) and other shareholders.
2.2.3 Stakeholders Theory: Freeman (1999) affirms that stakeholder may be seen as any person or group of persons that is capable of influencing or can be influenced by the attainment of the organization’s objective. The organization itself should be seen as a collection of stakeholders and the goals and objectives of the organization should be geared towards the management and achievement of their various interests, needs and viewpoints. This theory is not just based on original profit but on the general benefit and interest of all stakeholders of the organization.
(I) INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) IN NIGERIA.
The Federal Government of Nigeria on 2nd September 2010 officially declares IFRS adoption in Nigeria and initiated the guidelines to be followed for its accomplishment. The consent to IFRS adoption by the Federal Government of Nigeria made the country becomes enlisted member of those countries that have adopted IFRS across the globe. The guiding principles to be followed for implementing IFRS are in three consecutive phases. The first phase comprises of Listed and Significant Public Interest Entities that are mandate to prepare and present their audited financial statements in compliance to relevant IFRS by 31st December, 2012. The second phase of IFRS implementation focuses on Public Interest Entities that are authorized to comply with IFRS format for statutory rationale by 31st December, 2013. The third phase on the other hand, expects all Small and Medium sized Enterprises (SMEs) to mandatorily comply with the adoption of IFRS as statutory reporting by 31st December 2014 (Uwadiae, 2012). As a universally accepted fact, Accounting is seen as the language of business through which performance and position of an entity is being communicated to outsiders (stakeholders) need to be spoken in a common language. IFRS has made this statement a reality because through the acceptance of IFRS, business language can be spoken in a language which is universally known, accepted, and understood by almost all worldwide investors. Adejoh and Hasnah (2014) noted that the need for a high quality and a uniform manner for which financial statements is being prepared and presented gave rise to IFRS. IFRS as a principle based format is seen as a set of published financial accounting pronouncements given by the IASB to assist Accountants and Auditors across the world in the preparation, presentation and reporting of transparent, high quality and comparable financial information to aid informed decision making. IFRS according to Siti et al. (2014) is common global language designed to be followed by companies across international boundaries to reflect its financial activities and to improve the IIARD International Journal of Banking and Finance Research ISSN 2406-8634 Vol. 2 No.3 2016 www.iiardpub.org IIARD – International Institute of Academic Research and Development Page 5 understanding, comparability and quality of financial reporting. Chakrabarty (2011) is of the opinion that IFRS as a standard are meant to attain these objectives; support in the standardization of the varied accounting principles and policies obtainable across the globe and enhancing comparability of financial statements. To also facilitate the preparation and presentation financial statements that is transparent, comparable of high quality information. Furthermore, the objective is meant to reduce alternatives ways of preparing Financial Statements and thereby eliminate the element of subjectivity.
(II) CHALLENGES TO IFRS ADOPTION IN NIGERIA
The practical challenges that may be faced in Nigeria as a result of implementing the IFRS need to be identified and addressed in order to benefit fully from the introduction of IFRS. These challenges have been evidenced by previous studies conducted by scholars such as: (Alp & Ustundag, 2009): potential knowledge shortfall, (Li & Meeks, 2006): legal system effect, (Shleifer & Vishny, 2003): tax system effect, (Irvine & Lucas, 2006): education and training, (Martins, 2011): enforcement and compliance mechanism. The challenges are discussed as follows:
2.4.1 Level of Awareness The transition plan to IFRS and its implications for preparers and users of financial statements, regulators, educators and other stakeholders have to be effectively coordinated and communicated. This should include raising awareness on the potential impact of the conversion, identifying regulatory synergies to be derived and communicating the temporary impact of the transition on business performance and financial position. The implementation of IFRS requires considerable preparation both at the country and entity levels to ensure coherence and provide clarity on the authority that IFRS will have in relation to other existing national laws.
2.4.2 Accounting Education and Training Practical implementation of IFRS requires adequate technical capacity among preparers and users of financial statements, auditors and regulatory authorities. Countries that implemented IFRS faced a variety of capacity-related issues, depending on the approach they took. One of the principal challenges Nigeria may encounter in the practical implementation process, shall be the shortage of accountants and auditors who are technically competent in implementing IFRS. Usually, the time lag between decision date and the actual implementation date is not sufficiently long to train a good number of professionals who could competently apply international standards.
