SEMINAR
PAPER PRESENTED IN PARTIAL FULFILLMENT FOR THE AWARD OF MASTER OF SCIENCE
(M.Sc.) DEGREE IN ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY
FACULTY OF MANAGEMENT SCIENCE
ABSTRACT
International
Financial Reporting Standards (IFRS) is being given global recognition, with a
view to ensuring consistency, in financial reporting. Arguably, the adoption of
International Financial Reporting Standard, (IFRS) makes the conduct of
international business easier as it facilitates the raising of fund in the
capital market. The objective of this
paper is to evaluate the implications of the adoption of international financial
standards (IFRS) on corporate governance practice. The paper examines empirical literature to
identify the effects of the adoption international financial reporting
standards on the existing corporate governance. The paper concludes that IFRS
will positively strengthen the exiting corporate governance practices in
Nigeria financial sector by giving room for transparent reporting of financial
information.
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TABLE OF CONTENTS
Abstract
Table
of Contents
CHAPTER ONE: INTRODUCTION
1.1
Background of the
Study
1.2
Reporting Format between GAAP and
IFRS
1.3 Statement of Problem
1.3 Objectives of the Study
CHAPTER TWO:
REVIEW OF RELATED LITERATURE
2.1 Introduction
2.2 Concept of Corporate Governance
2.3 Academic Review
2.4 Theoretical Framework
2.5 Link Between IFRS and Corporate
Governance
CHAPTER THREE: DISCUSSION
3.1 Introduction
3.2 Discussion
on the Strategies for Accomplishing
the Stated Objectives
3.3 Discussion of the Stated Theoretical
Framework
3.4 Discussion of the Reviewed Literature
3.5 GAPS in the Literature
CONCLUSION
REFERENCES
THE IMPLICATIONS OF THE ADOPTION OF
INTERNATIONAL FINICAL REPORTING STANDARDS ON CORPORATE GOVERNANCE IN THE
BANKING SECTOR IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
Prior to the advent of International
Financial reporting standard (IFRS) as a global reporting standard, every
country has it’s own standard accounting practice version of generally accepted
accounting principle (GAAP).
In Nigeria, the preparation of
entity’s financial statement was hitherto, based on her local statement of
Accounting standards (SASs) issued by Nigeria Accounting Standard board (NASB).
The statement of Accounting Standard which is a blue print from GAAP, usually
contain references at the concluding part of the standards to the effect that
each of the SASs accord substantially with the equivalent International Accounting
standard, Ogbonnaya (2004). This implies that, before the adoption of IFRS as a
global financial reporting standard, Nigeria’s Local statement of accounting
standard was prepared based on the International Accounting standard (IAS).
Despite the foregoing, differences exist between Nigeria’s SASs and the
International Accounting Standards (IAS). The 2003 & 2004 World Bank’s
report on the observance of standards and code (ROSc) in Nigeria (p.8); showed
that there is a gap when SASs are compared with their International equivalent.
It was found that even though; Nigeria’s SASs are based on IAS, the Accounting
Statements are outdated, and does not meet the needs of a modern financial
system. In the words of Folajimi (2011), the SAS does not inspire Investor’s
confidence, and hence, present obstacles to the growth and internalization of
Nigeria’s banking sector.
In the light of the above, financial
Statements are reconciled with different Nation’s Accounting Standards, hence
the need for a Universally accepted accounting Standard. IFRS sprang from the
need to harmonize the work of International Accounting standard committee
(IASC) and International Accounting standard Board (IASB) into a common framework
for global adoption Ojeka (2011).
With the globalization of the
capital market, there is the need for Nigeria to harmonize her accounting
standards in order to ensure comparability and reliability of accounting
Information. IFRS has been accepted as the basics for reporting in major
emerging international market. It is included in the Financial Stability Forum
(FSF) as one of the key standards for sound financial system and used by the World
Bank as part of it’s standards and codes initiative (SCI) Folajimi (2011). With the universal adoption of IFRS as a
global standard for preparation of financial statement investors can now
effectively do cross border business.
Today, more than 100 countries of the world
have adopted IFRS as a global financial reporting standard. In Nigeria, the adoption of IFRS is expected
to take place in four phases beginning with the public listed companies in
2011, significant public interest entities in 2012, other public interest
entities in 2013, and small and medium scale entities in 2014.
1.2 Reporting
Format Between GAAP and IFRS
There are differences in the reporting
format between the generally accepted accounting principle and the
international financial reporting Standard(IFRS).
Reporting Format: INCOME STATEMENT IFRS
There
is no prescribed format for the income statement. The entity should select a method of
presenting its expenses by either function or nature. Generally IFRS requires a minimum format of
presentation of the following items on the face of the income statement:
1. Revenue
2. Finance cost
3. Share of
post–tax result of associates and joint ventures associated for using the
equity.
4. Method
5. Tax expenses
6. Post
tax gains or loss attributable to the results and to re-measurement of
discontinued operations.
7. Profit and loss account for the period.
The portion of profit attributable
to the minority interest and to the parent entity is separately disclosed on
the face of the income statement as allocations of profit or loss for the
period.
GAAP: Presentation of Income statement
is done in one of two formats
1. A
single step format where all expenses are classified by function and are
deducted from total income to give income before tax.
2. A
multiple step format where cost of sales is deducted from sales to show grow
profit and other income and expense are then presented to give income before
tax.
1.3 Statement
of Problem
Recently, the central Bank of
Nigeria (CBN) rescued Eight commercial banks after the consolidations exercise.
The consolidation of banks in Nigeria perhaps, contributed to restore the
confidence of the investing public in the banking industry. On the other hand,
the recent development in the banking industry that affected the eight
commercial banks which had been given a clean bill of health by the apex bank
is perhaps an indication of weakness in corporate governance and risk
management practices.
In the same vein, some of the
rescued banks hide multibillion naira losses in deferred taxes Business (2011).
This is done to deceive investors
and the general public who accept accounting Information as contained in the
entity’s financial statements as the ultimate truth. Indeed, the present
accounting systems of most banks is such that a lot of things are hidden which
analysts will not be able to see Sanusi (2010).
The worrisome reality is that Nigeria is yet to
embrace with the global trends in accounting principles. Before the
introduction of IFRS in Nigeria, perhaps, there has been in existence the code
corporate governance and code of best practices, yet the country has unarguably
witnessed cases of banks and institutional failures arising from problems of
technical financial distress, unprofessional and unethical practice and
standards.
It therefore, makes a research sense
to find out, whether the corporate governance practices have failed, and if
not, what is likely the effect of the adoption of IFRS on the existing
corporate governance practices in Nigeria Banking Sector.
It is based on the above stated
problems and question, that this study seeks to address.
1.3 Objectives
of the Study
The broad objective of this study is
to analyze the implications of the adoption of International finical reporting
standards on corporate governance in the banking sector in Nigeria while the
specific objectives include;
(i) To
determine the effectiveness of corporate governance practices in Nigeria.
(ii) To
ascertain the influence of IFRS adoption on the existing corporate governance
practices.