Choose a Country as an Example for Illustration on How It Has Adopted IFRS in Its Attempt to Seek Harmonisation

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nExecutive Summary

nNigeria is one of the countries in the globe that has adopted the International Financial Reporting Standard (IFRS) in order to harmonize the standards of accounting especially in domestic companies. IFRS are intended to ensure that accounts books are reliable, understandable and comparable in Nigeria. However, the country has witnessed a variety of shortcomings because it is difficult to achieve harmonization because of poor domestic policies. Moreover, it is difficult to eradicate all gaps in Nigerian reporting standards after adopting IFRS. Precisely, the First Bank of Nigeria has adopted these accounting standards in 2011. Since the implementation, the bank has witnessed various benefits associated to harmonization of standards of accounting. For instance, the IFRS has played a key part in enhancing transparency, integrity, accountability, and comparability in monetary reporting. The First Bank of Nigeria has improved on accountability and transparency following the harmonization of financial reports after IFRS adoption. It also improved the effectiveness of executive management oversight, and supervisory framework consequently leading to high bank performance. Harmonization has also helped to improve with regard to equity cost, profitability and liquidity. Finally, it has improved their audit controls and corporate governance in the banking sector. Nevertheless, the First Bank of Nigeria has experienced a number of challenges associated with adoption of IFRS. Implementing IFRS require huge financial resources, which is used for training staff on the new international standards. Additionally, Nigerian banks experienced challenges related to the cost of disposing previous accounting packages. For these reasons, the government should ensure that the cost of IFRS implementation is lowered to facilitate less expensive training of staff. Finally, the authority should enhance the legal framework of auditing and accounting to safeguard the public interest.

nReasons for Harmonization in Nigeria

nNigeria is one of the developing nations in the world with a vibrant banking sector. A number of multinational companies have established businesses in Nigeria hence the need to streamline their accounting standards. Similarly, listed companies seek to achieve quality financial reporting. The International Accounting Standard Board (IASB) initiated the International Financial Reporting Standard in order to harmonize the standards of accounting in different countries such as Nigeria. The adoption of IFRS in Nigeria also provides a shared international language for organizations operations so that its accounts are comparable and understandable in all businesses (Owolabi & Iyoha, 2012). Multinationals in Nigeria are more likely to benefit from IFRS because they enhance their domestic trade and shareholding. Since IFRS inception in the country, they have continuously replaced a variety of domestic accounting standards. Most importantly, the IFRS encompasses the use of standards and regulations that accountant adhere to in order to safeguard their account books which are relevant, reliable, understandable, and comparable. In addition, the need to harmonize the accounting systems in Nigeria prompted many companies to embrace IFRS (Mirza & Ankarath, 2012). Since 2001, the IASB has unceasingly advanced the accounting standards, which are referred to as new IFRS. General Accepted Accounting Principles (GAAP) involving the stock market, company law, and accounting standards, regulations manage financial and accounting reporting (Yip & Young, 2012). The desirability of standardized accounting was very high in Nigeria in the past decade. Precisely, businesses in the country have realized the need for globalization. Since the globalization is compelling huge businesses to become multinationals, these firms existing globally have realized the importance of having uniform accounting standards, which lessen the burden of accountability (Owolabi & Iyoha, 2012).

nHarmonization of fiscal records in Nigeria is intended to minimize the gap in the process of fiscal reporting in the country. The aim is to accomplish some comparability level where financial statements are presented and prepared. When harmonization of domestic financial systems in Nigeria takes place, the challenges for individuals and organizations significantly reduce in delivering the financial statements and their inferences (Owolabi & Iyoha, 2012). Most of the multinational firms in Nigeria struggled to reduce the gap between fiscal reporting systems and accomplish global harmonization. In case, harmonization in Nigeria is accomplished, most of the companies especially in the banking sector would record a wide range of benefits since they would enhance the accessibility of global monetary markets and promote the knowledge and confidence of investors that may stimulate a rise in the number of future investments (Mirza & Ankarath, 2012).