2.4.3 Training Resources Professional accountants are looked upon to ensure successful implementation of IFRS. Along with these accountants, government officials, financial analysts, auditors, tax practitioners, regulators, accounting lecturers, stock-brokers, preparers of financial statements and information officers are all responsible for smooth adoption process. Training materials on IFRS are not readily available at affordable costs in Nigeria to train such a large group which poses a great challenge to IFRS adoption. 2.6.4 Amendment to Existing Laws In Nigeria, accounting practices are governed by the Companies and Allied Matters Act (CAMA) 1990, and the Statement of Accounting Standards (SAS) issued by the Nigerian Accounting Standards Board (NASB) and other existing laws such as Nigerian Stock Exchange Act 1961, Nigerian Deposit Insurance Act 2006, Banks and Other Financial Institution Act 1991, Investment and Securities Act 2007, Companies Income Tax Act 2004, Federal Inland Revenue Services Act 2007. All these provide some guidelines on preparation of financial statements in Nigeria. IFRS does not recognize the presence of these laws and the accountants have to follow the IFRS fully with no overriding provisions from these laws. Nigerian law makers have to make necessary amendment to ensure a smooth transition to IFRS.
2.5 BENEFITS OF ADOPTING IFRS IN NIGERIA
The adoption of IFRS has several benefits as evidenced by previous studies carried out by several scholars some of which include the following: (Leuz & Verrecchiia, 2000): decreased cost of capital, (Bushman & Piotroski, 2006): efficiency of capital allocation, (Young & Guenther, 2008): international capital mobility, (Ahmed, 2011): capital market development (Adekoya, 2011): increased market liquidity and value (Okere,2009): enhanced comparability (Bhatacharjee & Hossain, 2010): cross border movement of capital, (Mike,2009): improved transparency of results. The potential benefits that Nigeria stands to gain after IFRS adoption are seen in the light of:
Promotion of the compilation of meaningful data on the performance of various reporting entities at both public and private levels in Nigeria thereby encouraging comparability, transparency, efficiency and reliability of financial reporting in Nigeria.
Assurance of useful and meaningful decisions on investment portfolio in Nigeria. Investors can easily compare financial results of corporation and make investment decisions.
Attraction of direct foreign investment. Countries attract investment through greater transparency and a lower cost of capital for potential investors. For example, cross-border listing is greatly facilitated by the use of IFRS.
Assurance of easier access to external capital for local companies.
Reduction of the cost of doing business across borders by eliminating the need for supplementary information from Nigerian companies.
Facilitation or easy consolidation of financial information of the same company with offices in different countries. Multi-nationals companies avoid the hassle of restating their
2.6 IFRS AND ACCOUNTING QUALITY
The adoption of IFRS around the world is occurring rapidly to bring about accounting quality improvement through a uniform set of standards for financial reporting. However, accounting quality is a function of the firm’s overall institutional setting, including the legal and political system of the country in which the firm resides (Bhattacharjee & Islam, 2009). Land & Lang (2002) document that accounting quality has improved worldwide since the beginning of the 1990s, and suggest that this could be due to factors such as globalization and anticipation of international accounting harmonization. IFRS is contingent on at least two factors. First, improvement is based upon the premise that change to IFRS constitutes change to a GAAP that induces higher quality financial reporting. For example, Barth, Landsman, & Lang (2006) find that firms adopting IFRS have less earnings management, more timely loss recognition, and more value relevance of earnings, all of which they interpret as evidence of higher accounting quality. Second, the accounting system is a complementary component of the country’s overall institutional system (Ball, 2001) and is also determined by firm’s incentives for financial reporting. Existing literatures document improvements in accounting quality following voluntary IFRS adoption (e.g., Barth et al 2008; Gassen & Sellhorn, 2006., Hung &Subramanyam,2007) to reduce information asymmetry between managers and shareholders and it can be evidenced by proper assets and earnings management, lower cost of capital, and high forecasting capability by the investors about firm’s future earnings.Barth et al. (2006) suggest that accounting quality could be improved when alternative accounting methods used by managers to manage earnings are eliminated. They compare earnings management for firms that voluntarily switch to IFRS with firms that use domestic accounting standards. They find that after IFRS adoption, firms have higher variance of changes in net income, a higher ratio of variance of changes in net income to variance of changes in cash flows, higher correlation between accruals and cash flows, lower frequency of small positive net income, and higher frequency of large losses. Barth,Landsman & Lang (2008) also find from international sample of firms that voluntarily adopted IFRS up to 2003 exhibits lower levels of earnings management and more timely loss recognition than a matched sample of firms using local GAAP. As an extension of these findings, Daske et al. (2008) focus on the heterogeneity in the consequences of voluntary IFRS adoption and find that on average capital markets respond modestly to voluntary IFRS reporting. Overall the evidence on the association between voluntary IFRS adoption and accounting quality is mixed, although papers applying more recent data generally find relatively better accounting quality among the firms that adopt IFRS (Christensen et al, 2008). A common feature of these studies is that, much of the previous studies on IFRS compliance relates to voluntary adopters, which by definition suffer from selection bias (Ashbaugh, 2001). This raises the question as to whether we can attribute the improved quality to the application of IFRS per se. That is, does the application of IFRS have an incremental effect on accounting quality, or is the observed quality improvement a result of other changes implemented simultaneously by the adopting firms? In a concurrent study, Daske et al. (2008) examine the capital market effects of mandatory IFRS adoption.They find evidence that is consistent with reduced information asymmetry in association with mandatory IFRS adoption. They argue that the effect could be driven by network effects rather than accounting quality improvements. In a similar spirit, Lee et al. (2008) argue that if IFRS matters, then firms in countries that had lower disclosure quality and dependence on equity financing prior to mandatory IFRS should experience a greater impact after mandatory adoption. However, using implied cost of equity capital as indicator, they find no effect among such countries even after two years under the new accounting standards. Other factors associated with financial reporting quality include the tax system, ownership structure, the political system, capital structure) and capital market development (Ali & Hwang, 2000).
2.7 IFRS AND VALUE RELEVANCE OF ACCOUNTING INFORMATION
Negash (2008) examine the IAS adoption effect on the Johannesburg Securities Exchange (JSE) listed firms using a version of the Ohlson model (book value plus earnings and dividends).He applied a four- year window period to examine the value relevance of accrual accounting information in pre liberalization (pre IAS adoption period of 1989-1993) and post IAS adoption period (1998-2004). The study had a liberalization (integration) perspective and concluded that when scale effects were controlled the difference in panel regression r-squares vanished; suggesting that the value relevance of accounting information did not improve in the post IAS adoption period. Furthermore, the results indicated that the relationship between year-end equity prices and accrual accounting variables could no longer be explained by linear models. Barth, Landsman and Lang (2008) develop a comprehensive index for financial reporting quality. It is composed of: (1) earnings management (including earnings smoothing) indicators, (2) timely recognition of losses, and (3) value relevance of accrual accounting information. Barth, Landsman, Lang & Williams (2008) examine these indicators using cross country data, pooled regression, control variables and matched samples, in pre IAS adoption and post IAS adoption periods. They concluded that IAS adoption has been associated with lower earnings management, more timely recognition of large losses and more association between equity prices and book value and earnings/returns.Earnings management was defined following Durtschi and Easton (2004), Brown and Higgins (2001) and Healy and Wahlen (1999). A number of papers emerging from economies and Euro zone countries have documented that firms manipulate their financial statements to show small increases in profits or avoid reporting losses (Kinnunen & Koskela, 2003; Rabin & Negash,2007).