nResearch has indicated that one of the most important reasons for harmonization in Nigeria is to realize comparability in the countrys fiscal statements especially among the listed companies. There are diverse financial reporting standards, the manner in which financial statements are presented and prepared are diverse from one another which increases their comparability (Yip & Young, 2012). In most cases, this is a common problem in Nigeria, especially among multinational firms in the country when they have different branches. When harmonization in Nigeria is accomplished, the comparability level in all these operating companies is raised helping the firms to plan and organize their financial statements pursuant to domestic rules (Mirza & Ankarath, 2012). In addition, it helps investors to make clear decisions based on the financial statements, which assist them to make informed decisions on investment in the country.

nAnother reason for harmonization in Nigeria is to raise the money saving capacities and auditing efficiency as an organization must apply a single type of reporting standards. Precisely, it is used to minimize the trade barriers among various sectors in the country, which play a major part in enabling high accessibility to the capital markets (Owolabi & Iyoha, 2012). Moreover, harmonization in the country is intended to achieve consistency because standards such as IFRS provide a single system of reporting. Notably, consistency is crucial in Nigerian financial reporting because it enables effective understanding between lenders, investors and other companies since a higher sense of predictability exists (Yip & Young, 2012). Furthermore, Nigerian firms working in diverse sectors can apply their systems and expertise to all areas they are doing business because of the consistency of financial reporting standards. Finally, harmonization is important because the duration needed to execute plans is reduced in new business in Nigeria, as there will be no necessity to adapt and learn specific rules in new area apart from minor adjustments. Therefore, IFRS has enhanced harmonization in the country, which is important for multinational firm wishing (Yip & Young, 2012).

nIssues in Harmonization of Nigeria

nFor a long time Nigerian banks have exhibited poor disclosures in undercapitalization, operational inefficiencies, and financial statement. Similarly, the banks were characterized by poor corporate governance mechanism that affects their performance and it was challenging to identify problems quickly. The standard and quality of financial reporting in the banking industry did not conform to the high quality of reporting in banks from developed countries such as in Europe (Yip & Young, 2012). Research indicated that Nigeria banking sector has experienced several reforms. For instance, the minimal banks capital was increase to $173 million from $14 million, which resulted to consolidation of many small banks. The Nigerian government also introduced special examination aiming to increase comparability and transparency of financial results (Adeuja, 2015).

nAlthough IFRS is important in harmonization of fiscal statements in Nigeria, it has several issues of concern. For instance, harmonization increases the challenges of accessing information from local accounting standards (Yip & Young, 2012). Reports indicate that the accounting system in Nigeria has different economic and social institutions, business and law practices, and political approaches from developed countries such as in European Union. Therefore is difficult to achieve a system of rule that can be similar to the rest of the world. However, even if it is accomplished, it can be less beneficial than it has been anticipated. In this regard, it implied that although harmonization in Nigeria is accomplished, it would be highly difficult to eradicate all gaps in its domestic reporting standards (Mirza & Ankarath, 2012).

nAdditionally, another issue affecting harmonization in Nigeria occurs when there is a diverse accounting policy, which may render IFRS impractical. For instance, Nigeria had set up its own financial practices such as SAS, which have been used for decades. Therefore, new processes of harmonization through IFRS have not been fully embraced hence it could be very dangerous to the country instead of improving its process (Odia & Ogiedu, 2013). In addition, different Nigerian companies have considered the new financial reporting standard irrelevant, hence it may facilitate complication and ambiguity of the reporting standards. The gaps witnessed in IFRS in Nigeria make it challenging to differentiate variations in the performance from the impacts emerging from the utilization of diverse accounting needs (Yip & Young, 2012).

nCase study to illustrate the success or failure of harmonization

nAdoption of IFRS in the First Bank of Nigeria

nFirst Bank of Nigeria Plc. is one of the banks in the country that have implemented the IFRS aiming to enhance its corporate governance levels. In addition, it meant to use IFS to strengthen transparency in the release of its fiscal reports. In so doing, the bank supported the best global standards of harmonization in monetary reporting (Chidiebere 2013). The significance for monetary records to be similar on the same basis in different territories is a vital concept in the contemporary international market where investors pursue opportunities in business outside their original economies (Chidiebere 2013).

nResearch indicates that since the First Bank adopted IFS it has succeeded in promoting shareholders value. Moreover, it has brought extra benefits to its business relationships with different international correspondent financial institutional, foreign investors and multinational companies that need fiscal records to make sound decisions concerning the bank (Chidiebere 2013). On the other hand, the IFRS has played a key part in releasing reports on risk management of the bank, variation in accounting laws, and insider linked transactions as compared to the period of domestic Statements of Accounting Standards (SAS).

nThe adoption of IFRS by First Bank of Nigeria Plc. has contributed to improve harmonization of fiscal reporting particularly among the multinational banks. The operations of bank in different markets are anticipated to match monetary statement of various branches organized using diverse local standards (Adeuja, 2015). Chebaane & Othman, (2014) noted that since the adoption of IFRS in Nigeria, First Bank Plc. has succeeded to minimize managerial projection errors. The scholars argued that the adoption required an efficient corporate governance process and better set of expertise and skills. Since the First Bank Plc. implemented the IFRS, it has also recorded improvement with regard to equity cost, profitability and liquidity (Chebaane & Othman, 2014).

nAccording to Chidiebere (2013), First Bank of Nigeria Plc. has witnessed improvement in the corporate governance since the implementation of IFRS (Chidiebere 2013). Research indicates that corporate governance is an important concept across the globe including in Nigerian listed companies such as First Bank of Nigeria (Adeuja, 2015). For a long period, the financial system in the country has experienced poor practices in corporate governance that have negatively affected the investors confidence in the capacity of the bank to accomplish its liabilities and assets. Reports indicated that Nigerian banks were characterized by widespread governance malpractices because of incapacity to offer quality audit system, poor risk management, unethical standards, unproductive board committees and uncontrolled interference from executives (Yip & Young, 2012). Prior to the enactment of IFRS, the First Bank of Nigeria Plc. has struggled to submit their fiscal reports timely and accurately to the Central Bank of Nigeria, hence; lowering the capacity to identify problems quickly. In addition, investors were denied the chance to make informed decisions on their investment (Madawaki, 2012).

nAfter convergence of IFRS into the First Bank of Nigeria Plc., it has improved its audit controls. In addition, the negligence of directors to observe proper standard practices and due diligence has improved in First Bank Plc. since the launch of IFRS. Moreover, proper corporate governance has played a major part in stability of the First Bank via effective resource management, banks asset preservation, ethical adherence and professional standards. Furthermore, the introduction of IFRS in the First Bank of Nigeria Plc. has increased the need to accomplish corporate objectives (Adeuja, 2015). Due to recent financial frauds and crisis, the quest for proper practices in corporate governance has been reawakened across the globe. Fortunately, the First Bank of Nigeria Plc. has improved on accountability and transparency following the harmonization of financial reports after IFRS adoption. It also improved the effectiveness of executive management oversight, and supervisory framework consequently leading to high bank performance (Madawaki, 2012).

nResearch indicated that the convergence to IFRS from Nigerian Generally Accepted Accounting Principles (NGAAP) was intended to enhance transparency, integrity, accountability, and comparability in monetary reporting. Scholars also implied that an international accounting standard has helped to increase in market liquidity, reduction in capital cost and lowering the cost of investor transaction Chebaane & Othman, (2014). Significantly, in the contemporary global economy, companies must strive to accomplish optimal gains of global listing since no country can function independently in its fiscal reporting.

nChallenges of IFRS implementation in First Bank of Nigeria

nRecent research indicates that the First Bank in the country have experienced many challenges in its attempt to meet IFRS requirement (Nyor, 2012). Some of the leading challenges include software problems, gaps between domestic and overseas standards, poor education and training as well as high cost of implementation. Adeuja, (2015) suggested that implementing IFRS require huge financial resources, which is used for training staff on the new international standards. Moreover, huge finances are required to acquire new accounting packages, which are required for the execution. Furthermore, the First bank of Nigeria experienced challenges related to the cost of disposing previous accounting packages, which are not harmonious with the IFRS (Adeuja, 2015). The bust is the cost tag of the abandoned SAS to embrace the new IFRS.