2.8 ISSUES AND CHALLENGES IN INTERNATIONAL FINANCIAL REPORTING STANDARDS
The international Financial Reporting Standards (IFRS) is regarded as a global GAAP and a set of principles –based and globally accepted standard published by the International Accounting Standards Board (IASB) to assist those involved in the preparation of financial statements all over the world to prepare and present high quality, transparent and comparable financial statements. According to Akinmutimi (2011), the major strength of IFRS is that it offers a lot of benefits to corporate and public entities in terms of cost; easy consolidation of financial statements; better management control of internal consistencies of reporting; improved access to global financial capital markets; ability of international investors to make meaningful comparisons of investment portfolios in different countries and promotion of trade within regional economic groups. According to Izedonmi (2011), the need and feasibility for a uniform global financial reporting framework has been on for many years. He identified the following factors supporting the adoption of IFRS:
Continuous integration of world economy;
Increased interdependence of the international financial markets;
Absence of barriers of capital flows across national boundaries;
Increased mobility of capital across national boundaries;
Multiple listing by companies in capital markets within and outside their home jurisdiction;
Continuous demand by stakeholders for quality information and greater disclosures.
There is however some inherent problems with aligning with international accounting standards, Ukpai (2002) pointed out that international accounting clearly has a language problem. The word “asset” in French may also connote “active”. The German language has no reasonable single-word counterpart for the term fair. Since accounting itself is not readily translatable into Dutch, people in Holland simply use the English word “accounting” as part of their native language. Accounting words are far from universally comprehensible. Moreso, government policy may not be in support of international standards. Adams (2004) claimed that where an accounting standard conflicts with government policy, the standard is revised. For instance, LIFO is not allowable for tax purpose in stock valuation. Another problem
inherent with the adoption of IFRS is the universal tendency to resist change. Too often, cooperation comes only from compromise and sometimes to the detriment of quality (NASB 2010). After few years of vacillation, Nigeria in 2010 formally decided to align her financial and accounting computations and reporting standards with what obtains in most futuristic economies across the world by setting January 1, 2012 as the commencement date for corporate and public entities to adopt the IFRS. Having weighted the challenges and benefits associated with IFRS, some reporting entities in Nigeria especially those with global operations such as Guaranty Trust Bank, Access Bank, EcoBank, and Oando have taken steps toward its development and implementation. To facilitate the adoption of IFRS the NASB, investors, commercial enterprises and government regulatory agencies, in collaboration with other professional bodies involved in financial reporting have organized series of workshops and seminars across the country as part of their efforts to create awareness about IFRS project conversion. The implications of this decision are as numerous as they are profound. Akinmutimi (2011), stated that corporate entities need to build capacity to drive the process and revisit their operational and internal control systems. More so, the laws need to be amended and the transition processes need to be handled efficiently, effectively and professionally in order to sustain the confidence of users of accounting services on the confidence of users of accounting services on the skills of professional accountants. Gambari (2010) stated that the successful adoption of IFRS entails assessing technical accounting, tax implications, internal processes, and statutory reporting, technology infrastructure, and organizational issues.
2.8 REGULATORY FRAME WORK OF ACCOUNTING PROFESSION IN NIGERIA
The preparation of financial statement by corporate organization must follow certain rules, principles and guideline Nigeria before the introduction of IFRS. The rules are stated in the Company and Allied Matter Act (CAMA) 1990. The act prescribes some format and content of what must be included in the company’s financial statements disclosure requirements and auditing. It requires that financial statement of companies must comply with the Statement of Accounting Standards (SAS) issued from time to time by the Nigerian Accounting Standard Board (NASB) and audit carried out in accordance with generally accepted auditing guidelines and standards. The NASB Act No22 of 2003 formerly created the NASB and established for it an inspectorate unit. The NASB came into being on September 9, 1982. It is the only recognised independent body in Nigeria responsible for the development and issuance of statement of accounting standards for users and preparers of financial statements, investors, commercial entities and regulatory agencies of government [14]. Other laws include the Bank and other Financial Act (BOFIA) 2004 and the Small and Medium Scale Entities are to adhere strictly to the presentation of their information using relevant sections of SAS.
2.9 PRE AND POST IFRS ADOPTION IN NIGERIA
Prior to the implementation of IFRS in 2012, Nigeria makes use of the Nigerian Generally Accepted Accounting Practice (NG-GAAP) in the preparation of their Financial Statement. The Nigerian Accounting Standard Board (NASB) is seen as a body sovereign charged with the duty to develop and issue Statement of Accounting Standards (SAS) for financial statements preparers and users (Ofurum et al, 2014). The Federal Government of Nigeria in 2010 designed the roadmap to be followed for a successful IFRS adoption in the country, which consist of three phases. Financial Statement prepared in compliance to IFRS comprises the followings: Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and Accounting Policies. The fundamental theories supporting NG-GAAP and IFRS are not on the whole parallel. The inception of IFRS has brought about a great deal of responsibility on the part of IASB in setting International Accounting Standards (IAS) that will fit different business entities across the globe. Indigenous professional accountants and auditors need to keep abreast with the content of the frameworks that make up the financial statement to enable them give clarification to various stakeholders when the need arises (Adejor and Hasnah, 201).