nThe First Bank of Nigeria Plc. has also suffered from challenges associated with educating and training staff and executive burdened with the role of organizing fiscal statement adhering to IFRS requirements (Abata, 2015). For this reasons, the First bank was forced to bare not only huge costs but also the amount of time that was wasted on this process. For instance, it had to prepare internal training, hold seminars and conferences intended to increase the understanding on the new international standards (Odia & Ogiedu, 2013). Moreover, there were gaps between the IFRS and the national standards (SAS) that created another problem on IFRS implementation in the Bank. Studies have noted that IFRS is less prescriptive as compared to SAS. Most of the standards in the new system differed significantly from the domestic GAAP. Moreover, IFRS has many accounting regulatory choices, which are incoherent with domestic laws of Companies and Allied Matters Act of 1991 (Yip & Young, 2012). Furthermore, IFRS require more disclosures as compared to SAS and it is different in terms of interpretation and application. Execution of IFRS has raised the importance of collection, analyses and dissemination of data within a firm for compliance (Nyor, 2012).

nConclusion

nFirst Bank of Nigeria has adopted the use of IFRS in order to harmonize the fiscal reporting systems. Since 2011, the bank has used the IFRS to bridge the gap between the local and international financial reporting. The First Bank of Nigeria Plc. has adopted the IFRS in order to converge monetary statements and to improve transparency and accountability. Moreover, it helped to enhance the quality of reports from the bank. Harmonization is intended to minimize the gap in the process of fiscal reporting around the world (Yip & Young, 2012). The aim is to accomplish some comparability level where financial statements are presented and prepared. Since the implementation of IFRS in First Bank of Nigeria Plc., the company has witnessed improvement of financial reporting especially among multinational transactions, ability to identify a problem in financial statement and better corporate governance (Adeuja, 2015). However, the implementation of IFRS among Nigerian banks has witnessed various strategies, which affect the effectiveness of the initiative. For instance, IFRS is expensive to implement because of the cost of training staff on the new system. In addition, the IFRS packages are quite expensive as compared to the SAS packages (Abata, 2015). Moreover, IFRS require more disclosures as compared to SAS and it is different in terms of interpretation and application. Execution of IFRS has raised the importance of collection, analyses and dissemination of data within a firm for compliance.

nRecommendations

nPursuant to the information on implementation of IFRS in the First Bank of Nigeria, a number of recommendations can be initiated. The recommendations can provide a beneficial inputs for embracing and executing a nation action plan in order to realized accounting reforms (Odia & Ogiedu, 2013). Firstly, the Central Bank of Nigerian (CBN) should enhance the legal framework of auditing and accounting to safeguard the public interest. In this regard, the Nigerian Accounting Standard Boards Act of 2003 should be amended to form Financial Reporting Act. Different regulations and laws must be revised to adhere to the proposed act. Secondly, the government should raise awareness of preparers, regulators, and professionals to reduce the knowledge gap. It should pay close attention on the need of fiscal records organized under IFRS system as well as the relevance of compliance with auditing and accounting requirements. The government should formulate an independent institution to assess and enforce auditing and accounting codes and standards. The proposed institution must be authorized to assess and enforce auditing and accounting needs based on general-purpose monetary records (Yip & Young, 2012). Furthermore, the CBN should reinforce professional training and education in the First Bank of Nigeria. The specialized accountancy organization must align their on-going expert training and education needs with IFRS requirements. For instance, business ethic must be taught as a distinct subject in accounting curricula, which helps the learners to acquire exposure to useful application to IFRC.

nThe law in Nigeria should also strengthen the ability of the statutory institutions and evaluate competence of regulatory enforcement necessities (Odia & Ogiedu, 2013). In this respect, the government should acquire appropriate procedures to reinforce the regulators capacity such as the Central Bank of Nigeria, National Insurance Commission, Securities and Exchange Commissions and Corporate Affairs Commission, which help them to adequately deal with financial and accounting reporting behaviours of listed companies (Abata, 2015). Finally, the government should ensure that the cost of IFRS implementation is lowered to facilitate less expensive training of staff.

nCompare IFRS and the First Bank of Nigeria

nIn accordance with the IFRS, the accompanying fiscal statements offer a fair and true view of the status of the monetary affairs of the First Bank of Nigeria as at December 2015. The elements of financial statement in the IFRS include income statement, financial position statement, explanatory notes, accounting policies and cash flow statements. In the First Bank of Nigeria, there were no guidance on special purpose entities (SPEs) and no consolidation occurred (FBN 2016). However, the IFRS provided consolidation where the indicators of the relationship show control. The IFRS is comparable to the First Bank of Nigeria because the presentation of associate result uses equity method, which indicates the share of post-tax outcome. In addition, both the comparative equity and consolidation methods are allowed. The IFRS can be compared to First Bank of Nigeria based on contingent consideration. It can be fairly valued at the acquisition date and recorded as equity or liability (FBN 2016). With regards to subsequent adjustments to liabilities and assets, both the First Bank of Nigeria and IFRS have a 12 month quantifying period where fair values can be completed and comparative time attuned.

nAccording to IFRS financial reports in 2016, the bank recorded a percentage rise in the gross earnings of 15.7 per cent as compared to the previous year. In particularly, the bank registered 581.8 billion Nairas as at December 2016 relative to 502.8 billion in the previous year (FBN 2016). Moreover, the net interest income also improved by approximately 14.8 per cent because of 22.4 per cent reduction in interest expenditure. Furthermore, the bank registered non-interest income of 165.5 billion in 2016, which represented an increase of 68.9 per cent. Most importantly, this could be accredited to the income from foreign income earnings, commission and fees income. The First Bank of Nigeria also reduced the operating cost in 2016 because it recorded a drop of 0.8 per cent although the operating environment had witnessed high inflation rate. The total operating expenses in 2016 were 220.9 billion as compared to 222.7 billion in 2016 (FBN 2016). It illustrated the effectives of the banks cost optimisation creativities and rising strengthening the operational efficiency of its business (FBN 2015). More importantly, in 2016, the bank earned a profit of 22.9 billion as compared to 21.6 billion in the previous year, which signifies an increase of 6.3 per cent. Customer deposits also increased by 4.5 per cent during the same period since in 2016 it as 3,104.3 billion as compare to 2,970.9 billion in 2015 (FBN 2016). The rise as attributed to introduction of suitable deposit mix at ideal price range. In terms of customer loans and advances, the First Bank of Nigeria had documented an improvement of 14.7 per cent, which was inspired by the conversion impact of the devaluation of national currency Naira (FBN 2015). On the other hand, with regard to return on average equity (ROE) the First Bank of Nigeria had an increase of 7.1 per cent which as caused by improvement in equity growth profitability. However, the return on average assets (ROA) stagnated at 0.4 per cent regardless of the challenging business and operating environment (FBN 2016).

nLessons Learnt from the Research

nBased on the above research, a number of lessons can be drawn. First, it is clear that IFRS plays an important part in harmonization of fiscal records in multinational companies such as First Bank of Nigeria. In addition, IFRS offers a wide range of benefits because it enhances corporate governance, achieve comparability, and organize their financial statements pursuant to consistent rules. More importantly, the First Bank of Nigeria has taken advantage of IFRS by saving and streamlining cost. Based on this research, it is also evident that implementation of these standards of accounting improves the quality of fiscal statement.

nOn the other hand, the study learnt that banks across the world experience numerous challenges associated with IFRS implementation. For instance, some of the banks such as First Bank of Nigeria suffer from poor policies put in place by governments. The lessons learnt from this research can establish that some of the challenges include high cost of implementation, insufficient time and lack of support from the relevant regulatory institutions. Finally, the challenge of implementing IFRS exists because of the inability to involve different stakeholders in decision making especially in developing countries such as Nigeria. Therefore, to enhance the adoption appropriate policies should be enacted. I also learnt that the law in Nigeria should also strengthen the ability of the statutory institutions and evaluate competence of regulatory enforcement necessities. In this respect, the government should acquire appropriate procedures to reinforce the regulators capacity such as the Central Bank of Nigeria, National Insurance Commission, Securities and Exchange Commissions and Corporate Affairs Commission, which help them to adequately deal with financial and accounting reporting behaviours of listed companies. Finally, the government should ensure that the cost of IFRS implementation is lowered to facilitate less expensive training of staff.

nI also learnt that the Nigerian government should pay close attention on the need of fiscal records organized under IFRS system as well as the relevance of compliance with auditing and accounting requirements. The government should formulate an independent institution to assess and enforce auditing and accounting codes and standards. The proposed institution must be authorized to assess and enforce auditing and accounting needs based on general-purpose monetary records (Yip & Young, 2012). Furthermore, the CBN should reinforce professional training and education in the First Bank of Nigeria. The specialized accountancy organization must align their on-going expert training and education needs with IFRS requirements. For instance, business ethic must be taught as a distinct subject in accounting curricula, which helps the learners to acquire exposure to useful application to IFRC.