AREAS NG-GAAP IFRS
Financial statement presentation Income statement Balance sheet Cash flow statement Value added statement Accounting policies Note to account Directors report Statement of comprehensive income Statement of financial position(balance sheet) Statement of changes in equity Statement of cash flows Accounting policies Notes Significant management estimates and judgement
Property, plant and equipment Measured using cost model Measured using cost model with detailed guidance regarding; Componentisation Useful life Residual value Impairment calculations and identifying cash generating unit
Related parties Limited disclosure but expected Detailed guidance on identification of related parties and detailed disclosure of related parties and transactions
.Segment reporting More on geography operation segment based on management view Threshold for reportable segments is result or assets of an individual segment should be 10% or more of all segment. If the aggregate revenue of all reported segments on this basis is less than 75% of total , then more segment required until 75% threshold is reached.
IFRS- first time adoption Not applicable Provide guidance and requirements on the transition to IFRS. Also provides relief for certain items in the preparation for opening balance sheet
Financial guarantees Disclosed as contingent liabilities Requires financial guarantees to be recognised at their fair value
Scope of consolidation General principles Investment under control is consolidated.
Employees benefits General expenses and disclosure on pension Complex criteria of accounting Recognize the undiscounted amount of short term employee’s benefit.
Risk management disclosure Limited disclosure on foreign exchange and credit risk. Credit risk Liquidity risk Price risk Capital risk management Risk management
Leases Based on general guideline, operating and finance lease Fair value and amortised cost are used in valuation. Certain transactions/contracts containing hidden leases which needed to be accounted for.
Impairment No specific standard Carry out impairment test based on trigger vent IFRS 36 impairment on nonfinancial assets IAS 39 impairments on financial assets
Financial assets classification and valuation Classification includes; cost and amortised cost Classification included; amortised cost, fair value cost. This is driven by the business model and the nature of instrument.
VI. THE IMPACT OF IFRS ON TAX IN NIGERIA
IFRS berth Nigeria, its implementation posse’s major challenges for tax practice in Nigeria. IFRS is a whole body of literature adopted and published by the International accounting Standard Board (IASB). It includes standards interpretations and framework which are continuously evolving, and affects financial statement in four conceptual areas, namely; presentation, disclosure, recognition and measurement. For example, capital expenditure incurred is not tax deductible under Company Income Tax Act (CITA) in lieu of this CITA grant capital allowances to deserving tax payers which in some cases may be higher than depreciation expenses (KPMG 2013) instead, IFRS decide to prescribe a tax depreciation rate for repair of plant and machineries. This will significantly affect the income statement and balances sheet as there will be increase in net worth and increase in profit which may not be the true state of the financial statement. There is need for amendment of CITA in order to go in line with the new financial reporting standards.
2.3 IFRS AND CORPORATE PERFORMANCE
Share Price and Earnings per Share (EPS)
The term earnings per share (EPS) represents the portion of a company’s earnings, net of taxes
and preferred share dividends, which is allocated to each ordinary share holder. Earnings per share (EPS) is widely considered to be the most popular method of quantifying a firm’s profitability and is the industry standard in determining corporate profitability for shareholders. EPS is a carefully scrutinized metric that is often used as a barometer to gauge a company’s profitability per unit of shareholder ownership. As such, EPS is a key driver of share prices. The firm stock prices have direct purview in the managerial efficiency which is one of the signals of firm performances (Remi 2005). One of the components of this firm performance is earning per share (EPS). EPS is one of the measures of managerial efficiency as well as firm performance. Shiller (2000) argued that stock prices can be viewed as a prediction of investors earnings, therefore, it is reasonable that the variation in prices should be no greater than variation in firm EPS. Ball and Brown (2001) conducted a study to investigate the annual association between annual change in stock prices and annual changes in firms EPS. The result obtained shows that annual changes in stock prices cause firm EPS to change in the following year. Chang and Wang (2008) conducted a study using Ohlson (1995) model on Taiwan firms in 2004. The result indicates that firms’ stock prices movement has a positive significant relationship with firm EPS. In the same vein, Chetty, Rosenberg and Saez (2007) explained that stock prices change behavior when firms’ EPS are announced.
Share Price and Return on Equity (ROE)
Shareholders are concerned about their return on investment. Return on equity is the company's profit after tax divided by the percentage rate of net assets. The indicators reflect the level of shareholders’ equity income, measuring the shareholders into the company's unit capital receive profits, which companies create value for shareholders, to measure the efficiency of the companies using its own capital. In theory, the higher the modified index values, the better the performance of the company will be. However, Pratomo and Ismail (2006) stated that management that has the knowledge to make a company profitable also has the knowledge and understanding of financial reporting, which leads to more market share price. Galani, Gravas and Stavropoulos (2011) also stated that when performance is high and the company achieves a high margin of profit, the managerial groups are motivated to report more information in order to show off good reputation to the consumers, shareholders, investors and other stakeholders’ stock prices. Similarly, the study of Azeem and Kouser (2011) showed significant positive relation with stock price and return on equity. Also, Liu and Hu (2005) study found that Return on equity is positively related with stock prices of the firms. They further explained that when management are performing efficiently and utilizing the resource powerfully and gives good returns on investment it will affect stock price positively otherwise it has negative effect on stock price. Zhao,(2013) revealed that in developed stock markets, investors fully obtain enterprise value on the basis of relevant information to invest in listed companies. In pursuit of maximization of investment wealth, the investors are driven by their preference for the good performance.
Share Price and Return on Assets (ROA)
Another important measure of firm performance is return on assets (ROA). For firms with similar business risk profiles, pretax ROA is a useful statistic for comparing the performance of firms because it avoids distortions that are introduced by differences in capital structure and complications in the tax laws (Srijaroen & Jiang, 2011). In the stock market, Ghosh, Nag, and Sirnmans (2000) confirmed that ROA is widely used by market analysts as a measure of financial performance, as it measures the efficiency of assets in producing income. Mishra,Wilson and Williams (2009) indicated that returns on assets (ROA), a measure of financial performance commonly utilized in the firm management literature, is the ratio of net firm income plus interest payment to total assets.
Many studies that investigate performance are concerned with distinguishing between the effects of market concentration and stock efficiency on performance (Berger, 1995). Rao, and Syed (2007) confirmed negative relationship between financial market stock and performance. While, Quang and Xin, (2014) stated that capital structure is significantly inversely correlated with firms’ financial performance (as a measure of ROA).
2.2 EMPIRICAL REVIEW
A lot of theoretical and empirical works have been carried out in this subject by various scholars as result of its relevance to the accounting profession worldwide and the overall performance of the organization. The impact of IAS/IFRS on the Accounting Practice: Evidence from the Italian Companies was carried out in 2006 by Michele. The Gray’s Methodology/ Statistical non- parametric and parametric techniques were used, whose result showed that the net income from such transition has more total impact on it than the shareholders’ equity. He also opined that there is a noticeable inconsistency between the two sets of standards used in accounting treatment. The year 2012 is very significant in the Financial Reporting history of Nigeria, because all Public Listed Companies were mandated to prepare their Financial Report in compliance with the provisions of IFRS. As a result this declaration, lots of research work has been conducted in relation to IFRS adoption in Nigeria. Ezeani and Oladele (2012) carried out a research on the Adoption of IFRS to Enhance Financial Reporting in Nigerian. The fundamental reason of accepting this uniform standard in preparing and presenting Financial Statement is for Nigerian Economy to fit into International Best Practice of the world in terms of Financial Reporting. They found out that there is a great deal of accounting and financial areas Auditors and Accountants need to focus in dispatching their duties and responsibilities which has implications both positive and negative. One of their recommendations among many others is that syllabus of Nigerian Institution ought to be evaluated to include IFRS, so that Accounting graduates will be up to date with IFRS Standards and