nThe differences between GAAP and IFRS in Nigeria

nPreviously, Nigerian Financial institutions were using the Generally Accepted Accounting Principles (GAAP) prior to the adoption of the International Financial Reporting Standards (IFRS). GAAP is believed to be based on rules as compared to IFRS, which is based on principles. IFRS and GAAP differ in terms of performance elements, financial statements, inventory estimates, inventory reversal, and purpose of financial statements (Adekoya, 2011). Precisely, the Nigerian GAAP offers separate objectives for non-business and business entities, while the IFRS only has a single objective for every type of business. Another difference occurs in terms of their earnings presentation. Nigerian GAAP pays close attention on even earning results each year, which gives investors an idea of normalized reports. For instance, taxes are documented depending on the statutory rates hence does not consider what the company really paid. They are formulated to assist investors acquire an understanding on the mean taxation and capital spending for the organization (Adekoya, 2011).

nGAAP also needs financial statements to include equity changes, comprehensive income statements, income statements, and balance sheet and cash flow statements. Moreover, Nigerian GAAP demands that the balance sheet should distinct non-current and current liabilities and assets, and deferred taxes are incorporated with liabilities and assets. Moreover, minority interests are integrated in liabilities s a distinct line item (Adekoya, 2011). Contrary, Nigerian IFRS demands that all financial statement must include cash flow statement, equity changes, income statement, balance sheet and footnotes. The separation of noncurrent and current liabilities and assets is needed. Moreover, deferred taxes should be indicated as a discrete line element on the balance sheet. Minority interests are integrated in equity as a discrete line item (Adekoya, 2011).

nNigerian GAAP also differs in terms of their qualitative characteristics. In particular, the Nigerian GAAP develops a hierarchy of understandability, comparability, reliability and relevance. Reliability and relevance are primary characteristics while secondary qualities include comparability. Finally, understandability is considered a user-definite quality (Adekoya, 2011). It also outlines an asset as a forthcoming economic advantage. On the other hand, IFRS suggest that its conclusion cannot be determined by certain characteristics of personal users such as comparability, reliability or relevance (Adekoya, 2011). In addition, it outlines an asset as a means from which prospective economic advantage will flow to the firm.

nIssues of Coexistence between IFRS and Nigeria GAAP

nThe coexistence between IFRS and Nigeria GAAP provides several issues in the financial accounting systems in the country. Firstly, it creates gap in the country between the Nigeria GAAP and the IFRS. Consequently, it has significant effects on corporate management, setting accounting standards, accounting professional, stock markets and investors (Edogbanya & Kamardin, 2014). More importantly, coexistence between Nigeria GAAP and IFRS generates discrepancies in the financial reporting. The challenge becomes more compounded for investors attempting to detect the differences in the accounting reporting when they are deliberating on funding companies that are seeking capital. In addition, the challenge normally occur when such companies are using financial reporting and accounting standards of various levels (Odia, 2016). In most cases, GAAP provide compound set of rules trying to create criteria and rules for any emergency. However, the IFRS starts with the aim of proper reporting and then offer ways on how certain objectives associates to a particular condition (Edogbanya & Kamardin, 2014).

nCoexistences affects proper corporate management because of complex practices, rules, standards. In addition, it denies the corporate management the chance to generate capital via lower interest rates because it increases cost and risk in business (Odia, 2016). Moreover, Nigeria GAAP and IFRS coexistence also generate issues in the accounting professionals. For instance, it acts as a barrier to these experts because they are unable to study the new standards (Edogbanya & Kamardin, 2014). Subsequently, it causes inconsistencies in the accounting process. Research has indicated that such kind of inconsistences affects the global capital flow since it creates many challenges to investors who are willing to provide funds in Nigeria. Coexistences also affect the process of standard development, which in turn frustrates the process (Odia, 2016). Consequently, it consumes a lot of time because the real process of implementing and developing the IFRS will tougher. Research has also noted that the coexistences of Nigeria GAAP and IFRS may also nega