guidelines. Still in 2012, Mohammed researched into how oil firms performance in Nigeria, is affected by IFRS Adoption. His investigation discovered that Variability of Earnings reduces from an average of 32624.4 to 14432.2 which propose that there was low Variability in Earnings in the Post-adoption period. He also recommended that comprehensive implementation of the standards to its totality should be encouraged and regulatory authority should monitor strict compliance with the adoption and provisions of the standards so as to harness the full benefit of IFRS adoption in Nigeria In Turkey, Sibel (2013) studied the Impact of IFRS on the Value Relevance of Accounting Information with the aid of Ohlson Model (1995). His result showed that Value Relevance of Accounting Information has improved in the Post-IFRS Adoption periods (2005-2011) bearing in mind the book value whereas improvement has not been ascertained in value relevance of Earnings. Affirmation was also made as regards improvement of Value Relevance of Accounting Information as a consequent to IFRS Adoption in Turkey. Upon the adoption of IFRS in 2012, researchers were keen to find out the Economic Consequences of this move. With the quest for the impact of IFRS on the Nigerian Economy, Wilson and Ioraver (2013) investigated the Economic Consequences of IFRS adoption: Evidence from a developing country. Their results showed that there is deficiency in experience, tutoring and apprehension of financial report preparers on how to bring into play IFRS format and absent of IFRS treatment in Auditing and Financial Accounting text books. They also suggested the pressing need to integrate IFRS into the curriculum of Accounting Student of higher learning. It as well calls for the attention of Financial Regulator and accounting professional bodies to keep informed in their IFRS’s knowledge so as to sustain its professional proficiency. As scholars try to conduct an inquiry into the gains of Adopting IFRS in Nigeria, Masud (2013) researched on the Effect of IFRS adoption on the Financial Reporting of Nigerian Listed Entities: the case study of Oil and Gas Companies. He opines that, it is only in the Oil and Gas Sector that heavy investment does not guarantee a commensurate return. This sector is also characterized by risk and uncertainties in the exploration and production process. He is of the opinion that the Nigerian Economy is heavily dependent on the Oil and Gas Sector, therefore the investigating the effect of IFRS on this sector is like investigating the effect of policy on the Nigerian Economy as a whole. In 2014, Jonathan and Amos carried out a research on Stakeholders’ Perception of the Implementation of IFRS in Nigeria. They found out that significance variation exist in the perception of Stakeholders concerning the working of IFRS in the worth of Financial Report. There is no considerable discrepancy in their perception about the implementation of IFRS with the improvement of quality of investment decision and assessing the bases of Return on Investment. They recommended that relevant Authorities should make sure that organization comply with IFRS to ensure that Audit Report reflect the genuine position of the entity’s financial circumstance. They also opined that government should strengthen the Financial Reporting Council of Nigeria with qualified personnel in order to satisfactorily perform its functions. As the years progresses, researchers, scholars and student are still inquisitive about this new concept IFRS. This lead to a work by Adejor and Hasanh (2014) on Adoption of IFRS in Nigeria: Concept and Issues. They found out that there is high rate of compliance to IFRS by most Financial Institution and other Corporate Bodies with minute drawback. It was recommended that provision of appropriate guidelines should be introduced and implemented. This can be achieved through awareness programs and training to improve the degree of compliance. Study conducted by Ikati (2015) on Measuring the Impact of IFRS o Market Performance of Quoted Manufacturing Companies in Nigeria, concludes that the Post-IFRS group (M= 3.7845) EPS is significantly more than the Pre- IFRS group (M= 2.4353) EPS. Donwa et al. (2015) explore the Oil and Gas Sector to examine the Effect of IFRS on Accounting Ratios in Nigeria. In their empirical analysis it was discovered that Liquidity for NGAAP was higher than that of IFRS both in the short and long term solvency, there was higher performance and profitability ratios (EPS, ROE) under IFRS, and finally there was no significant difference between the two regimes. From the foregoing and to the best of my knowledge, it seems that no empirical research have been carried out on IFRS Adoption in relation to Financial Performance of Listed Manufacturing Companies in Nigeria.